Medicaid Program; Medicaid and Children's Health Insurance Plan (CHIP) Managed Care

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 438 and 457

[CMS-2408-P]

RIN 0938-AT40

Medicaid Program; Medicaid and Children's Health Insurance Plan (CHIP) Managed Care

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule advances CMS' efforts to streamline the Medicaid and Children's Health Insurance Plan (CHIP) managed care regulatory framework and reflects a broader strategy to relieve regulatory burdens; support state flexibility and local leadership; and promote transparency, flexibility, and innovation in the delivery of care. These proposed revisions of the Medicaid and CHIP managed care regulations are intended to ensure that the regulatory framework is efficient and feasible for states to implement in a cost-effective manner and ensure that states can implement and operate Medicaid and CHIP managed care programs without undue administrative burdens.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on January 14, 2019.

ADDRESSES:

In commenting, please refer to file code CMS-2408-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):

1.

Electronically.

You may submit electronic comments on this regulation to

http://www.regulations.gov.

Follow the “Submit a comment” instructions.

2.

By regular mail.

You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2408-P, P.O. Box 8016, Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.

By express or overnight mail.

You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2408-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

John Giles, (410) 786-1255, for Medicaid Managed Care Operations.

Jennifer Sheer, (410) 786-1769, for the Medicaid Managed Care Quality provisions.

Melissa Williams, (410) 786-4435, for the CHIP provisions.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received:

http://www.regulations.gov.

Follow the search instructions on that website to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

I. Medicaid Managed Care

A. Background

States may implement a managed care delivery system using four types of federal authorities—sections 1915(a), 1915(b), 1932(a), and 1115(a) of the Social Security Act (the Act); each is described briefly below.

Under section 1915(a) of the Act, states can implement a voluntary managed care program by executing a contract with organizations that the state has procured using a competitive procurement process. To require beneficiaries to enroll in a managed care program to receive services, a state must obtain approval from CMS under two primary authorities:

• Through a state plan amendment that meets standards set forth in section 1932(a) of the Act, states can implement a mandatory managed care delivery system. This authority does not allow states to require beneficiaries who are dually eligible for Medicare and Medicaid (dually eligible), American Indians/Alaska Natives (except as permitted in section 1932(a)(2)(C) of the Act), or children with special health care needs to enroll in a managed care program. State plans, once approved, remain in effect until modified by the state.

• We may grant a waiver under section 1915(b) of the Act, permitting a state to require all Medicaid beneficiaries to enroll in a managed care delivery system, including dually eligible beneficiaries, American Indians/Alaska Natives, or children with special health care needs. After approval, a state may operate a section 1915(b) waiver for a 2-year period (certain waivers can be operated for up to 5 years if they include dually eligible beneficiaries) before requesting a renewal for an additional 2- (or 5-) year period.

We may also authorize managed care programs as part of demonstration projects under section 1115(a) of the Act that include waivers permitting the state to require all Medicaid beneficiaries to enroll in a managed care delivery system, including dually eligible beneficiaries, American Indians/Alaska Natives, and children with special health care needs. Under this authority, states may seek additional flexibility to demonstrate and evaluate innovative policy approaches for delivering Medicaid benefits, as well as the option to provide services not typically covered by Medicaid. Such flexibility is approvable only if the objectives of the Medicaid statute are likely to be met, and the demonstration is subject to evaluation.

These authorities may permit states to operate their programs without complying with the following standards of Medicaid law outlined in section of 1902 of the Act:

•

Statewideness

[section 1902(a)(1) of the Act]: States may implement a managed care delivery system in specific areas of the State (generally counties/parishes) rather than the whole state;

•

Comparability of Services

[section 1902(a)(10) of the Act]: States may provide different benefits to people enrolled in a managed care delivery system; and

•

Freedom of Choice

[section 1902(a)(23)(A) of the Act]: States may generally require people to receive their Medicaid services only from a managed care plan's network of providers or primary care provider.

In the May 6, 2016

Federal Register

(81 FR 27498), we published the “Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP

Delivered in Managed Care, and Revisions Related to Third Party Liability” final rule (hereinafter referred to as “the 2016 final rule”) that modernized the Medicaid and CHIP managed care regulations to reflect changes in the use of managed care delivery systems. The 2016 final rule aligned many of the rules governing Medicaid and CHIP managed care with those of other major sources of coverage; implemented applicable statutory provisions; strengthened actuarial soundness payment provisions to promote the accountability of managed care program rates; strengthened efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries; and enhanced policies related to program integrity.

In the January 18, 2017

Federal Register

(82 FR 5415), we published the “Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems” final rule (the 2017 pass-through payments final rule) that made changes to the pass-through payment transition periods and the maximum amount of pass-through payments permitted annually during the transition periods under Medicaid managed care contract(s) and rate certification(s). That final rule prevented increases in pass-through payments and the addition of new pass-through payments beyond those in place when the pass-through payment transition periods were established in the final Medicaid managed care regulations.

Since publication of the 2016 final rule, the landscape for healthcare delivery continues to change, and states are continuing to work toward reforming healthcare delivery systems to address the unique challenges and needs of their local citizens. To that end, the Department of Health and Human Services (HHS) and CMS issued a letter

1

to the nation's Governors on March 14, 2017, affirming the continued HHS and CMS commitment to partnership with states in the administration of the Medicaid program, and noting key areas where we would improve collaboration with states and move toward more effective program management. In that letter, we committed to a thorough review of the managed care regulations to prioritize beneficiary outcomes and state priorities.

1

Letter to the nation's Governors on March 14, 2017:

https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

Since our issuance of that letter, stakeholders have expressed that the current federal regulations are overly prescriptive and add costs and administrative burden to state Medicaid programs with little improvements in outcomes for beneficiaries. As part of the agency's broader efforts to reduce administrative burden, we undertook a review to analyze the current managed care regulations to ascertain if there were ways to achieve a better balance between appropriate federal oversight and state flexibility, while also maintaining critical beneficiary protections, ensuring fiscal integrity, and improving the quality of care for Medicaid beneficiaries. This proposed rule is the result of that review and seeks to streamline the managed care regulations by reducing unnecessary and duplicative administrative burden and further reducing federal regulatory barriers to help ensure that state Medicaid agencies are able to work efficiently and effectively to design, develop, and implement Medicaid managed care programs that best meet each state's local needs and populations.

B. Provisions of the Proposed Rule

This preamble discusses our proposed changes in the context of the current law. Throughout this document, the term “PAHP” is used to mean a prepaid ambulatory health plan that does not exclusively provide non-emergency medical transportation services. Whenever this document is referencing a PAHP that exclusively provides non-emergency medical transportation services, it would be specifically addressed as a “Non-Emergency Medical Transportation (NEMT) PAHP.”

1. Standard Contract Requirements (§ 438.3)

In the 2016 final rule, we added a new provision at 42 CFR 438.3(t) requiring that contracts with a managed care organization (MCO), prepaid inpatient health plan (PIHP), or PAHP that cover Medicare-Medicaid dually eligible enrollees provide that the MCO, PIHP, or PAHP sign a Coordination of Benefits Agreement (COBA) and participate in the automated crossover claim process administered by Medicare. The purpose of this provision was to promote efficiencies for providers by allowing providers to bill once, rather than sending separate claims to Medicare and the Medicaid MCO, PIHP, or PAHP.

Since publication of the 2016 final rule, we have heard from a number of states that, prior to the rule, had effective processes in place to identify and send appropriate crossover claims to their managed care plans from the crossover file the states received from us. Medicaid beneficiaries can be enrolled in multiple managed care plans and/or the state's fee-for-service (FFS) program. For example, a beneficiary may have medical care covered by an MCO, dental care covered by a PAHP, and behavioral health care covered by the state's FFS program. However, when a managed care plan enters into a crossover agreement with Medicare, as required in § 438.3(t), we then send crossover claims for Medicaid managed care enrollees of that plan to the managed care plans, as well as to the state Medicaid agency. When this occurs, the managed care plan(s) may receive claims for services that are not the contractual responsibility of the managed care plan. Additionally, states noted that having all claims sent to the managed care plan(s) can result in some claims being sent to the wrong plan when beneficiaries change plans. These states have expressed that to discontinue existing effective processes for routing crossover claims to their managed care plans to comply with this provision adds unnecessary costs and burden to the state and plans, creates confusion for payers and providers, and delays provider payments.

To address these concerns, we propose to revise § 438.3(t) to remove the requirement that managed care plans must enter into a COBA directly and instead would require contracts with managed care plans to specify the methodology by which the state would ensure that the managed care plans receive all appropriate crossover claims for which they are responsible. Under this proposal, states would be able to determine the method that best meets the needs of their program, whether by requiring the managed care plans to enter into a COBA and participate in the automated claims crossover process directly or by using an alternative method by which the state forwards appropriate crossover claims it receives from Medicare to each MCO, PIHP, or PAHP. Additionally, we propose to include a requirement that, if the state elects to use a methodology other than requiring the MCO, PIHP, or PAHP to enter into a COBA with Medicare, that methodology must ensure that the submitting provider is promptly informed on the state's remittance advice that the claim has been sent to the MCO, PIHP, or PAHP for payment consideration.

2. Actuarial Soundness Standards (§ 438.4)

a. Option To Develop and Certify a Rate Range (§ 438.4(c))

As noted in the 2016 final rule, before the 2016 final rule was published, we

considered any capitation rate paid to a managed care plan that fell anywhere within the certified rate range to be actuarially sound (81 FR 27567). However, to make the rate setting and the rate approval process more transparent, we changed that process in the 2016 final rule at § 438.4 to require that states develop and certify as actuarially sound each individual rate paid per rate cell to each MCO, PIHP, or PAHP with enough detail to understand the specific data, assumptions, and methodologies behind that rate (81 FR 27567). We noted that states could continue to use rate ranges to gauge an appropriate range of payments on which to base negotiations with an MCO, PIHP, or PAHP, but would have to ultimately provide certification to CMS of a specific rate for each rate cell, rather than a rate range (81 FR 27567). We believed that this change would enhance the integrity of the Medicaid rate-setting process and align Medicaid policy more closely with actuarial practices used in setting rates for non-Medicaid plans (81 FR 27568).

Since publication of the 2016 final rule, we have heard from stakeholders that the requirement to certify a capitation rate per rate cell, rather than to certify a rate range, has the potential to diminish states' ability to obtain the best rates when contracts are procured through competitive bidding. For example, we heard from one state that historically competitively bid the administrative component of the capitation rate that the requirement to certify a capitation rate per rate cell would not permit the state, and therefore, the federal government, to realize a lower rate that could have been available through the state's previous procurement process. States that negotiate dozens of managed care plans' rates annually have also cited the potential burden associated with losing the flexibility to certify rate ranges. Our 2016 Medicaid Managed Care Enrollment Report shows that 15 states submitted rate certifications on 20 plans or more, and one state (California) submitted rate certifications for 130 plans.

2

States have claimed that the elimination of rate ranges could potentially increase administrative costs and burden to submit separate rate certifications and justifications for each capitation rate paid per rate cell.

2

See

2016 Medicaid Managed Care Enrollment Report, Table 5 Enrollment by Program and Plan as of 2016, pages 24-84,

available at https://www.medicaid.gov/medicaid/managed-care/enrollment/index.html.

To address states' concerns while ensuring that rates are actuarially sound and federal resources are spent appropriately, we propose to add § 438.4(c) to provide an option for states to develop and certify a rate range per rate cell within specified parameters. We have designed our proposal to address our previously articulated concerns over the lack of transparency when large rate ranges were used by states to increase or decrease rates paid to the managed care plans without providing further notification to CMS or the public of the change. The proposed rate range option at new paragraph (c) would allow states to certify a rate range per rate cell subject to specific limits and would require the submission of a rate recertification if the state determines that changes are needed within the rate range during the rate year. Under our proposal, an actuary must certify the upper and lower bounds of the proposed rate range as actuarially sound.

Specifically in § 438.4(c)(1), we propose the specific parameters for the use of rate ranges: (1) The rate certification identifies and justifies the assumptions, data, and methodologies specific to both the upper and lower bounds of the rate range; (2) the upper and lower bounds of the rate range are certified as actuarially sound consistent with the requirements of part 438; (3) the upper bound of the rate range does not exceed the lower bound of the rate range multiplied by 1.05; (4) the rate certification documents the state's criteria for paying MCOs, PIHPs, and PAHPs at different points within the rate range; and (5) compliance with specified limits on the state's ability to pay managed care plans at different points within the rate range. States using this option would be prohibited from paying MCOs, PIHPs, and PAHPs at different points within the certified rate range based on the willingness or agreement of the MCOs, PIHPs, or PAHPs to enter into, or adhere to, intergovernmental transfer (IGT) agreements, or the amount of funding the MCOs, PIHPs, or PAHPs provide through IGTs. We are proposing these specific conditions and limitations on the use of rate ranges to address our concerns noted above; that is, that rates are actuarially sound and ensure appropriate stewardship of federal resources, while also permitting limited state flexibility to use certified rate ranges. We believe that the conditions and limitations on the use of rate ranges as set forth in this proposed rule strike the appropriate balance between prudent fiscal and program integrity and state flexibility. We invite comment on these specific proposals and whether additional conditions should be considered to ensure that rates are actuarially sound. Finally, we would like to emphasize that this proposal would require states to demonstrate in their rate certification how the upper and lower bounds of the rate range are actuarially sound.

Under proposed § 438.4(c)(2)(i), states certifying a rate range would be required to document the capitation rates, prior to the start of the rating period for the applicable MCO, PIHP, and PAHP, at points within the certified rate range consistent with the state's criteria in proposed paragraph (c)(1)(iv). States electing to use a rate range would have to submit rate certifications to CMS prior to the start of the rating period and they must comply with all other regulatory requirements including § 438.4, except § 438.4(b)(4) as specified. During the contract year, states using the rate range option in § 438.4(c)(1) would not be able to modify capitation rates within the plus or minus 1.5 percent range allowed under § 438.7(c)(3); we propose to codify this as § 438.4(c)(2)(ii). This proposed provision would enable CMS to give states the flexibility and administrative simplification to use certified rate ranges. While the use of rate ranges is not standard practice in rate development, this proposed change aligns with standard rate development practices by requiring recertification when states elect to modify capitation rates within a rate range during the rating year. States wishing to modify the capitation rates within a rate range during the rating year would be required, in proposed § 438.4(c)(2)(iii), to provide a revised rate certification demonstrating that the criteria for initially setting the rate within the range, as described in the initial rate certification, were not applied accurately; that there was a material error in the data, assumptions, or methodologies used to develop the initial rate certification and that the modifications are necessary to correct the error; or that other adjustments are appropriate and reasonable to account for programmatic changes.

