CMS Proposes Changes to the Regulations Governing Medicaid and CHIP Managed Care

On November 14, 2018, the Centers for Medicare and Medicaid Services (CMS) published a proposed rule making changes to the Medicaid and Children’s Health Insurance Program (CHIP) Managed Care regulations. CMS had notified states in March 2017 that it was doing a thorough review of Medicaid and CHIP Managed Care regulations, which were last overhauled in April 2016. The newly-proposed changes seek to provide more flexibility within the regulations and promote transparency, efficiency, and innovation.

Comments on the regulations are due on January 14, 2019. In addition to general feedback, CMS is seeking input regarding specific questions outlined throughout the document.

Among the most significant changes are:

• Reintroducing capitation rate ranges;
• Allowing multi-year approval of directed expenditures for value-based purchasing arrangements and other delivery system reform initiatives;
• Allowing transitional pass-through payments for supplemental payments as states newly transition populations or services to managed care;
• Making the network adequacy standards less stringent;
• Providing states discretion in setting the maximum time period for beneficiaries to request Medicaid fair hearings.

CMS had also considered extending the maximum stay for enrollees ages 21 to 64 in Institutions for Mental Diseases (IMDs), but decided against doing so. However, CMS did note in the preamble that longer stays may be approved under Section 1115 Medicaid Waivers. At the same time that they released the regulations, CMS sent a letter to State Medicaid Directors that outlines opportunities for states improve behavioral health care via the Medicaid program, including receiving Federal Medicaid funds for services delivered during IMD stays.

Those changes – as well as other substantive changes – are outlined in greater detail below. In addition, CMS made technical changes and clarifications to the regulations, including those related to Medical Loss Ratios, practice guidelines, quality strategies and external quality reviews, and various CHIP provisions.

Key Changes to the Medicaid and CHIP Managed Care Regulations

Coordination of Benefits (42 CFR 438.3)

CMS proposes to eliminate the requirement that Managed Care Organizations (MCOs), Prepaid Inpatient Health Plans (PIHPs), and Prepaid Ambulatory Health Plans (PAHPs) enter into Coordination of Benefits (COB) Agreements with Medicare and participate in automated claims crossover for Medicare / Medicaid dual-eligible beneficiaries. Instead, states would be required to specify in their contracts with those managed care entities the methodology by which the state will ensure that the carriers receive appropriate crossover claims. If the state selects a methodology other than COB agreements, that methodology must ensure that providers are promptly informed when a claim is sent to a managed care carrier.

Capitation Rates (42 CFR 438.4)

CMS proposes to roll back its prohibition on the state use of rate ranges for managed care capitation rates. Instead of using a specific rate for each rate cell, states would be permitted to develop and certify rate ranges for each cell, provided that:

• The state identifies and justifies the assumptions, data, and methodologies specific to the lower and upper bounds of the rate range;
• An actuary certifies the lower and upper bounds as actuarially sound;
• The rate range is limited to 5% (the upper bound may not be more than 1.05 times the lower bound);
• The rate certification documents the state’s criteria for paying managed care plans at different points within the rate range; and
• Payments within the rate range are not based on the willingness or agreement of a carrier to enter into or adhere to Intergovernmental Transfer (IGT) agreements or the amount of funding a carrier provides through an IGT.

States utilizing rate ranges would be required to document capitation rates within the rate range prior to the start of the rating period for each carrier, and those rates would have to comply with all other rating requirements. Those states would not be permitted to modify capitation rates within the 1.5% threshold for modifications otherwise permitted under 42 CFR 438.7. Instead, they would have to submit a revised rate certification to modify rates by any amount within the rate range during the year, and, in order to revise rates, would need to demonstrate that: (1) the criteria for initially setting the rate within the range were not applied accurately; (2) there was a material error in the data, assumptions, or methodologies used and the modifications are necessary to correct the error; or (3) other adjustments are appropriate and reasonable to account for programmatic changes.

CMS also proposes changes to specify standards for actuarial soundness, as well as to vary rates across covered populations. Such rate variation must be based on valid rate development standards that represent actual cost differences in providing coverage to the different populations and may not vary based on the Federal Financial Participation (FFP) rate for each population in a manner that increases Federal costs. Under the proposed regulations, states would have to evaluate the validity and impact of the differences in assumptions, methods, and factors used to develop different capitation rates and could be required to provide written documentation and justification of those differences. CMS also noted several rate development practices that would be prohibited, including: using higher profit margin, operating margin, or risk margin