We acknowledge that our proposal has the potential to reintroduce some of the risks that were identified in the 2016 final rule related to the use of rate ranges in the Medicaid program. In the 2016 final rule, we generally prohibited the use of rate ranges, including changes limited to a de minimis plus or minus 1.5 percent range permitted under § 438.7(c)(3) that was finalized in the rule to provide some administrative relief to states with respect to small changes in the capitation rates, to eliminate any potential ambiguity in

rate setting and to be consistent with our goal to make the rate setting and rate approval processes more transparent. We specifically noted in the 2016 final rule that states have used rate ranges to increase or decrease rates paid to the managed care plans without providing further notification to CMS or the public of the change or certification that the change was based on actual experience incurred by the MCOs, PIHPs, or PAHPs that differed in a material way from the actuarial assumptions and methodologies initially used to develop the capitation rates (81 FR 27567-27568).

We further noted in the 2016 final rule that the prohibition on rate ranges was meant to enhance the integrity and transparency of the rate setting process in the Medicaid program, and to align Medicaid policy more closely with the actuarial practices used in setting rates for non-Medicaid health plans. We noted that the use of rate ranges was unique to Medicaid managed care and that other health insurance products that are subject to rate review submit and justify a specific premium rate. We stated in the 2016 final rule our belief that once a managed care plan has entered into a contract with the state, any increase in funding for the contract should correspond with something of value in exchange for the increased capitation payments. We also provided additional context that our policy on rate ranges was based on the concern that some states have used rate ranges to increase capitation rates paid to managed care plans without changing any obligations within the contract or certifying that the increase was based on managed care plans' actual expenses during the contract period. In the 2016 final rule, we reiterated that the prohibition on rate ranges was consistent with the contracting process where managed care plans are agreeing to meet obligations under the contract for a fixed payment amount (81 FR 27567-27568).

The specific risks described above are still concerns for CMS, as such we have proposed specific conditions and limitations on the use of rate ranges in this proposed rule to address our concerns. Our rate range proposal is intended to prevent states from using rate ranges to shift costs to the federal government. There are some states that currently make significant retroactive changes to the contracted rates at or after the end of the rating period. As we noted in the 2016 final rule, we do not believe that these changes are made to reflect changes in the underlying assumptions used to develop the rates (for example, the utilization of services, the prices of services, or the health status of the enrollee), but rather we are concerned that these changes are used to provide additional reimbursements to the plans or to some providers (81 FR 27834). Additionally, we believe the rate ranges compliant with our proposal will be actuarially sound, unlike the rate ranges that were permissible prior to the 2016 final rule. As noted in the 2016 final rule, 14 states used rate ranges with a width of 10 percent or smaller (that is, the low end and the high end of the range were within 5 percent of the midpoint of the range), but in some states, the ranges were as wide as 30 percent (81 FR 27834). We believe that our proposal would limit excessive ranges because proposed § 438.4(c)(1)(i) and (ii) would require the upper and lower bounds of the rate range to be certified as actuarially sound and that the rate certification would identify and justify the assumptions, data, and methodologies used to set the bounds. While we believe that this proposal would strike the right balance between state flexibility and our statutory responsibility to ensure that managed care capitation rates are actuarially sound, we also understand that our proposed approach may reintroduce undue risk in Medicaid rate-setting.

Therefore, we are requesting public comments on our proposal in general and on our proposed approach. We request public comment on the value of the additional state flexibility described in this proposal relative to the potential for the identified risks described here and in the 2016 final rule, including other unintended consequences that could arise from this proposal that we have not yet identified or described. We request public comment on whether additional conditions or limitations on the use of rate ranges would be appropriate to help mitigate the risks we have identified. We also request public comment from states on the utility of state flexibility in this area—specifically, we are asking states to provide specific comments about their policy needs and clear explanations describing how utilizing rate ranges effectively meets these needs or whether current regulatory requirements on rate ranges are sufficiently flexible to meet their needs. We are also asking states to provide quantitative data to help CMS quantify the benefits and risks associated with this proposal. We also encourage states and other stakeholders to comment on the need, benefits, risks, and proposed risk mitigations described in this proposed revision.

b. Capitation Rate Development Practices That Increase Federal Costs and Vary With the Rate of Federal Financial Participation (FFP) (§ 438.4(b)(1) and (d))

In the 2016 final rule, at § 438.4(b), we set forth the standards that capitation rates must meet to be approved as actuarially sound capitation rates eligible for FFP under section 1903(m) of the Act. Section 438.4(b)(1) requires that capitation rates be developed in accordance with generally accepted actuarial principles and practices and meet the standards described in § 438.5 dedicated to rate development standards. In the 2016 final rule (81 FR 27566), we acknowledged that states may desire to establish minimum provider payment rates in the contract with the managed care plan. We also explained that because actuarially sound capitation rates must be based on the reasonable, appropriate, and attainable costs under the contract, minimum provider payment expectations included in the contract would necessarily be built into the relevant service components of the rate. However, we finalized in the regulation at § 438.4(b)(1) a prohibition on different capitation rates based on the FFP associated with a particular population as part of the standards for capitation rates to be actuarially sound. We explained in the 2015 proposed rule (80 FR 31120) that different capitation rates based on the FFP associated with a particular population represented cost-shifting from the state to the federal government and were not based on generally accepted actuarial principles and practices.

In the 2016 final rule (81 FR 27566), we adopted § 438.4(b)(1) largely as proposed and provided additional guidance and clarification in response to public comments. We stated that the practice intended to be prohibited in § 438.4(b)(1) was variance in capitation rates per rate cell that was due to the different rates of FFP associated with the covered populations. We also provided an example in the 2016 final rule. In the example, we explained that we have seen rate certifications that set minimum provider payment requirements or established risk margins for the managed care plans only for covered populations eligible for higher percentages of FFP. We provided in the final rule that such practices, when not supported by the application of valid rate development standards, were not permissible. We further explained that the regulation would not prohibit the state from having different capitation rates per rate cell based on differences

in the projected risk of populations under the contract or based on different payment rates to providers that were required by federal law (for example, section 1932(h) of the Act). In the 2016 final rule, we stated that, as finalized, § 438.4(b)(1) provided that any differences among capitation rates according to covered populations must be based on valid rate development standards and not on network provider reimbursement requirements that apply only to covered populations eligible for higher percentages of FFP (81 FR 27566).

Since publication of the 2016 final rule, we have continued to hear from stakeholders that more guidance is needed regarding the regulatory standards finalized in § 438.4(b)(1). At least one state has indicated that if arrangements that vary provider reimbursement pre-date the differences in FFP for different covered populations, the regulation should not be read to prohibit the resulting capitation rates. While we believe that the existing text of § 438.4(b)(1) is sufficiently clear, we also want to be responsive to the comments from stakeholders and to eliminate any potential loophole in the regulation. Therefore, we are proposing to revise § 438.4(b)(1) and to add a new paragraph § 438.4(d) to clearly specify our standards for actuarial soundness. First and foremost, we are not changing the existing regulatory standard or text in § 438.4(b)(1) that capitation rates must have been developed in accordance with the standards specified in § 438.5 and generally accepted actuarial principles and practices. We are proposing to revise the remainder of § 438.4(b)(1).

We are proposing that any differences in the assumptions, methodologies, or factors used to develop capitation rates for covered populations must be based on valid rate development standards that represent actual cost differences in providing covered services to the covered populations. Further, we are proposing that any differences in the assumptions, methodologies, or factors used to develop capitation rates must not vary with the rate of FFP associated with the covered populations in a manner that increases federal costs consistent with proposed § 438.4(d) described below. This proposal is intended to eliminate any ambiguity in the regulation and clearly specify our intent that variation in the assumptions, methodologies, and factors used to develop rates must be tied to actual cost differences and not to any differences that increase federal costs and vary with the rate of FFP. We intend the phrase “assumptions, methodologies, and factors” to cover the methods and data used to develop the actuarially sound capitation rates.

In conjunction with our proposed revisions to § 438.4(b)(1), we are also proposing a new paragraph (d) in this section to provide specificity regarding the rate development practices that increase federal costs and vary with the rate of FFP. We are proposing in § 438.4(d) a regulatory requirement that requires an evaluation of any differences in the assumptions, methodologies, or factors used to develop capitation rates for MCOs, PIHPs, and PAHPs that increase federal costs and vary with the rate of FFP associated with the covered populations. This evaluation must be conducted for the entire managed care program and include all managed care contracts for all covered populations. We are proposing to require this evaluation across the entire managed care program and all managed care contracts for all covered populations to protect against state managed care contracting practices that may cost-shift to the federal government. Specifically, this would entail comparisons of each managed care contract to others in the state's managed care program to ensure that variation among contracts does not include rate setting methods or policies that would be prohibited under this proposal.

Additionally, we are proposing at § 438.4(d)(1) regulation text to clearly list certain rate development practices that increase federal costs and are prohibited under our proposal for § 438.4(b)(1) and (d): (1) A state may not use higher profit margin, operating margin, or risk margin when developing capitation rates for any covered population, or contract, than the profit margin, operating margin, or risk margin used to develop capitation rates for the covered population, or contract, with the lowest average rate of FFP; (2) a state may not factor into the development of capitation rates the additional cost of contractually required provider fee schedules, or minimum levels of provider reimbursement, above the cost of similar provider fee schedules, or minimum levels of provider reimbursement, used to develop capitation rates for the covered population, or contract, with the lowest average rate of FFP; and (3) a state may not use a lower remittance threshold for a medical loss ratio for any covered population, or contract, than the remittance threshold used for the covered population, or contract, with the lowest average rate of FFP. We are proposing § 438.4(d)(1) to be explicitly clear about certain rate development practices that increase federal costs and vary with the rate of FFP. We note that this proposal would explicitly prohibit these specific rate development practices under any and all scenarios, and under this proposal, we would find these rate development practices to be in violation of our regulatory standards for actuarially sound capitation rates; we also note that the rate development practices proposed under § 438.4(d)(1) are not intended to represent an exhaustive list of practices that increase federal costs and vary with the rate of FFP, as we recognize that there may be additional capitation rate development practices that have the same effect and would also be prohibited under this proposed rule. We believe that this proposal will ensure that our regulatory standards for actuarial soundness are consistent with our intent, and that cost-shifting from the state to the federal government does not occur.

Finally, in proposed § 438.4(d)(2), we are proposing to specify that CMS may require a state to provide written documentation and justification, during our review of a state's capitation rates, that any differences in the assumptions, methodologies, or factors used to develop capitation rates for covered populations or contracts, not otherwise referenced in proposed (d)(1), represent actual cost differences based on the characteristics and mix of the covered services or the covered populations. This proposal is consistent with our proposal at § 438.7(c)(3), to add regulatory text to specify that the adjustments to capitation rates would also be subject to the requirements at § 438.4(b)(1), and to require a state to provide documentation for adjustments permitted under proposed § 438.7(c)(3) to ensure that modifications to a final certified capitation rate comply with our proposed regulatory requirements. We are specifically requesting public comments on these proposed revisions to § 438.4(b)(1) and new proposed § 438.4(d), including on whether these proposed changes are sufficiently clear regarding the rate development practices that are prohibited in § 438.4(b)(1).

3. Rate Development Standards: Technical Correction (§ 438.5(c)(3)(ii))

In the 2016 final rule, we finalized at § 438.5(c)(3) an exception to the base data standard at § 438.5(c)(2) in recognition of circumstances where states may not be able to meet the standard at (c)(2). We explained in the 2016 final rule preamble (81 FR 27574) that states requesting the exception under § 438.5(c)(3) must submit a description of why the exception is

needed and a corrective action plan detailing how the state would bring their base data into compliance no more than 2 years after the rating period in which the deficiency was discovered.

Regrettably, the regulation text regarding the corrective action timeline at § 438.5(c)(3)(ii) was not as consistent with the preamble or as clear as we intended. The regulation text finalized in 2016 provides that the state must adopt a corrective action plan to come into compliance “no later than 2 years from the rating period for which the deficiency was identified.” The preamble text described the required corrective action plan as detailing how the problems “would be resolved in no more than 2 years after the rating period in which the deficiency was discovered.” This discrepancy resulted in ambiguity that confused some stakeholders as to when the corrective action plan must be completed and their base data must be in compliance. To remove this ambiguity, we propose to replace the word “from” at § 438.5(c)(3)(ii) with the phrase “after the last day of.” We also note that the preamble used the term “discovered”, while the regulatory text used the term “identified.” We propose to retain the term “identified” in the regulatory text since we believe this term is more appropriate in this context. We believe that this proposed change would clarify the corrective action plan timeline for states to achieve compliance with the base data standard; that is, states would have the rating year for which the corrective action period request is made, plus 2 years following that rating year to develop rates using the required base data. For example, if the state's rate development for calendar year 2018 does not comply with the base data requirements, the state would have 2 calendar years after the last day of the 2018 rating period to come into compliance. This means that the state's rate development for calendar year 2021 would need to use base data that is compliant with § 438.5(c)(2).

We solicit comment on our proposal and whether any additional clarification is necessary.

4. Special Contract Provisions Related to Payment (§ 438.6)

a. Risk-Sharing Mechanism Basic Requirements (§ 438.6(b))

In the “Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability” proposed rule (the 2015 proposed rule) (80 FR 31098, June 1, 2015), we proposed to redesignate the basic requirements for risk contracts previously in § 438.6(c)(2) as § 438.6(b). In § 438.6(b)(1), we proposed a non-exhaustive list of risk-sharing mechanisms (for example, reinsurance, risk corridors, and stop-loss limits) and required that all such mechanisms be specified in the contract. In the preamble, we stated our intent to interpret and apply § 438.6(b)(1) to any mechanism or arrangement that has the effect of sharing risk between the MCO, PIHP, or PAHP, and the state (80 FR 31122). We did not receive comments on paragraph (b)(1) and finalized the paragraph as proposed in the 2016 final rule (81 FR 27578) with one modification.

In the 2016 final rule, we included at § 438.6(c)(5)(i) the standard from the then-current rule (adopted in 2002 in the “Medicaid Program; Medicaid Managed Care: New Provisions” final rule (67 FR 40989, June 14, 2002) (hereinafter referred to as the “2002 final rule”)) that risk-sharing mechanisms must be computed on an actuarially sound basis. That element of the 2016 final rule was inadvertently omitted in the 2015 proposed rule. As managed care contracts are risk-based contracts, mechanisms that share or distribute risk between the state and the managed care plan are inherently part of the capitation rates paid to plans for bearing the risk. Therefore, the risk-sharing mechanisms should be developed in conjunction with the capitation rates and using the same actuarially sound principles and practices.

Risk-sharing mechanisms are intended to address the uncertainty inherent in setting capitation rates prospectively. As such, we expected states to identify and apply risk-sharing requirements prior to the start of the rating period. Because we believed that the final rule was clear on the prospective nature of risk-sharing and our expectations around the use of risk-sharing mechanisms, we did not specifically prohibit retroactive use. However, since publication of the 2016 final rule, we have found that some states have applied new or modified risk-sharing mechanisms retrospectively; for example, some states have sought approval to change rates after the claims experience for a rating period became known to the state and the managed care plan. We acknowledge the challenges in setting prospective capitation rates and encourage the use of appropriate risk-sharing mechanisms. In selecting and designing risk-sharing mechanisms, states and their actuaries are required to only use permissible strategies, use appropriate utilization and price data, and establish reasonable risk-sharing assumptions.

Despite a state's best efforts to set accurate and appropriate capitation rates, unexpected events can occur during a rating period that necessitate a retroactive adjustment to the previously paid rates. When this occurs, § 438.7(c)(2) provides the requirements for making a retroactive rate adjustment. Section 438.7(c)(2) clarifies that the retroactive adjustment must be supported by an appropriate rationale and that sufficient data, assumptions, and methodologies used in the development of the adjustment must be described in sufficient detail and submitted in a new rate certification along with the contract amendment.

To address the practice of adopting or amending risk-sharing mechanisms retroactively, we propose to amend § 438.6(b)(1) to require that risk-sharing mechanisms be documented in the contract and rate certification documents prior to the start of the rating period. As described in the 2017 Medicaid Managed Care Rate Development Guide,

3

we believe it is important to include a description in the rate certification, especially if the development of risk-sharing mechanisms has any implications for the Medical Loss Ratio (MLR) and items that factor into the assumptions for certification of the final capitation rate for each risk contract. To ensure clarity, we are also proposing to amend the regulation at § 438.6(b)(1) to explicitly prohibit retroactively adding or modifying risk-sharing mechanisms described in the contract or rate certification documents after the start of the rating period.

3

Centers for Medicare & Medicaid Services. 2017 Medicaid Managed Care Rate Development Guide.

https://www.medicaid.gov/medicaid/managed-care/downloads/2017-medicaid-managed-care-rate-development-guide.pdf.

We acknowledge that our proposed requirement that risk-sharing mechanisms be documented in a state's contract and rate certification documents prior to the start of the rating period means, as a practical matter, that states electing to use risk-sharing mechanisms would have to submit contracts and rate certifications to CMS prior to the start of the rating period. We note here that section 1903(m)(2)(A)(iii) of the Act, as well as implementing regulations at § 438.806, require that the Secretary must provide prior approval for MCO contracts that meet certain value thresholds before states can claim FFP. This longstanding requirement is

implemented in the regulation at § 438.806(c), which provides that FFP is not available for an MCO contract that does not have prior approval from CMS. CMS has, since the early 1990s, interpreted and applied this requirement by not awarding FFP until the contract has been approved and permitting FFP back to the initial date of a contract approved after the start of the rating period if an approvable contract were in place between the state and the managed care plan. This practice is reflected in the State Medicaid Manual, § 2087.

Lastly, the proposed change would make § 438.6(b)(1) more consistent with § 438.7(b)(5), which requires the rate certification to describe all risk-adjustment methodologies. While risk mitigation methodologies (which address which parties bear the risk of financial loss under the contract) are not risk-adjustment methodologies (which address compensation based on the health status of enrollees), we believe they have a similar impact on payment to the managed care plan and that the same rules about being described in the rate certification should apply. The current regulation text in § 438.6(b)(1) is not explicit that risk mitigation methodologies be in the rate certification and our proposal would revise the regulation to explicitly include this requirement.

We solicit comments on these proposed changes.

b. Delivery System and Provider Payment Initiatives Under MCO, PIHP, or PAHP Contracts (§ 438.6(a) and (c))

As finalized in the 2016 final rule, § 438.6(c)(1) permits states to, under the circumstances enumerated in § 438.6(c)(1)(i) through (iii), direct the managed care plan's expenditures under the contract. Among other criteria, such directed payment arrangements require prior approval by CMS, per § 438.6(c)(2); our approval is based on meeting the standards listed in § 438.6(c)(2), including that the state expects the directed payment to advance at least one of the goals and objectives in the state's quality strategy for its Medicaid managed care program. We have been reviewing and approving directed payment arrangements submitted by states since the 2016 final rule, and we have observed that a significant number of them require managed care plans to adopt minimum rates, and that most commonly, these minimum rates are those specified under an approved methodology in the Medicaid state plan. Additionally, most of these types of directed payment arrangements seek to accomplish the same goal in the state's quality strategy—to ensure adequate access to providers.

Due to the frequency and similarities of these types of directed payment arrangements, we believe that they should be specifically addressed in § 438.6(c)(1)(iii). Therefore, at § 438.6(a), we propose to add a definition for “state plan approved rates” to mean amounts calculated as a per unit price of services described under CMS approved rate methodologies in the state plan. We also propose to revise § 438.6(c)(1)(iii)(A) to specifically reference a directed payment arrangement that is based on an approved state plan rate methodology. As with all directed payment arrangements under § 438.6(c), a directed payment arrangement established under proposed paragraph (c)(1)(iii)(A) would have to be developed in accordance with § 438.4, the standards specified in § 438.5, and generally accepted actuarial principles and practices.

We note here that supplemental payments contained in a state plan are not, and do not constitute, state plan approved rates as proposed in § 438.6(a); we propose to include a statement to this effect under proposed paragraph (c)(1)(iii)(A). For the purposes of this proposed rule, a rate described in the approved rate methodology section of the state plan would reflect only the per unit price of particular services. Supplemental payments are not calculated or paid based on the number of services rendered, and therefore, are separate and distinct from state plan approved rates under this proposed rule. We also propose to define supplemental payments in § 438.6(a) as amounts paid by the State in its FFS Medicaid delivery system to providers that are described and approved in the state plan or under a waiver and are in addition to the amounts calculated through an approved state plan rate methodology.

Further, we propose to redesignate current paragraph § 438.6(c)(1)(iii)(A) as (c)(1)(iii)(B) and to include a revision to distinguish a minimum fee schedule for network providers that provide a particular service from use of the state plan approved rates. Proposed paragraphs (c)(1)(iii)(A) and (B) would now recognize two distinct minimum fee schedule directed payment arrangements. To accommodate our proposal, we also propose to redesignate current paragraphs (c)(1)(iii)(B) and (C) as paragraphs (c)(1)(iii)(C) and (D), respectively.

As we have reviewed and approved directed payment arrangements submitted by states since publication of the 2016 final rule, we have observed that our regulation does not explicitly address some types of potential directed payments that states are seeking to implement. For example, some states are experimenting with payment models that use a cost-based reimbursement, a Medicare equivalent reimbursement, an average commercial rate reimbursement, or reimbursement based on another market-based standard. To encourage states to continue developing payment models that produce optimal results for their local markets and to clarify how the regulatory standards apply in such cases, we are also proposing to add a new paragraph § 438.6(c)(1)(iii)(E) that would allow states to require managed care plans to adopt a cost-based rate, a Medicare equivalent rate, a commercial rate, or other market-based rate for network providers that provide a particular service under the contract. We believe that authorizing these additional types of payment models for states to implement would eliminate any need for states to modify their payment models as only minimum or maximum fee schedules to fit neatly into the construct of the current rule. In addition, adopting regulation text specific to these other methodologies for specific fee schedules is consistent with our policy to provide flexibility to the state where possible.

Along with the proposed changes in § 438.6(c)(1)(iii)(A), we are also proposing a corresponding change to the approval requirements in § 438.6(c)(2). In the 2016 final rule, we established an approval process that requires states to demonstrate in writing that payment arrangements adopted under § 438.6(c)(1)(i) through (iii) meet the criteria specified in § 438.6(c)(2) prior to implementation. Since implementing this provision of the 2016 final rule, states have noted that the approval process for contract arrangements that include only minimum rate methodologies that are already approved by CMS and included in the Medicaid state plan are substantially the same as the approval requirements under the Medicaid state plan. Some states have stated that the written approval process in § 438.6(c)(2) is unnecessary given that a state would have already justified the rate methodology associated with particular services in the Medicaid state plan (or a state plan amendment) to receive approval by CMS that the rates are efficient, economical, and assure quality of care under section 1902(a)(30)(A) of the Act.

Therefore, to avoid unnecessary and duplicative federal approval processes, we propose to eliminate the prior

approval requirement for payment arrangements that are based on state plan approved rates. To do so, we propose to redesignate existing paragraph (c)(2)(ii) as (c)(2)(iii), add a new paragraph (c)(2)(ii), and to redesignate paragraphs § 438.6(c)(2)(i)(A) through (F) as (c)(2)(ii)(A) through (F), respectively. We also propose to revise the remaining paragraph at § 438.6(c)(2)(i) to require, as in the current regulation, that all contract arrangements that direct the MCO's, PIHP's, or PAHP's expenditures under paragraphs (c)(1)(i) through (iii) must be developed in accordance with § 438.4, the standards specified in § 438.5, and generally accepted actuarial principles and practices; we propose to delete the remaining regulatory text from current paragraph (c)(1)(i).

In proposed new paragraph (c)(2)(ii), we would specify prior approval requirements for payment arrangements under paragraphs (c)(1)(i), (ii), and (iii)(B) through (E). For reasons discussed above, the amended paragraph (c)(2)(ii) would also explicitly provide that payment arrangements under paragraph (c)(1)(iii)(A) do not require prior approval from CMS; although, we propose to retain the requirement that such payment arrangements continue to meet the criteria in paragraphs (c)(2)(ii)(A) through (F). We believe that this proposed revision would reduce administrative burden for many states by eliminating the need to obtain written approval prior to implementation of this specific directed payment arrangement that utilizes previously approved rates in the state plan. With the redesignation of paragraph (c)(2)(ii)(A) through (F), we propose to keep in place the existing requirements for CMS approval to be granted.

In the 2016 final rule, we specified at paragraph § 438.6(c)(2)(ii)(C) that contract arrangements which direct expenditures made by the MCO, PIHP, or PAHP under paragraphs (c)(1)(i) or (c)(1)(ii) for delivery system or provider payment initiatives may not direct the amount or frequency of expenditures by managed care plans. We believed that this requirement was necessary to deter states from requiring managed care plans to reimburse particular providers specified amounts with specified frequencies. However, based on our experience in reviewing and approving directed payment arrangements since the 2016 final rule, we now recognize that this provision may have created unintended barriers to states pursuing innovative payment models. Some states have adopted or are pursuing payment models, such as global payment initiatives, which are designed to move away from a volume-driven system to a system focused on value and population health. Moreover, some of these payment models attempt to build on existing pay for performance or integrated care programs, or align with programs implemented by other payers at the state level. These innovative payment models can require that the state direct the amount or frequency of expenditures by the managed care plan to achieve the state's goals for improvements in quality, care, and outcomes under the payment model.

We believe that these innovative payment models necessitate acknowledging the complexity and variation in local market forces and that states need more flexible parameters to effectively negotiate these complex payment arrangements and achieve a more comprehensive transition from volume to value. Therefore, we propose to delete existing § 438.6(c)(2)(ii)(C) which would permit states to direct the amount or frequency of expenditures made by managed care plans under paragraphs (c)(1)(i) or (c)(1)(ii). As a conforming change, we would redesignate existing § 438.6(c)(2)(ii)(D) as § 438.6(c)(2)(iii)(C).

In the 2016 final rule at existing § 438.6(c)(2)(i)(F) (redesignated to paragraph § 438.6(c)(2)(ii)(F) in this proposed rule), we established that a contract arrangement directing a managed care plan's expenditures may not be renewed automatically. While § 438.6(c)(2)(i)(F) does not permit for the automatic renewal of a contract arrangement described in paragraph (c)(1), it does not prohibit states from including payment arrangements in a contract for more than one rating period. We have received numerous payment arrangement proposals from states requesting a multi-year approval of their payment arrangement to align with their delivery system reform efforts or contract requirements.

To provide additional guidance to states on the submission and approval process for directed payments, on November 2, 2017, we issued a CMCS Informational Bulletin (CIB) entitled “Delivery System and Provider Payment Initiatives under Medicaid Managed Care Contracts” (available at

https://www.medicaid.gov/federal-policy-guidance/downloads/cib11022017.pdf

). The CIB explained that based on our experience with implementation of § 438.6(c)(2), we recognize that some states are specifically pursuing multi-year payment arrangements to transform their health care delivery systems. The CIB also described that states can develop payment arrangements under § 438.6(c)(1)(i) and (ii), which are intended to pursue delivery system reform, over a period of time that is longer than one year so long as the state explicitly identifies and describes how the payment arrangement would vary or change over the term of the arrangement.

We understand that some payment arrangements, particularly value-based purchasing arrangements or those tied to larger delivery system reform efforts, can be more complex and may take longer for a state to implement. Setting the payment arrangement for longer than a one-year term would provide a state with more time to implement and evaluate whether the arrangement meets the state's goals and objectives to advance its quality strategy under § 438.340. As stated in the CIB, we interpret the regulatory requirements under § 438.6(c) to permit multi-year payment arrangements when certain criteria are met. We set out the criteria in the CIB for multi-year approvals of certain directed payment arrangements, and we now propose to codify those criteria in a new § 438.6(c)(3).

Specifically, we propose in new paragraph (c)(3)(i) that we would condition a multi-year approval for a payment arrangement under paragraphs (c)(1)(i) and (ii) on the following criteria: (1) The state has explicitly identified and described the payment arrangement in the contract as a multi-year payment arrangement, including a description of the payment arrangement by year, if the payment arrangement varies by year; (2) the state has developed and described its plan for implementing a multi-year payment arrangement, including the state's plan for multi-year evaluation, and the impact of a multi-year payment arrangement on the state's goal(s) and objective(s) in the state's quality strategy in § 438.340; and (3) the state has affirmed that it will not make any changes to the payment methodology, or magnitude of the payment, described in the contract for all years of the multi-year payment arrangement without CMS prior approval. If the state determines that changes to the payment methodology, or magnitude of the payment, are necessary, the state must obtain prior approval of such changes using the process in paragraph (c)(2). We note that in addition to codifying criteria for the approval of multi-year payment arrangements, the proposed new paragraph (c)(3)(i) addresses any potential ambiguity in the 2016 final rule regarding the permissibility of states to enter into multi-year payment arrangements with managed care plans. However, the proposed paragraph

(c)(3)(i) would not change the requirement that a payment arrangement that directs a managed care plan's expenditures must meet all of the approval requirements in § 438.6(c)(2), including that the payment arrangement must be developed in accordance with § 438.4, the standards specified in § 438.5, and generally accepted actuarial principles and practices.

Finally, in alignment with our guidance in the November CIB, we propose to specify at paragraph (c)(3)(ii) that the approval of a payment arrangement under paragraph (c)(1)(iii) of this section would be for one rating period. As explained above, while we understand and acknowledge that value-based purchasing payment arrangements or those tied to larger delivery system reform efforts can be more complex and may take longer for a state to implement, we believe that more traditional payment arrangements and fee schedules under paragraph (c)(1)(iii) should continue to be reviewed and evaluated on an annual basis by both states and CMS. We believe that it is important to continue ensuring that such payment arrangements under paragraph (c)(1)(iii) continue to be consistent with states' and our goals and objectives for directed payments under Medicaid managed care contracts.

We solicit comments on these proposals.

c. Pass-Through Payments Under MCO, PIHP, and PAHP Contracts (§ 438.6(d))

In the 2016 final rule, and the 2017 pass-through payment final rule (82 FR 5415), we finalized a policy to limit state direction of payments, including pass-through payments, at § 438.6(c) and (d). We defined pass-through payments at § 438.6(a) as any amount required by the state, and considered in calculating the actuarially sound capitation rate, to be added to the contracted payment rates paid by the MCO, PIHP, or PAHP to hospitals, physicians, or nursing facilities that is not for the following purposes: A specific service or benefit provided to a specific enrollee covered under the contract; a provider payment methodology permitted under § 438.6(c)(1)(i) through (iii) for services and enrollees covered under the contract; a subcapitated payment arrangement for a specific set of services and enrollees covered under the contract; graduate medical education (GME) payments; or federally-qualified health center (FQHC) or rural health clinic (RHC) wrap around payments. We noted in our 2017 pass-through payment final rule that a distinguishing characteristic of a pass-through payment is that a managed care plan is contractually required by the state to pay providers an amount that is disconnected from the amount, quality, or outcomes of services delivered to enrollees under the contract during the rating period of the contract (82 FR 5416).

4

When managed care plans only serve as a conduit for passing payments to providers independent of delivered services, such payments reduce managed care plans' ability to control expenditures, effectively use value-based purchasing strategies, implement provider-based quality initiatives, and generally use the full capitation payment to manage the care of enrollees.

4

Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems, Final Rule, (82 FR 5415-5429, January 18, 2017).

In the 2016 final rule, we also noted that section 1903(m)(2)(A) of the Act requires that capitation payments to managed care plans be actuarially sound and clarified our interpretation of that standard as meaning that payments under the managed care contract must align with the provision of services to beneficiaries covered under the contract. We clarified the statutory and regulatory differences between payments made on a FFS basis and on a managed care basis (81 FR 27588). We provided an analysis and comparison of section 1902(a)(30)(A) of the Act regarding FFS payments and implementing regulations that impose aggregate upper payment limits (UPL) on rates for certain types of services or provider types to section 1903(m)(2)(A) regarding the requirement that capitation payments in managed care contracts be actuarially sound and implementing regulations that require payments to align with covered services delivered to eligible populations. Based on that analysis, we concluded that pass-through payments are not consistent with our regulatory standards for actuarially sound rates because they do not tie provider payments with the provision of services. Despite this conclusion, we acknowledged in the 2016 final rule that, for many states, pass-through payments have been approved in the past as part of Medicaid managed care contracts and served as a critical source of support for safety-net providers caring for Medicaid beneficiaries (81 FR 27589). We therefore adopted a transition period for states that had already transitioned services or eligible populations into managed care and had pass-through payments in their managed care contracts as part of the regulations that generally prohibit the use of pass-through payments in actuarially sound capitation rates. Although § 438.6(d) is not explicitly limited to pass-through payments in the context of an established managed care program, the use of pass-through payments in place as of the 2016 final rule as an upper limit on permitted pass-through payments during the transition periods described in § 438.6(d) effectively precludes new managed care programs from adopting pass-through payments.

We used the 2016 final rule to identify the pass-through payments in managed care contract(s) and rate certification(s) that are eligible for the pass-through payment transition period. We provided a detailed description of the policy rationale (81 FR 27587 through 27592) for why we established pass-through payment transition periods and limited pass-through payments to hospitals, nursing facilities, and physicians, and this policy rationale has not changed. We focused on the three provider types identified in § 438.6(d) because these are the most common provider types to which states make supplemental payments within federal UPLs under state plan authority.

Since implementation of the 2016 and 2017 final rules, we have worked with many states that have not transitioned some or all services or eligible populations from their FFS delivery system into a managed care program. Data from the CMS Medicaid Managed Care Data Collection System (MMCDCS) show that a large and growing majority of states contract with MCOs and that states are also rapidly expanding their use of MCOs to reach larger geographic areas, serve more medically complex beneficiaries, and deliver long-term services and supports (LTSS). Nationally, two-thirds (68.1 percent) of all Medicaid beneficiaries were enrolled in comprehensive MCOs in 2016, up from 65.5 percent in 2015. According to MMCDCS data, as of July 2016, 37 states have 50 percent or more of their Medicaid populations enrolled in a comprehensive MCO, up from 34 states in 2015; while 26 states have 20 percent or more of their Medicaid populations in FFS, and three of those states have 100 percent (Alaska and Connecticut) or almost 100 percent (Wyoming) of their Medicaid populations in FFS.

5

5

Medicaid Managed Care Enrollment and Program Characteristics, 2016; Updated Spring 2018. Available at

https://www.medicaid.gov/medicaid/managed-care/downloads/enrollment/2016-medicaid-managed-care-enrollment-report.pdf.

Some states would like to begin to transition some services or eligible

populations from FFS to managed care, but would also like to continue to make supplemental payments to hospitals, physicians, or nursing facilities. We recognize the challenges associated with transitioning supplemental payments into payments based on the delivery of services or value-based payment structures. The transition from one payment structure to another requires robust provider and stakeholder engagement, broad agreement on approaches to care delivery and payment, establishing systems for measuring outcomes and quality, planning, and evaluating the potential impact of change on Medicaid financing mechanisms. We also recognize that implementing value-based payment structures or other, delivery system reform initiatives, and addressing transition issues, including ensuring adequate base rates, is central to both delivery system reform and to strengthening access, quality, and efficiency in the Medicaid program.

To address states' requests to continue making supplemental payments for certain services and assist states with transitioning some or all services or eligible populations from a FFS delivery system into a managed care delivery system, we propose to add a new § 438.6(d)(6) that would allow states to make pass-through payments under new managed care contracts during a specified transition period if certain criteria are met. Here and in the regulation text proposed at § 438.6(d)(6), we refer to transitioning services from FFS Medicaid to Medicaid managed care plan(s); this phrasing refers both to when a state expands the scope of its managed care program in terms of services (for example, offering behavioral health services in Medicaid managed care that were previously provided under Medicaid FFS for populations that are already enrolled in managed care) and populations (that is, adding new populations to Medicaid managed care when previously those populations received all Medicaid services through FFS).

Specifically, we propose in § 438.6(d)(6)(i) through (iii) that states may require managed care plans to make pass-through payments, as defined in § 438.6(a), to network providers that are hospitals, nursing facilities, or physicians, when Medicaid populations or services are initially transitioning or moving from a Medicaid FFS delivery system to a Medicaid managed care delivery system, provided the following requirements are met: (1) The services will be covered for the first time under a Medicaid managed care contract and were previously provided in a Medicaid FFS delivery system prior to the first rating period, as defined in § 438.2, of the specified pass-through payment transition period; (2) the state made supplemental payments, as defined in § 438.6(a), to hospitals, nursing facilities, or physicians for those specific services that will be covered for the first time under a Medicaid managed care contract during the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period (this 12-month period is the same standard that is currently codified in existing pass-through payment regulations at § 438.6(d)(2) in relation to the calculation of the base amount for hospital pass-through payments under § 438.6(d)(3)); and (3) the aggregate amount of the pass-through payments that the state requires the managed care plan to make is less than or equal to the amounts calculated in proposed paragraphs (d)(6)(iii)(A), (B), or (C) for the relevant provider type for each rating period of the pass-through payment transition period—this requirement means that the aggregate amount of the pass-through payments for each rating period of the specified pass-through payment transition period that the state requires the managed care plan to make must be less than or equal to the payment amounts attributed to and actually paid as FFS supplemental payments to hospitals, nursing facilities, or physicians during the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period for each applicable provider type.

We also propose at § 438.6(d)(6)(iv) that the state may require the MCO, PIHP, or PAHP to make pass-through payments for Medicaid populations or services that are transitioning from a FFS delivery system to a managed care delivery system for up to 3 years from the beginning of the first rating period in which the services were transitioned from payment in a FFS delivery system to a managed care contract, provided that during the 3 years, the services continue to be provided under a managed care contract with an MCO, PIHP, or PAHP.

We propose paragraphs (d)(6)(iii)(A), (B) and (C) to address the maximum aggregate pass-through payment amounts to hospitals, nursing facilities, and physicians for each rating period of the specified 3-year pass-through payment transition period; that is, we propose three paragraphs to determine the maximum aggregate amount of the pass-through payments for each rating period of the 3-year pass-through payment transition period that the state can require the managed care plan to make to ensure that pass-through payments under proposed § 438.6(d)(6) are less than or equal to the payment amounts attributed to and actually paid as FFS supplemental payments to hospitals, nursing facilities, or physicians, respectively, during the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period for each applicable provider type. This means that the aggregate pass-through payments under the new 3-year pass-through payment transition period must be less than or equal to the payment amounts attributed to and actually paid as FFS supplemental payments in Medicaid FFS.

To include pass-through payments in the managed care contract(s) and capitation rates(s) under proposed new paragraph (d)(6), the state would have to calculate and demonstrate that the aggregate amount of the pass-through payments for each rating period of the pass-through payment transition period is less than or equal to the amounts calculated in proposed paragraphs (d)(6)(iii)(A), (B), or (C) for the relevant provider type. In § 438.6(d)(6)(iii), we propose that for determining the amount of each component for the calculations contained in proposed paragraphs (d)(6)(iii)(A), (B), and (C), the state must use the amounts paid for services during the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period. As a practical matter, the proposed calculation would require the state to use Medicaid Management Information System (MMIS) adjudicated claims data from the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period. This timeframe and use of 2-year old data was chosen so that the state has complete utilization data for the service type that would be subject to the pass-through payments. The proposed calculation would also require the state to restrict the amount used in each component of the calculation to the amount actually paid through a supplemental payment for each applicable provider type. We note that our proposal would generally refer to the same provider types as Medicaid FFS specified under 42 CFR part 447. The calculation process under these proposed paragraphs would involve 4 basic steps:

•

Step 1:

For each applicable provider type, identify the actual payment amounts that were attributed to and actually paid as FFS supplemental payments during the 12-month period

immediately 2 years prior to the first rating period of the pass-through payment transition period.

•

Step 2:

Divide (a) the payment amounts paid through payment rates for the services that are being transitioned from payment in FFS to the managed care contract for each applicable provider type by (b) the total payment amounts paid through payment rates for services provided in FFS for each applicable provider type to determine the ratio. In determining these amounts, the state must use the amounts paid for each provider type during the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period.

•

Step 3:

Multiply the amount in Step 1 by the ratio produced by Step 2.

•

Step 4:

The aggregate amount of pass-through payments that the state may require the MCO, PIHP, or PAHP to make for each rating period of the 3-year pass-through payment transition period must be demonstrated to be less than or equal to the result achieved in Step 3.

Following the above steps, we offer the following formula to help illustrate the aggregate amount of pass-through payments for each rating period of the pass-through payment transition period for each applicable provider type:

EP14NO18.000

To demonstrate how the calculation is performed, we provide the following example in which we assume that a state Medicaid program paid $60 million in claims in FFS for inpatient hospital services in CY 2016. To acknowledge the Medicaid FFS UPL, we assume that those same services would have been reimbursed at $100 million using Medicare payment principles. The difference between the amount that Medicare would have paid and the amount Medicaid actually paid in claims is $40 million. For Step 1, of the $40 million difference, the state actually paid $20 million in supplemental payments to inpatient hospitals in CY 2016. For this example, we assume that CY 2016 is the 12-month period immediately 2 years prior to the first rating period of the pass-through payment transition period in which inpatient hospital services will be transitioned to a managed care contract; therefore, we assume the pass-through payments are for CY 2018. This transition to managed care could be either by moving Medicaid beneficiaries from FFS to coverage under managed care contracts that cover inpatient hospital services or by moving inpatient hospital services into coverage under managed care contracts.

Next, in Step 2, the state determines the ratio of the payment amounts paid in FFS for inpatient hospital services that will be transitioned from payment in a FFS delivery system to the managed care contract within the specific provider category and requisite period in relation to the total payment amounts paid in FFS for all inpatient hospital services within the same provider category during the same period. For example, if the state paid $36 million in FFS for inpatient hospital services for a specific population out of the $60 million in total claims paid in FFS for inpatient hospital services during 2016, and the state wants to transition the population associated with the $36 million in paid claims to the managed care contract, then the ratio is $36 million divided by $60 million, or 60 percent.

In Step 3, the state would multiply the $20 million in actual supplemental payments paid by 60 percent, resulting in $12 million, which is the amount described in Step 4 as the total amount that the state would be permitted to require the managed care plans to make in pass-through payments to inpatient hospitals for each rating period during the pass-through payment transition period described in proposed paragraph (d)(6)(iv).

In an effort to provide network providers, states, and managed care plans with adequate time to design and implement payment systems that link provider reimbursement with services, we also propose, in new paragraph (d)(6)(iv), to allow states a transition period for up to 3 years to transition FFS supplemental payments into payments linked to services and utilization under the managed care contract. We are proposing the 3-year pass-through payment transition period to provide states with time to integrate pass-through payment arrangements into allowable payment structures under actuarially sound capitation rates, including value-based purchasing, enhanced fee schedules, Medicaid-specific delivery system reform, or the other approaches consistent with § 438.6(c). A state may elect to use a shorter transition period but would be permitted a maximum of 3 years to phase out the pass-through payments. We believe that the proposed 3-year pass-through payment transition period in paragraph (d)(6)(iv) is appropriate because states have not yet transitioned these services (and corresponding supplemental payments) into managed care contracts; therefore, states should be in a better position to design payment structures that appropriately account for these payments during the transition to managed care (unlike the current pass-through payments rules, which only provide transition periods for pass-through payments that were already incorporated into managed care contracts and rates prior to the adoption of specific limits on the state direction of payments made by managed care plans). We specifically invite comment on whether the 3-year pass-through payment transition period is the appropriate transition time.

Unlike the 2016 final rule, this proposal would not set a specific calendar date by which states must end pass-through payments; rather, our proposal would provide a transition period for up to 3 years from the beginning of the first rating period in which the services were transitioned from payment in a FFS delivery system to a managed care contract, provided that during the 3 years, the services continue to be provided under a managed care contract with an MCO, PIHP, or PAHP. By providing states, network providers, and managed care plans time and flexibility to integrate current pass-through payment arrangements into permissible managed care payment structures, states would be able to avoid disruption to safety-net provider systems that they have developed in their Medicaid programs.

We solicit comments on our proposals.

d. Payments to MCOs and PIHPs for Enrollees That Are a Patient in an Institution for Mental Disease (IMD) (§ 438.6(e))

Under the policies we adopted in the 2016 final rule at § 438.6(e), we permitted FFP for a full monthly capitation payment to an MCO or PIHP for an enrollee aged 21 to 64 who received inpatient treatment in an institution for mental disease (IMD) for part of the month when certain requirements are met, including a requirement that the stay in the IMD be for no more than 15 days in the month for which the capitation payment is made (81 FR 27563). Since publication of the 2016 final rule, we have heard from states and other stakeholders that FFP should be provided for capitation payments made for months that include stays longer than 15 days, especially on behalf of Medicaid enrollees who may require substance use disorder (SUD) treatment as a result of the ongoing opioid crisis.

We considered proposing changes to the regulation at § 438.6(e); however, after careful review, we still believe that the underlying legal analysis regarding the transfer of risk that underpinned the policy in the 2016 final rule is appropriate. We have also conducted a literature and data review since publication of the rule but could not identify any new data sources other than those we relied upon in the 2016 final rule that supported 15 days (81 FR 27560). We request public comment on additional data sources that we should review. We also have concerns about the potential for cost-shifting to the federal government. Therefore, to address concerns expressed by Medicaid directors regarding the 15-day limit in the context of SUD treatment and the ongoing opioid crisis, we encourage states to apply for a section 1115(a) SUD demonstration to enable states to receive FFP for longer lengths of stay in IMDs. In November 2017, we developed the current section 1115(a) SUD demonstration initiative

6

that greatly simplified the application and approval process, offered more streamlined and flexible components, and included enhanced monitoring and evaluation features. We have already approved several states and are actively working with additional states that have indicated an interest in applying.

6

SMD #17-003: Strategies to Address the Opioid Epidemic:

https://www.medicaid.gov/federal-policy-guidance/downloads/smd17003.pdf.

5. Rate Certification Submission (§ 438.7)

Section 438.7(c)(3) gives states flexibility to make

de minimis

rate adjustments during the contract year by enabling states to increase or decrease the capitation rate certified per rate cell by 1.5 percent (resulting in an overall 3 percent range) without submitting a revised rate certification. We stated in the 2016 final rule that the fluctuation of plus or minus 1.5 percent does not change the actuarial soundness of a capitation rate as that percentage is generally not more than the risk margin incorporated into most states' rate development process and reasoned that the resulting rate would remain actuarially sound (81 FR 27568). By giving states the flexibility to make small adjustments around the certified rate, we intended to ease the administrative burden of rate review on states while meeting our goals of transparency and integrity in the rate-setting process.

Since the publication of the 2016 final rule, some stakeholders have expressed a desire for CMS to clearly express that once a state has certified the final capitation rate paid per rate cell under each risk contract, the state can adjust the certified rate plus or minus 1.5 percent at any time within the rating period without submitting justification to CMS. We clarify here that when states are adjusting a final certified rate within the contract year within the range of 1.5 percent up or down from the final certified rate, states do not need to submit a revised rate certification or justification to CMS, unless documentation is specifically requested by CMS in accordance with our proposed revisions in paragraph (c)(3). Proposed § 438.7(c)(3) would include the existing text authorizing the state to increase or decrease the capitation rate per rate cell up to 1.5 percent without submitting a revised rate certification. Proposed paragraph (c)(3) would also retain the remaining text in current § 438.7(c)(3) that such adjustments to the final certified rate must be consistent with a modification of the contract as required in § 438.3(c) and adds new proposed text to specify that the adjustments would also be subject to the requirements at § 438.4(b)(1), and that we would be able to require a state to provide documentation for adjustments permitted under § 438.7(c)(3) to ensure that modifications to a final certified capitation rate comply with the requirements in §§ 438.3(c) and (e), and 438.4(b)(1).

In the 2016 final rule, we highlighted our concerns that different capitation rates based on the FFP associated with a particular population could be indicative of cost shifting from the state to the federal government and were not consistent with generally accepted actuarial principles (81 FR 27566). The rate development standards we instituted with the final rule sought to eliminate such practices. The +/− 1.5 percent rate changes permitted in § 438.7(c)(3) are not intended to be used by states to shift costs to the federal government. To ensure against cost shifting, we are explicitly requiring that any changes of the capitation rate within the permissible 1.5 percent are subject to the requirement in § 438.4(b)(1), which prohibits differing capitation rates based on FFP and requires that any proposed differences among capitation rates according to covered populations be based on valid rate development standards and not based on the rate of FFP associated with the covered populations. In addition, § 438.4(b)(1) requires that rates be developed in accordance with § 438.5 and generally accepted actuarial principles and practices; using this cross-reference to regulate mid-year changes of capitation rates within the +/− 1.5 percent range ensures that these changes are not arbitrary or designed to shift costs to the federal government. The proposed regulation permits CMS to require documentation as to how the adjusted rate is consistent with that requirement and other criteria related to the actuarial soundness of rates.

Nationally, states are expanding their managed care programs to include more Medicaid beneficiaries, and both plans and states have requested additional guidance regarding our rate review and approval process. We believe that additional guidance can serve to enhance the efficiency of the review and approval process for states and CMS alike, particularly for states that are new to Medicaid managed care. When states first transition from a FFS delivery system to a managed care delivery system, they often need extra assistance to enable them to be more efficient in developing procurement processes and to increase their likelihood of setting actuarially sound capitation rates. Additionally, competitive procurement processes can be costly and time consuming when considering the scope and number of stakeholders involved in the process. Rate setting can be particularly challenging when it is part of the competitive bidding process. As such, we believe that additional guidance from CMS may benefit those

states and us in the rate review and approval process.

To respond to these needs, we propose to add § 438.7(e) to commit CMS to, at least annually, issuing guidance that describes: (1) The federal standards for capitation rate development; (2) the documentation required to determine that the capitation rates are projected to provide for all reasonable, appropriate, and attainable costs that are required under the terms of a contract; (3) the documentation required to determine that the capitation rates have been developed in accordance part 438; (4) any updates or developments in the rate review process to reduce state burden and facilitate prompt actuarial reviews; and (5) the documentation necessary to demonstrate that capitation rates competitively bid through a procurement process have been established consistently with the requirements of § 438.4 through § 438.8. We note here that CMS would not adopt new requirements in this guidance; such guidance would only interpret the regulations and specify procedural rules for complying with the requirements in the rule, such as the information provided in rate certifications. This guidance will be published as part of the annual rate guide for Medicaid managed care under the PRA package, CMS-10398 #37, OMB control number 0938-1148.

Although we have published rate review guidance every year since 2014, particularly for those areas described in proposed § 438.7(e)(1) through (3), we propose to codify this practice in § 438.7(e) to demonstrate our commitment to efficient review and approval processes. Although the current rate review guidance has not previously addressed those areas described in proposed § 438.7(e)(4) and (5), we propose that annual guidance include these because states have specifically requested guidance in these areas. We will continue to work with states to ensure greater transparency regarding the rate review process and ensure that states are optimally informed to prepare and submit rate certifications for our review and approval.

We solicit comments on our proposals and whether additional areas of guidance would be helpful to states.

6. Medical Loss Ratio (MLR) Standards: Technical Correction (§ 438.8)

In the 2015 proposed rule (80 FR 31109), we proposed at § 438.8(e)(4) that expenditures related to fraud prevention activities, as set forth in § 438.608(a)(1) through (5), (7), (8) and (b), may be attributed to the numerator but would be limited to 0.5 percent of MCO's, PIHP's, or PAHP's premium revenues. The MLR numerator is defined in § 438.8(e); the numerator of an MCO's, PIHP's, or PAHP's MLR for a MLR reporting year is the sum of the MCO's, PIHP's, or PAHP's incurred claims; the MCO's, PIHP's, or PAHP's expenditures for activities that improve health care quality; and fraud prevention activities. This proposal was never finalized and does not align with the MLR requirements for Medicare or the private market. We proposed a corresponding requirement, at paragraph (k)(1)(iii), for submission by each managed care plan of data showing the expenditures for activities described in § 438.608(a)(1) through (5), (7), (8) and (b). In the 2016 final rule (81 FR 27530), we did not finalize § 438.8(e)(4) as proposed, and instead finalized § 438.8(e)(4) to provide that MCO, PIHP, or PAHP expenditures on activities related to fraud prevention, as adopted for the private market at 45 CFR part 158, would be incorporated into the Medicaid MLR calculation in the event the private market MLR regulations were amended. However, we erroneously finalized § 438.8(k)(1)(iii) as proposed instead of referencing the updated finalized regulatory language in § 438.8(e)(4). Therefore, we are proposing in this rule to revise § 438.8(k)(1)(iii) to replace “expenditures related to activities compliant with § 438.608(a)(1) through (5), (7), (8) and (b)” with “fraud prevention activities as defined in § 438.8(e)(4)” to be consistent with our changes to § 438.8(e)(4) in the previous final rule. We are also proposing to correct a technical error in paragraph (e)(4) by removing the phrase “fraud prevention as adopted” and adding in its place the phrase “fraud prevention consistent with regulations adopted” to clarify the regulatory text.

7. Non-Emergency Medical Transportation PAHPs (§ 438.9)

In the 2016 final rule, at § 438.9(b)(2), we inadvertently failed to exempt NEMT PAHPs from complying with § 438.4(b)(9). Section 438.9(b) generally exempts NEMT PAHPs from complying with regulations in part 438 unless the requirement is listed. Under the regulation, NEMT PAHPs are not required to comply with the MLR standards. Therefore, we believe that the inclusion of all of § 438.4 in § 438.9(b)(2) causes a conflict because § 438.4(b)(9) specifically addresses states' responsibility to develop capitation rates to achieve a medical loss ratio of at least 85 percent. To eliminate that conflict, we propose to revise § 438.9(b)(2) by adding “except § 438.4(b)(9).”

8. Information Requirements (§ 438.10)

a. Language and Format (§ 438.10(d))

In the 2016 final rule, we finalized provisions at § 438.10(d)(2), (d)(3), and (d)(6)(iv), requiring that states and managed care plans include taglines in prevalent non-English languages and in large print in all written materials for potential enrollees and enrollees. Based on print document guidelines from the American Printing House for the Blind, Inc., we defined large print to mean no smaller than 18-point font (81 FR 27724).

7

Taglines required to be large print are those that explain the availability of written translation or oral interpretation, how to request auxiliary aids and services for individuals who have limited English proficiency or a disability, and the toll-free phone number of the entity providing choice counseling services.

7

American Printing House for the Blind, Inc. Print Document Guidelines.

http://www.aph.org/research/design-guidelines/

.

Our goal remains to ensure that materials for enrollees and potential enrollees are accessible for individuals who are vision-impaired. However, since the publication of the final rule, states and plans have found that requiring taglines in 18-point font size sometimes increases overall document length, thereby decreasing the ease of use by enrollees and eliminating the use of certain effective formats such as postcards and trifold brochures.

To address these issues, we propose to replace the requirement to include taglines on “all written materials” with a requirement for taglines only on materials for potential enrollees that “are critical to obtaining services” in § 438.10(d)(2). This proposed change aligns the documents that require taglines with the documents that must be translated into prevalent non-English languages and facilitates the use of smaller, more user-friendly documents. We note that states have the ability to require taglines on any additional materials that they choose, as including taglines only on documents that are critical to obtaining services is a minimum standard.

Additionally, we propose to revise § 438.10(d)(2) by deleting the definition of large print as “no smaller than 18-point” and adopting the “conspicuously visible” standard for taglines that is codified at 45 CFR 92.8(f)(1), a regulation implementing section 1557 of the Patient Protection and Affordable Care Act of 2010 (PPACA) (Pub. L. 111-148, enacted March 23, 2010 as

amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted March 30, 2010)).

8

Section 1557 of the PPACA prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs, including Medicaid. We believe that adopting a more flexible requirement would encourage states to use effective forms of written communication and avoid unnecessarily long documents. For example, taglines in a font size smaller than 18-point would permit states to more easily use postcards and tri-fold brochures, which may be more effective for relaying certain information since they are shorter and offer more design options for visual appeal. We note again that states would retain the ability to create additional requirements for greater specificity of font size for taglines for written materials subject to § 438.10 as long as they meet the standard of conspicuously-visible and comply with all other federal non-discrimination standards, including providing auxiliary aids and services to ensure effective communications for individuals with disabilities.

8

Nondiscrimination in Health Programs and Activities final rule (81 FR 31375).

In § 438.10(d)(3), we propose to make the same substantive changes proposed for § 438.10(d)(2) above, as well as to reorganize the paragraph for clarity. We believe that combining the requirements for the provision of alternative formats, taglines, and inclusion of the managed care plan's member/customer service unit telephone number into one sentence in paragraph (d)(3), would improve readability and clarity.

Section 438.10(d)(6) addresses requirements for all written materials provided by states and MCOs, PIHPs, PAHPs, primary care case management (PCCM) and PCCM entities to enrollees and potential enrollees. As we are proposing to limit the tagline requirement to materials that are critical to obtaining services, we propose to delete § 438.10(d)(6)(iv).

b. Information for All Enrollees of MCOs, PIHPs. PAHPs, and PCCM Entities: General Requirements (§ 438.10(f))

In the comprehensive revision to federal regulations governing Medicaid managed care in 2002, we required notice to enrollees of a provider's termination within 15 days of a covered plan's receipt or issuance of the termination notice (67 FR 41015). For purposes of this provision, an affected enrollee is one who received his or her primary care from, or was seen on a regular basis by, the terminated provider. We established the 15-day time-period following receipt of notice because we wanted to ensure that enrollees received notice of the provider terminations in advance given the reality that providers often give little notice of their plans to terminate participation in a network (67 FR 41015). Section 438.10(f)(1) requires that a managed care plan must make a good-faith effort to provide notice of the termination of a contracted in-network provider to each affected enrollee within 15 days of receipt or issuance of the termination notice. However, there can be circumstances when plans or providers send a termination notice to meet their contractual obligations but continue negotiating in an effort to resolve the issue(s) that triggered the decision to commence termination procedures. If the issue(s) can be amicably resolved, then the termination notice is sometimes rescinded and the provider remains in the network. In these situations, the issuance of notices by a state to enrollees before resolution efforts have been attempted, can cause alarm and confusion for enrollees who believe that they need to locate a new provider.

In an effort to prevent unnecessary notices from being sent to enrollees, proposed § 438.10(f)(1) would change the requirement that managed care plans issue notices within 15 calendar days after receipt or issuance of the termination notice to the later of 30 calendar days prior to the effective date of the termination or 15 calendar days after the receipt or issuance of the notice. For example, if the plan receives a termination notice from a provider on March 1 for a termination that is effective on May 1, the proposed regulation would contemplate written notice to enrollees be provided by April 1 (30 days prior to effective date) or by March 16 (within 15 days of receipt of the termination notice), whichever is later. In this example, the managed care plan would have to issue a notice to the enrollees by April 1, since it is later.

c. Information for All Enrollees of MCOs, PIHPs. PAHPs and PCCM Entities: Enrollee Handbooks (§ 438.10(g))

In the 2016 final rule, an erroneous reference was included in § 438.10(g)(2)(ii)(B) to “. . . paragraph (g)(2)(i)(A). . . .” Because there is no such paragraph as § 438.10(g)(2)(i)(A), we propose in this rule to correct the reference to “. . . paragraph (g)(2)(ii)(A). . . .”

d. Information for All Enrollees of MCOs, PIHPs. PAHPs and PCCM Entities: Provider Directories (§ 438.10(h))

In the 2016 final rule, we added the requirement at § 438.10(h)(1)(vii) that managed care plans include information in their provider directories on whether the provider has completed cultural competence training. We added this requirement to the final rule in recognition of the linguistic and cultural diversity of Medicaid beneficiaries (81 FR 27724). After the final rule was published, the 21st Century Cures Act (Pub. L. 114-255, enacted December 13, 2016) (the Cures Act) amended section 1902 of the Act,

9

to add requirements for publication of a FFS provider directory.

10

Now that the Congress has established new standards for provider directories in FFS Medicaid, we believe that it is beneficial to Medicaid managed care enrollees to align the requirements for Medicaid managed care with the FFS directories, especially since many managed care enrollees also receive some services on a FFS basis. The proposed amendment would require that the information in the directory include the physician's or provider's cultural and linguistic capabilities, including the languages spoken by the physician or provider or by the skilled medical interpreter providing interpretation services at the physician's or provider's office. The statute does not require information on whether the provider has completed cultural competence training. Therefore, we propose to amend § 438.410(h)(1)(vii) to eliminate the phrase “and whether the provider has completed cultural competence training.”

9

Section 1902(a)(83)(A)(ii)(II) of the Act.

10

Section 5006 of the Cures Act added paragraph (83)(A)(ii)(II) to section 1902(a) of the Act.

In the 2016 final rule, we finalized at § 438.10(h)(3) requirements that information in a paper directory must be updated at least monthly and electronic provider directories must be updated no later than 30 calendar days of receiving updated provider information. In paragraph (h)(1), we clarified that paper provider directories need only be provided upon request, and we encouraged plans to find efficient ways to provide accurate directories within the required timeframes (81 FR 27729).

Since the publication of the 2016 final rule, states and managed care plans have raised concerns about the cost of reprinting the entire directory monthly. While the final rule did not require that the directory be reprinted in its entirety monthly, many managed care plans

were forced to do so to recognize savings from printing in large quantities. To address this inefficiency, as well as to provide managed care plans with another option for reducing the number of paper directories requested by enrollees due to the lack of access to a computer, we propose to modify the requirements for updating the paper provider directory that would permit less than monthly updates to paper directories if the managed care plan offers a mobile-enabled, electronic directory.

Research has shown that 64 percent of U.S. adults living in households with incomes less than $30,000 a year owned smartphones in 2016.

11

Further, lower-income adults are more likely to rely on a smartphone for access to the internet, because they are less likely to have an internet connection at home.

12

Recent studies show that the majority of Americans have used their smartphones to access information about their health,

13

and consider online access to health information important.

14

We believe that providing mobile-enabled access to online provider directories may provide additional value to enrollees by allowing them to access the information anytime, anywhere which is not feasible with a paper directory. Mobile applications for beneficiaries are increasingly available in programs serving older adults and individuals with disabilities and include access to Medicare marketing materials

15

and medical claims on Blue Button

16

to empower enrollees to better manage and coordinate their healthcare. For enrollees that request a paper directory, we believe the quarterly updates will not significantly disadvantage them as other avenues for obtaining provider information are readily available, such as the managed care plan's customer service or the state's beneficiary support system.

11

http://www.pewinternet.org/fact-sheet/mobile/.

12

Id.

13

http://www.pewresearch.org/fact-tank/2015/04/30/racial-and-ethnic-differences-in-how-people-use-mobile-technology/.

14

https://www.ncbi.nlm.nih.gov/pubmed/27413120.

15

2016 Medicare Marketing Guideline 100.6.

https://www.cms.gov/Medicare/Health-Plans/ManagedCareMarketing/Downloads/2017MedicareMarketingGuidelines2.pdf.

16

http://bluebuttonconnector.healthit.gov/.

To reflect this change and modify the requirements for updating the paper provider directory to permit less than monthly updates if the managed care plan offers a mobile-enabled directory, we propose several revisions to § 438.10(h)(3). First, we propose to add paragraphs (i) and (ii) to § 438.10(h)(3) which would delineate requirements for paper directories from those for electronic directories. Second, we propose to add paragraphs (i)(A) and (B) which would reflect, respectively, that monthly updates are required if a plan does not offer a mobile enabled directory and that only quarterly updates are required for plans that do offer a mobile enabled directory. Lastly, we propose to make “directories” singular (“directory”) at § 438.10(h)(3)(ii) which would avoid implying that a managed care plan must have more than one directory of providers.

We remind managed care plans that some individuals with disabilities, who are unable to access web applications or require the use of assistive technology to access the internet, may require auxiliary aids and services to access the provider directory. In keeping with the requirement that managed care plans must provide auxiliary aids and services to ensure effective communication for individuals with disabilities consistent with section 504 of the Rehabilitation Act of 1973 (Pub. L. 93-112, enacted on September 26, 1973) and section 1557 of the PPACA, these individuals should, upon request, be given the most current provider directories in the same accessible format (paper or electronic) that they receive other materials.

We encourage managed care plans to perform direct outreach to providers on a regular basis to improve the accuracy of their provider data and to ensure that all forms of direct enrollee assistance (such as telephone assistance, live web chat, and nurse help lines) are effective, easily accessible, and widely publicized.

9. Disenrollment: Requirements and Limitations (§ 438.56)

We inadvertently included PCCMs and PCCM entities in paragraph § 438.56(d)(5) related to grievance procedures. Because PCCMs and PCCM entities are not required by § 438.228, which does impose such a requirement on MCOs, PIHPs and PAHPs, to have an appeals and grievance process, we propose to revise § 438.56(d)(5) to delete references to PCCMs and PCCM entities. We note that states may impose additional requirements on their managed care plans but believe that our regulations should be internally consistent on this point.

10. Network Adequacy Standards (§ 438.68)

As discussed in the 2015 proposed rule (80 FR 31144 through 31146), we proposed a new § 438.68 to stipulate that a state must establish network adequacy standards for specified provider types. We proposed in § 438.68(b)(1) that states develop and enforce time and distance standards for specified provider types (if covered under the contract). In that proposed rule, we explained that states were encouraged to use other measures in addition to time and distance. In response to comments on the 2015 proposed rule, we declined to set other national requirements or specific benchmarks for time and distance (for example, 30 miles or 30 minutes) in the 2016 final rule (81 FR 27661). Instead, we noted that we believed it best not to be overly prescriptive and give states the flexibility to build upon the required time and distance standards as they deem appropriate and meaningful for their programs and populations. (81 FR 27661).

In the 2015 proposed rule discussion of the requirement now codified at § 438.68(b)(2), we requested comment on network adequacy standards for LTSS. As noted in the final rule, commenters recommended that we adopt some form of network adequacy standards for LTSS, but the comments were few in number and lacked consensus regarding specific standards that have been used or that have proven adequate to assure network adequacy. For these reasons, we stated that the best strategy was for states to develop their own time and distance standards for LTSS provider types to which a beneficiary travels. Similarly, we did not require any specific type of minimum network adequacy standard for LTSS provider types that travel to the beneficiary, and instead deferred such an analysis to the states (81 FR 27665).

As states have worked to comply with the final rule, they have alerted us to increasing concerns about the appropriateness of uniformly applying time and distance standards. In some situations, time and distance may not be the most effective type of standard for determining network adequacy and some states have found that time and distance analysis produces results that do not accurately reflect provider availability. For example, a state that has a heavy reliance on telehealth in certain areas of the state may find that a provider to enrollee ratio is more useful in measuring meaningful access, as the enrollee could be well beyond a normal time and distance standard but can still easily access many different providers on a virtual basis. A 2017 Brookings/Schaefer Center report notes that in some clinical areas, telemedicine

could make proximity measures obsolete, or counterproductive.

17

17

Hall, Mark, A. and Ginsburg, Paul, B. A Better Approach to Regulating Provider Network Adequacy (September 2017). Available at

https://www.brookings.edu/wp-content/uploads/2017/09/regulatory-options-for-provider-network-adequacy.pdf.

To address states' concerns and ensure that states use the most effective and accurate standards for their programs, we propose to revise § 438.68(b)(1) and (b)(2) by deleting the requirements for states to set time and distance standards and adding a more flexible requirement that states set a quantitative minimum access standard for specified health care providers and LTSS providers. We believe that this change would enable states to choose from a variety of quantitative network adequacy standards that meet the needs of their respective Medicaid programs in more meaningful and effective ways. Quantitative standards that states may elect to use include, but are not limited to, minimum provider-to-enrollee ratios; maximum travel time or distance to providers; a minimum percentage of contracted providers that are accepting new patients; maximum wait times for an appointment; hours of operation requirements (for example, extended evening or weekend hours); and combinations of these quantitative measures. We believe it is particularly important that states have flexibility for the standards for LTSS programs given the often very limited supply of providers and the potential functional limitations of the LTSS population. We encourage states to solicit stakeholder input in the development of their network standards. By proposing these changes, the requirements for network adequacy standards would be consistent for all provider types. As such, we propose to remove paragraphs § 438.68(b)(2)(i) and (b)(2)(ii), and reflect all LTSS network adequacy requirements in § 438.68(b)(2).

We propose to use the broader standard of “a quantitative network adequacy standard” rather than “time and distance,” because each type of standard addresses a different issue. For example, a time and distance standard addresses how long or far an enrollee may have to travel for care, whereas “wait-times for an appointment” address the availability or capacity of providers in the network to serve enrollees in a timely manner. We encourage states to use the quantitative standards in combination—not separately—to ensure that there are not gaps in access to and availability of services for enrollees.

Section 438.68(b)(1) specifies the provider types for which states are required to establish network adequacy standards. Section 438.68(b)(1)(iv) requires states to establish time and distance standards for “specialist, adult and pediatric.” As noted in the final rule, we believe that states should set network adequacy standards that are appropriate at the state level and are best suited to define the number and types of providers that fall into the “specialist” category based on differences under managed care contracts, as well as state Medicaid programs. Therefore, we believe it would be inappropriate for us to define “specialist” at the federal level (81 FR 27661). Since the publication of the 2016 final rule, we have received numerous questions from states and other stakeholders about who should define the types of providers to be included as specialists. We are clarifying with this proposal that states have the authority under the final rule to define “specialist” in whatever way they deem most appropriate for their programs. To make this authority clear, we propose to revise § 438.68(b)(1)(iv) to add “(as designated by the state)” after “specialist.” This proposed change would eliminate potential uncertainty regarding who has responsibility to select the provider types included in this category for the purposes of network adequacy. In addition, the proposed modification to § 438.68(b)(1)(iv) would reduce the burden on a state by eliminating the need to set a standard for every possible specialist, as a few states interpreted the text of the final rule.

In § 438.68(b)(1)(viii), we require states to establish time and distance standards for “additional provider types when it promotes the objectives of the Medicaid program, as determined by CMS, for the provider type to be subject to time and distance access standards.” In the 2016 final rule, we finalized the language in § 438.68(b)(1)(viii) because it provided the flexibility to address future national provider workforce shortages and future network adequacy standards (81 FR 27660). Additionally, we noted that if we ever elected to utilize this provision to identify additional provider types, we would only do so after soliciting public input (81 FR 27660). Since the 2016 final rule was published, states have expressed concern that if we rely on this authority and its flexibility of identifying “additional provider types,” managed care plans may have to assess network adequacy and possibly build network capacity without sufficient time. Based on these comments, we propose to remove § 438.68(b)(1)(viii) to eliminate any uncertainty states may have regarding this requirement.

11. Adoption of Practice Guidelines (§ 438.236)

In the 2016 final rule, we attempted to remove the terminology “contracting health care professionals” throughout the rule because it is not defined in any regulation or statute and we believed that use of “network provider” as defined in § 438.2 was more accurate. We inadvertently missed removing the term at § 438.236(b)(3). To correct this, we propose to remove the words “contracting health care professionals” and insert “network providers” in § 438.236(b)(3).

12. Enrollee Encounter Data (§ 438.242(c))

In § 438.242(b)(3) of the final rule, we required that all contracts between a state and an MCO, PIHP, or PAHP provide for the submission of all enrollee encounter data that the state is required to submit to CMS under § 438.818. Since the final rule, some states and managed care plans have expressed concern about, and been hesitant to submit, certain financial data—namely, the allowed amount and the paid amount. Managed care plans consider this information to be proprietary and inappropriate for public disclosure. We understand this concern but emphasize the importance of these data for proper monitoring and administration of the Medicaid program, particularly for capitation rate setting and review, financial management, and encounter data analysis. Additionally, the allowed and paid amounts of claims are routinely included on explanation of benefits provided to enrollees; thus making this information already publicly available. To clarify the existing requirement and reflect the importance of this data, we propose to revise § 438.242(c)(3) to explicitly include “allowed amount and paid amount.” We note that the proposed change to § 438.242(c)(3) would in no way change the rights of federal or state entities using encounter data for program integrity purposes to access needed data. Nor would it change the disclosure requirements for explanation of benefits notices or other disclosures to enrollees about their coverage.

The health insurance industry has consistently asserted that the contractual payment terms between managed care plans and providers is confidential and trade secret information and that the disclosure of this information could cause harm to

the competitive position of the managed care plan or provider. We recognize the significance of managed care plans' concerns and commit to treating this data as trade secret when the requirements for such a classification are met. CMS recognizes the significance of the volume of data collected in the Transformed Medicaid Statistical Information System (T-MSIS) and takes its obligations seriously to protect from disclosure information that is protected under federal law. Our goal in proposing to explicitly name allowed and paid amount in § 438.242(b)(3) is to ensure that the scope of the collection of encounter data is clear. We affirm our commitment to safeguarding data protected by federal law from inappropriate use and disclosure.

13. Medicaid Managed Care Quality Rating System (QRS) (§ 438.334)

In the 2016 final rule (81 FR 27686), we established at § 438.334 the authority to require states to operate a Medicaid managed care quality rating system (QRS) and incorporated this provision in its entirety into CHIP at § 457.1240(d). The regulation provides that CMS, in consultation with states and other stakeholders, develop a QRS framework, including the identification of performance measures and methodologies, which states could adopt. States have the option to use the CMS-developed framework or establish a state-specific QRS producing substantially comparable information about plan performance subject to CMS approval of the alternative system.

Several policy objectives are supported by the QRS requirement. First, implementation of a QRS provides a vehicle to hold states and plans accountable for the care provided to Medicaid and CHIP beneficiaries. Second, a QRS empowers beneficiaries by providing them with information about the plans in their state, enabling them to be more informed health care consumers. Third, a QRS provides an important tool for states to drive improvements in plan performance and the quality of care provided by their programs.

Since publication of the 2016 final rule, we have begun the early stages of a stakeholder engagement process needed for the CMS-developed framework. We have conducted interactive listening sessions with various stakeholders, including state and health plan stakeholder groups directors, and interviewed several beneficiaries. We also have convened a diverse technical expert panel (TEP) to meet periodically to advise CMS on the framework, objectives, measures, and methodologies for the CMS-developed QRS. The TEP includes representatives from state Medicaid and CHIP agencies, plans, beneficiary advocates, and quality measurement experts. We expect that this robust engagement of states and other stakeholders would continue through the publication of the notice of a proposed QRS framework called for in the current regulations at § 438.334(b).

The requirement in the current regulations that all Medicaid and CHIP QRS yield substantially comparable information serves to enable comparison of plans performance across states. States and beneficiary advocates have expressed strong support for this goal. In addition, the standardization of measures and methodologies necessary to generate comparable information would reduce burden on plans with products in multiple states. During our early stakeholder engagement sessions, however, the technical and methodological complexities of producing substantially comparable information to enable meaningful comparisons between plans across states, was raised—challenges which are heightened by the heterogeneous nature of states' Medicaid and CHIP programs. Some states expressed concern that the 2016 final rule may not have struck the optimal balance between the interests of standardization and state flexibility. We agree, and therefore, are proposing to make several revisions to the QRS regulations at § 438.334 (note that we propose no changes to § 457.1240(d), therefore all proposed changes would apply equally to both a state's Medicaid and CHIP programs). These revisions are intended to better balance the goal of facilitating inter-state comparisons of plan performance and reducing plan burden with the need for state flexibility and the practical challenges inherent in producing comparable ratings across states.

Specifically, we propose to revise the requirement in § 438.334(c)(1)(i) (redesignated as paragraph (c)(1)(ii) in this proposed rule) that an alternative state QRS produce substantially comparable information to that yielded by the CMS-developed QRS to require that the information yielded be substantially comparable to the extent feasible to enable meaningful comparison across states, taking into account differences in state programs that complicate achieving comparability. We also propose to add a new paragraph (c)(4) to explicitly provide that we would engage with states and other stakeholders in developing subregulatory guidance on what it means for an alternative QRS to yield substantially comparable information, and how a state would demonstrate it meets the standard. We also propose revisions to paragraph (b) to provide that, in developing the CMS-developed QRS framework in consultation with states and other stakeholders and using public notice and an opportunity to comment, we would identify a set of mandatory performance measures. We propose to redesignate § 438.334(c)(1)(i) and (c)(1)(ii) as paragraphs (c)(1)(ii) and (c)(1)(iii), respectively, and add new paragraph (c)(1)(i) which would provide that a state alternative QRS must include the mandatory measures identified in the framework. Recognizing the challenges that exist in achieving comparable ratings across states, we believe that identifying a uniform set of mandatory measures which are key to high-quality Medicaid and CHIP programs in any state would be critical. The QRS is subject to the Paperwork Reduction Act approval process, including notice and comment under the PRA, and is included in CMS-10553, OMB Control Number 0938-1281. States would retain flexibility to include additional measures important to serving their quality goals and meeting the needs of their beneficiaries and stakeholder communities. We note that Medicaid and CHIP QRS and our recently-launched Scorecard Initiative serve related goals, and we expect to coordinate the measures selected for the Scorecard initiative and those selected for the CMS-developed QRS.

The current regulation provides that the CMS-developed QRS would “align with the summary indicators” used by the QRS developed for the qualified health plans (QHP) in the Federally-Facilitated Exchange (FFE) (hereinafter referred to as the “QHP QRS”). In the QRS listening sessions and TEP meetings held to date, states and other stakeholders have raised that, because the populations served by the QHPs, Medicaid and CHIP are different (with both Medicaid and CHIP serving a significantly higher proportion of children and Medicaid serving a significantly greater proportion of older adults and individuals with disabilities), complete alignment with the QHP QRS may not make sense for Medicaid and CHIP. Therefore, we propose to revise § 438.334(b) to provide that the CMS-developed QRS would align with the QHP QRS where appropriate. Some stakeholders also have suggested that the Medicaid and CHIP QRS also should align, where appropriate, with the Medicare Advantage 5-Star Rating System and the

Medicare-Medicaid Plan (MMP) Financial Alignment Initiative integrated Star Rating strategy (currently in development) in order to reduce reporting burden on plans that operate in the other markets, as well as offering Medicaid and CHIP managed care plans. We agree that aligning the Medicaid and CHIP QRS with these other rating systems, to the extent appropriate given the different populations served by each program and benefit variations between programs, would reduce burden and confusion for plan issuers, which may offer products in more than one program. Therefore, we propose revisions at § 438.334(b) that the CMS-developed QRS also align, where appropriate, to other CMS approaches to rating managed care plans. Alignment will be determined as part of the ongoing development of the proposed measures and methodologies and will be addressed in the QRS-specific rulemaking.

Currently, § 438.334 requires states to obtain our approval prior to implementing an alternative QRS. Pre-approval enables us to determine if an alternative QRS complies with the regulation and meets the “substantially comparable” standard before a state invests resources into QRS implementation. However, some states have expressed concern about having enough time to implement a QRS if prior approval from CMS is required. To reduce the upfront administrative burden on states and speed time for implementation, we propose to revise the current introductory language in § 438.334(c)(1) and (c)(1)(ii) to eliminate the requirement that states obtain prior approval before implementing an alternative QRS. In addition, the use of mandatory measures in addition to state-selected measures provides some assurance about the comparability of the alternative QRS developed by the state. Instead of prior CMS approval, we propose at § 438.334(c)(3) that states would, upon CMS request, submit their alternative QRS framework, including the performance measures and methodology to be used in generating plan ratings; documentation of the public comment process described in § 438.334(c)(2)(i) and (ii) including issues raised by the Medical Care Advisory Committee and the public, any policy revisions or modifications made in response to the comments, and rationale for comments not accepted; and other information specified by CMS to demonstrate compliance with § 438.334(c). As part of our general oversight responsibilities, we would still review states' alternative QRS and work with states on any identified deficiencies. This approach is similar to the oversight process CMS uses for states' eligibility verification plans (§ 435.945(j), incorporated into the CHIP requirements by reference at § 457.380(i)), which requires states to submit eligibility verification plans to CMS for finalization upon request, in a manner and format prescribed by CMS.

We solicit comments on these proposals.

14. Managed Care State Quality Strategy (§ 438.340)

Current § 438.340 sets forth the minimum elements of a managed care state quality strategy and the requirements for development, evaluation, revision and public display of the quality strategy. Each state contracting with an MCO, PIHP, or PAHP as defined in § 438.2 or with a risk-bearing PCCM entity, as described in § 438.310(c)(2), must draft and implement a written quality strategy for assessing and improving the quality of health care and services furnished by the MCO, PIHP, PAHP, or PCCM entity. Section 438.340(b) sets forth the minimum elements of a managed care state quality strategy.

In the 2016 final rule, we expanded the previous state managed care quality strategy requirements, which applied to states contracting with MCOs and PIHPs, to also apply to states contracting with PAHPs or PCCM entities described in § 438.310(c)(2). As part of that revision, and to conform to other changes in this part, we added paragraph (b)(8), which requires a description of how the state would assess the performance and quality outcomes achieved by each PCCM entity described in § 438.310(c)(2). This paragraph was intended to capture the application of all relevant areas of the state's quality strategy to risk-bearing PCCM entities, in conformance with the inclusion of PCCM entities at § 438.340(a). We intended that states which contract with PCCM entities described in § 438.310(c)(2) would design and describe all of the quality strategy elements to include PCCM entities as appropriate; for example, within the state's goals and objectives for continuous quality improvement in paragraph (b)(2). We similarly intended that other aspects of the managed care quality strategy would apply equally to these PCCM entities, including § 438.340(b)(3)(i) (relating to quality metrics and performance targets); § 438.340(b)(6) (relating to the state's plan to identify, evaluate and reduce health disparities and to provide demographic information to managed care plans); and § 438.340(c)(1)(ii) (regarding Tribal consultation for states who enroll Indians in PCCM entities). However, current § 438.340(b)(2), (b)(3)(i), (b)(6) and (c)(1)(ii) do not explicitly reference PCCM entities, resulting in possible confusion about the application of these quality strategy elements to states which contract with PCCM entities. Our intention in the 2016 final rule was to apply these provisions equally to PCCM entities. Therefore, we propose to add PCCM entities described in § 438.310(c)(2) to the list of managed care plans identified in § 438.340(b)(2), (b)(3)(i), (b)(6) and (c)(1)(ii). We also propose for greater clarity to delete § 438.340(b)(8) and to redesignate paragraphs (b)(9), (b)(10), and (b)(11) as paragraphs (b)(8), (b)(9), and (b)(10), respectively.

We do not propose to add a reference to PCCM entities described in § 438.310(c)(2) to § 438.340(b)(1) because the regulations cross-referenced in paragraph (b)(1)—that is, § 438.68 (relating to state-defined network adequacy), § 438.206 (relating to availability of service standards), and § 438.236 (relating to clinical practice guidelines)—do not apply to PCCM entities. Similarly, we do not propose to add PCCM entities to the list of managed care entities in § 438.340(b)(3)(ii) (related to performance improvement projects (PIPs)) because states are not required under § 438.330(d) to require that PCCM entities conduct PIPs. However, since states have the option to require PIPs for PCCM entities, we encourage states that choose to have their PCCM entities conduct PIPs to describe these PIPs in their managed care quality strategy.

Section 438.340(b)(6) of the current regulations requires that states include, as an element of the managed care quality strategy, their plan to identify, evaluate, and reduce, to the extent practicable, health disparities based on six demographic factors (age, race, ethnicity, sex, primary language, and disability status). It also requires states to transmit this demographic information for each Medicaid enrollee to the enrollee's managed care plan at the time of enrollment into the plan. Section 438.340(b)(6) currently provides that “disability status,” for the purposes of this paragraph, means whether the individual qualified for Medicaid on the basis of a disability.

We are concerned that this definition of “disability status” may be unintentionally narrow. For example, some individuals with disabilities may not be eligible for Medicaid on the basis of disability, or their disability status may change over time. Others may not

be disabled under the definition used by the Medicaid program, but may be considered disabled under other state or federal laws or regulations (for example, the Americans with Disabilities Act). We believe states should provide a managed care plan with the most accurate, complete, and current demographic information about an enrollee available to the state, regardless of whether this information is from an enrollee's Medicaid eligibility application or from another source. We recognize that the most common source of information about an individual's disability status will be that obtained during the application process, and states are not required to actively seek out sources of information not readily available to the state. However, if states have other or more current sources of information for these six demographic factors, states would be expected to use and transmit that more current information.

Therefore, we propose to remove the sentence defining disability status from § 438.340(b)(6) in addition to adding the reference to PCCM entities described in § 438.310(c)(2). Under the proposed revised regulation, qualifying for Medicaid on the basis of disability would be one source of information to determine a beneficiary's disability status, but not necessarily the only source of this information. We note that this requirement for states to provide demographic information for each Medicaid enrollee to the managed care plan at the time of enrollment is a minimum standard; we encourage states to send updated demographic information to an enrollee's managed care plan whenever updated demographic information is available to the state.

We solicit comments on these proposals.

15. Activities Related to External Quality Review (§ 438.358)

Section 438.358(b)(1) sets forth the mandatory external quality review (EQR)-related activities states must require for their MCOs, PIHPs, and PAHPs. Section 438.358(b)(1)(iii) requires a review, conducted within the previous 3-year period, to determine the MCO's, PIHP's, or PAHP's compliance with certain managed care standards. In the 2016 final rule, the cross-citation in § 438.358(b)(1)(iii) to standards at § 438.204(g) was replaced with a streamlined cross-reference to part 438 subpart D (81 FR 27706). We noted that the streamlining of the cross-reference did not propose a significant change from what comprises the current compliance review activity. Subpart D previously had contained cross-references to all of the applicable standards for access to care and structure and operations that are contained in subparts A, B, C, and F. However, several of those cross-references within subpart D were removed in the 2016 final rule, specifically references to § 438.56 (Disenrollment requirements and limitations), § 438.100 (Enrollee rights), and § 438.114 (Emergency and post-stabilization services). The removal of these cross-references from subpart D inadvertently dropped reference citations for these critical standards from the EQR compliance review. This was not our intention, as these sections have been included in the EQR protocol for the compliance review activity since the initial release of the protocols in 2003 and in all subsequent revisions of the protocols. Therefore, we propose a technical correction to add directly to § 438.358(b)(1)(iii) the three cross-references to §§ 438.56, 438.100 and 438.114.

We solicit comments on these proposals.

16. Exemption From External Quality Review (§ 438.362)

Section 438.362 implements section 1932(c)(2)(C) of the Act, which provides that a state may exempt an MCO from undergoing an EQR when certain conditions are met. First, the MCO must have a current Medicare contract under part C of Title XVIII or under section 1876 of the Act, as well as the current Medicaid contract under section 1903(m) of the Act. Second, the two contracts must cover all or part of the same geographic area within the state. Third, the Medicaid contract must have been in effect for at least 2 consecutive years before the effective date of the exemption and during those 2 years, the MCO has been found to be performing acceptable for the quality, timeliness, and access to health care services it provides to Medicaid beneficiaries. Neither the statute nor § 438.362 requires states to exempt plans from EQR; this is provided only as an option for states. States have discretion to require all their managed care plans to undergo EQR, even those that appear eligible for an exemption under this section.

In the 2016 final rule (81 FR 27713), we received comments regarding limiting the use of exemption which also raised transparency concerns. Since the issues raised in the comments were outside the scope of that rulemaking, we encouraged, but did not require, states to make public which Medicaid health plans have been exempted from EQR under § 438.362 and for how long. We indicated we would consider proposing in future rulemaking, a requirement that states post this information publicly. Therefore, we propose to add § 438.362(c) to require that states annually identify on their website, in the same location where EQR technical reports are posted, the names of the MCOs it has exempted from EQR, and when the current exemption period began. We believe that posting this information on the state's website would not present a burden to states since states already make exemption determinations, inform their EQRO of which plans are exempted from EQR, and maintain EQR information on their website, activities which are already accounted for in the associated information collections.

As an alternative, we are considering revising § 438.364(a) (External Quality Review Results-Information that must be produced) to require that states identify the exempted plans and the beginning date of the current exemption period in the annual EQR technical report. This identification could be in addition to or as an alternative to posting this information directly on the state's website. We could revise paragraph (a)(i) to add a sentence incorporating the same information we propose to add to § 438.362.

We solicit comments on this proposal. We also welcome information about how states are currently using the exemption provision and how states currently make that information publicly available.

17. External Quality Review Results (§ 438.364)

On page 27886 of the Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party Liability final rule (81 FR 27498, May 6, 2018), we made a technical error in the regulation text of § 438.364(d) (Safeguarding patient identity). In this paragraph, we inadvertently referenced paragraph (b) of this section (Revision) instead of referencing paragraph (c) of this section (Availability of Information). Accordingly, we propose to revise § 438.364(d) to reflect the correct reference.

18. Grievance and Appeal System: Statutory Basis and Definitions (§ 438.400)

In the 2016 final rule, we finalized at § 438.400(b)(3) the definition of an “adverse benefit determination” including denials in whole or in part of payment for service. The term adverse

benefit determination was proposed and finalized in the 2016 final rule as a replacement for the term “action,” which had been defined with the same definition in the 2002 rule. Under § 438.404(a), managed care plans are required to give enrollees timely notice of an adverse benefit determination in writing and consistent with the requirements in § 438.10 generally. Given the broad meaning of the term “denial of a payment,” some managed care plans may be generating a notice to each enrollee for every denied claim, even those that are denied for purely administrative reasons (such as missing the National Provider Identifier, missing the enrollee's sex, or because the claim is a duplicate) and which generate no financial liability for the enrollee. Issuing notices of such adverse benefit determinations for which the enrollee has no financial liability nor interest in appealing simply to comply with § 438.404(a) may create administrative and economic burdens for plans, and unnecessary confusion and anxiety for enrollees who frequently misunderstand the notices as statements of financial liability.

To alleviate unnecessary burden on the managed care plans and enrollees, we propose to add language in § 438.400(b)(3), that would indicate that a denial, in whole or in part, of a payment for a service because the claim does not meet the definition of a clean claim at § 447.45(b)

18

is not an adverse benefit determination. As such, the notice requirements in § 438.404 would not be triggered. We believe this proposed modification would eliminate burden on plans to send unnecessary notices and avoid anxiety for enrollees receiving such notices. This proposed change is not expected to expose enrollees to financial liability without notice, or jeopardize their access to care or rights to an appeal.

18

Under § 447.5(b), a clean claim means one that can be processed without obtaining additional information from the provider of the service or from a third party. It includes a claim with errors originating in a States claim system. It does not include a claim from a provider who is under investigation for fraud or abuse, or a claim under review for medical necessity.

While notices to enrollees for claims that do not comply with the clean claim definition in § 447.45(b) would not be required under our proposed amendment to § 438.400(b)(3), the notice requirements for all future claims (including resubmission of the same claim) would have to be independently determined. For example, if a provider resubmits a clean claim after the initial one was not processed because it did not comply with the requirements in § 447.45(b), and the managed care plan subsequently issues an adverse benefit determination, the managed care plan would still be required to issue a timely notice under § 438.404(a) for the second claim. Whether an adverse benefit determination notice is required would have to be determined for each claim, regardless of whether notices were required for previously submitted claims.

We solicit comments on our proposal.

19. Grievance and Appeal System: General Requirements (§§ 438.402 and 438.406)

In the 2016 final rule, we adopted the requirement that an oral appeal must be followed by a written, signed appeal at § 438.402(c)(3)(ii).

19

This requirement was also included at § 438.406(b)(3), regarding handling of grievances and appeals, where managed care plans must treat oral inquiries seeking to appeal an adverse benefit determination as appeals and that such oral inquiries must be confirmed in writing. We received comments to the proposed rule that stated that the written, signed requirements added an unnecessary barrier to enrollees filing an appeal with the managed care plan. At that time, we believed that this requirement was necessary to ensure appropriate and accurate documentation of enrollees' appeals. While the resolution timeframe for an oral appeal begins on the date of the oral appeal, managed care plans cannot issue a resolution until the enrollee submits the written, signed appeal (81 FR 27511). Managed care plans have found that some enrollees may take too long to submit the written, signed appeal, while others fail to submit the written appeal at all. This creates problems for managed care plans who must invest resources to encourage enrollees to submit the documentation, as well as uncertainty for managed care plans as to how to comply with § 438.406 (Handling Grievances and Appeals) in cases when the enrollee does not submit the written, signed appeal.

19

Redesignated from § 438.402(b)(3)(ii) in the 2002 final rule (67 FR 41110).

After the opportunity to hear from states regarding their experience with this requirement, we propose to eliminate the requirement for enrollees to submit a written, signed appeal after an oral appeal is submitted. We believe the removal of the requirement would reduce barriers for enrollees who would not have to write, sign, and submit the appeal, decrease the economic and administrative burden on plans, and would expedite the appeals process. This proposed change would also harmonize the managed care appeal process with the state fair hearing process.

20

20

Section 431.221(a)(1)(i) requires state Medicaid agencies to permit an individual or authorized representative of the individual to submit state hearing requests via different modalities—including telephone—without requiring a subsequent written, signed appeal.

We considered retaining the written, signed appeal requirement, but permitting the managed care plan to proceed with the process in the absence of it, if the managed care plan demonstrates that a good faith effort was made to obtain the written, signed appeal. However, we believed that demonstrating a good faith effort increased burden on the states and plans with no additional benefit for the enrollee. Therefore, we are proposing the elimination of the written, signed appeal requirement in §§ 438.402(c)(3)(ii) and 438.406(b)(3), as we believe the elimination of the written requirement benefits all parties involved. Although we are proposing to eliminate the requirement that an oral appeal must be followed by a written, signed appeal, as we noted in the 2016 final rule, we continue to expect managed care plans to treat oral appeals in the same manner as written appeals (81 FR 27511). We are proposing to retain the current regulatory language in § 438.406(b)(3) that specifies that oral inquiries seeking to appeal an adverse benefit determination are treated as appeals.

20. Resolution and Notification: Grievances and Appeals (§ 438.408)

In the 2016 final rule, we revised the timeframe for enrollees to request a state fair hearing to 120 calendar days at § 438.408(f)(2). We adopted this timeframe because we believed it would give enrollees more time to gather the necessary information, seek assistance for the state fair hearing process, and make the request for a state fair hearing (81 FR 27516). However, we have heard from stakeholders that the 120-calendar day requirement has created an inconsistency in filing timeframes between Medicaid FFS and managed care, creating administrative burdens for states and confusion for enrollees. The FFS rule limits the timeframe beneficiaries have to request a hearing to no more than 90 days (§ 431.221(d)).

21

It was not our intent to burden states with additional tracking of the fair hearing process in multiple systems, on multiple timeframes. Nor do

we want to confuse enrollees in states where some services are provided through FFS and others through managed care.

21

42 CFR 431.221(d) states that the agency must allow the applicant or beneficiary a reasonable time, not to exceed 90 days from the date that notice of action is mailed, to request a hearing.

Therefore, we propose to revise § 438.408(f)(2) to stipulate that the timeframe for enrollees to request a state fair hearing would be no less than 90 calendar days and no greater than 120 calendar days from the date of the MCO's, PIHP's, or PAHP's notice of resolution. We believe the proposed revision would allow states that wish to align managed care with the FFS filing timeframe to do so while not jeopardizing the enrollee's ability to gather information and prepare for a state hearing. This proposal would also allow states that have already implemented the 120-calendar day timeframe to maintain that timeframe without the need for additional changes.

We solicit comments on our proposal.

II. Children's Health Insurance Program (CHIP) Managed Care

A. Background

The American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5, enacted February 17, 2009), the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) (Pub. L. 111-3, enacted on February 4, 2009), and the PPACA made applicable to CHIP several Medicaid managed care provisions in section 1932 of the Act, including section 1932(a)(4), Process for Enrollment and Termination and Change of Enrollment; section 1932(a)(5), Provision of Information; section 1932(b), Beneficiary Protections; 1932(c), Quality Assurance Standards; section 1932(d), Protections Against Fraud and Abuse; and section 1932(e), Sanctions for Noncompliance. In addition, the PPACA applied to CHIP sections 1902(a)(77) and 1902(kk) of the Act related to provider and supplier screening, oversight, and reporting. Our 2016 final rule implemented these statutory provisions and built on initial guidance provided in State Health Official (SHO) letters 09-008 and 09-013, issued on August 31, 2009 and October 21, 2009, respectively. The provisions in the 2016 final rule both reflected and superseded this earlier guidance.

Since the publication of the 2016 final rule, and subsequent technical corrections to the rule in a correction notice published on January 3, 2017 (82 FR 37) (the 2017 correction notice), we have observed the need for additional minor technical or clarifying changes to the CHIP managed care provisions, primarily to clarify that certain Medicaid requirements do not apply to CHIP. These changes are described in more detail below.

B. Updates to CHIP Managed Care

1. Compliance Dates for Part 457 Managed Care Provisions

The compliance section of the preamble to the 2016 final rule states that unless otherwise noted, states would not be held out of compliance with new requirements in part 457 of this final rule until CHIP managed care contracts as of the state fiscal year beginning on or after July 1, 2018, so long as they comply with the previously applicable regulations (that is, the regulations in place before the 2016 final rule). (81 FR 27499). Some stakeholders have expressed that the compliance section as drafted is not clear about when states need to comply with the CHIP managed care regulations. We clarify here that, except as otherwise noted, compliance with the revisions to the CHIP managed care regulations in part 457 under the 2016 final rule is required as of the first day of the state fiscal year beginning on or after July 1, 2018, regardless of whether or not the managed care contract in effect is a multi-year contract entered into a previous fiscal year or is a new contract effective for the first state fiscal year beginning on or after that date.

2. Information Requirements (§ 457.1207)

Section 457.1207 sets forth the CHIP requirements for providing enrollment notices, informational materials, and instructional materials for enrollees and potential enrollees of managed care entities by adopting the Medicaid requirements in § 438.10 by cross-reference. We inadvertently failed to exclude three cross references that should not apply to CHIP.

Section 438.10(c)(2) requires states to utilize the state's beneficiary support system as specified in § 438.71. CHIP does not adopt the beneficiary support system requirements; therefore, we did not intend that states would be required to use these systems for CHIP enrollees and we propose to modify the language in § 457.1207 to reflect this technical correction.

Section 438.10(g)(2)(xi)(E) requires that enrollee handbook notify enrollees that, when requested, benefits will continue when the enrollee files an appeal or state fair hearing (also known as “aid paid pending”). CHIP does not adopt the Medicaid appeals process known as “aid paid pending” and we intended to exclude the requirement to notify CHIP enrollees of this requirement from the handbook, as the option does not exist in CHIP (we explicitly exclude this provision in § 457.1260). We propose to modify the language in § 457.1207 to reflect this technical correction.

Additionally, § 438.10(g)(2)(xii) requires that the enrollee handbooks for MCOs, PIHPs, PAHPs, and PCCM entities must provide information on how to exercise an advance directive, as set forth in § 438.3(j). CHIP does not adopt advanced directive requirements, and therefore, we did not intend that plans would be required to notify CHIP enrollees on how to exercise advanced directives and we propose to modify the language in § 457.1207 to reflect this technical correction.

We solicit comments on these proposals.

3. Structure and Operations Standards (§ 457.1233)

In the 2016 final rule, at § 457.1233(b), we adopted the provisions in § 438.230 related to MCO, PIHP, PAHP and PCCM entity requirements for contracting with subcontractors. However, in § 457.1233(b) we inadvertently included PCCMs instead of PCCM entities. We propose to revise § 457.1233 in this rulemaking to conform to the requirement that § 438.230 applies to PCCM entities.

Also, at § 457.1233(d), we adopted the provisions in § 438.242 that require states operating a separate CHIP to collect enrollee encounter data from managed care plans. In finalizing § 438.242, we also intended to apply to CHIP the requirements of § 438.818, which is cross-referenced in § 438.242 and requires the submission of enrollee encounter data to CMS. We propose to revise § 457.1233 in this rulemaking to make explicit our intention to apply the terms of § 438.818 to CHIP.

Finally, in the 2016 final rule at § 457.1233(d) we made a technical error regarding the CHIP applicability date. Our cross-reference to § 438.242 inadvertently applied the Medicaid applicability date of July 1, 2017 for the health information system requirements instead of the later compliance date generally applicable to CHIP (which is as of the first day of the state fiscal year beginning on or after July 1, 2018) that was specified in the 2016 final rule (“Except as otherwise noted, states will not be held out of compliance with new requirements in part 457 of this final rule until CHIP managed care contracts as of the state fiscal year beginning on or after July 1, 2018, so long as they comply with the corresponding standard(s) in

part 457

contained in the parts 430 through 481, edition revised

as of October 1, 2015.”) and discussed in detail in section II.B.1 of this proposed rule. Therefore, we also propose to revise § 457.1233(d) to address this technical correction.

We solicit comments on our proposals.

4. Quality Measurement and Improvement (§ 457.1240)

In the 2016 final rule, we aligned CHIP quality measurement and improvement standards (with minor exceptions) for CHIP MCOs, PIHPs and PAHPs with the Medicaid standards at §§ 438.330, 438.332, 438.334, and 438.340 by adopting references to those sections in § 457.1240(b). Where appropriate, § 457.1240 of the 2016 final rule also applied these Medicaid standards to PCCM entities. However, we inadvertently missed a cross-reference to one of the Medicaid standards—§ 438.330(b)(2), relating to the collection and submission of quality performance measurement data—which we intended to apply to PCCM entities. We propose revisions to § 457.1240(b) to correct this omission and reflect application of § 438.330(b)(2) to PCCM entities in CHIP. The proposed changes in § 438.340, as discussed in the preamble at section I.B.13 of this proposed rule, are addressed with regard to CHIP in section II.B.8. of this proposed rule.

Additionally, we inadvertently failed to exclude references to consultation with the state's Medical Care Advisory Committee when drafting or revising the state's quality strategy in § 438.330(c)(1)(i) and if the state chooses to use an alternative managed care QRS in § 438.334(c)(2)(i) and (c)(3). Consultation with the Medical Care Advisory Committee is required for Medicaid under § 431.12. However, CHIP is not subject to § 431.12, and therefore, the consultation requirements in § 438.330(c)(1)(i) and § 438.334(c)(2)(i) and (c)(3) are not applicable to CHIP. We propose to revise § 457.1240 to correct these errors.

We solicit comments on our proposal.

5. Grievance System (§ 457.1260)

In the 2016 final rule, we aligned CHIP with the Medicaid grievance and appeals provisions in subpart F of part 438, by incorporating those subpart F, part 438 provisions into § 457.1260, with two substantive exceptions. First, § 457.1260 provides that references to “state fair hearings” in the part 438 provisions should be read as referring to part 457, subpart K (which imposes certain CHIP applicant and enrollee protections). Second, § 457.1260 excludes the applicability date in § 438.400(c) from applying in the CHIP context. Since that 2016 final rule, we have become aware of a number of issues related to how § 457.1260 currently incorporates the requirements applicable to Medicaid managed care plans and we are proposing here to amend § 457.1260 to address those concerns.

To avoid a lengthy list of excluded provisions from a general incorporation of subpart F of part 438, we are proposing new regulation text that incorporates specific provisions from subpart F of part 438, does not incorporate the specific paragraphs and provisions that have raised the issues detailed below, and fills in the blanks of how MCEs in state CHIPs must establish and operate their grievance and appeals system. No revisions are proposed to CHIP's current incorporation of § 438.406, § 438.410, § 438.412 or § 438.416. CHIP did not adopt § 438.420 in the 2016 final rule. The proposed revisions address the following items in § 438.400, § 438.402, § 438.404, § 438.408, and § 438.424:

•

Definition of adverse benefit determination (§ 438.400):

We inadvertently failed to exclude a reference to paragraph (6) of the definition of adverse benefit determination in § 438.400. This paragraph includes in the definition of adverse benefit determination the denial of enrollee's request to exercise his or her choice to obtain services outside the network under § 438.52. We did not adopt § 438.52 in CHIP, and therefore, this should not have been included in the definition of adverse benefit determination for CHIP. Our proposed regulation text at § 457.1260(a)(2) incorporates the definitions adopted in § 438.400 excluding this one provision in the definition of adverse benefit determination.

•

External medical reviews (§ 438.402):

At § 457.1120(a), CHIP already provides states with two options to conduct an external review of a health services matter and we inadvertently applied to CHIP an additional, optional external medical review in the Medicaid rule at § 438.402(c)(1)(i)(B). We now realize that this additional external medical review has been incorporated under our current

This text is long and has been trimmed here. Open the source document for the complete record.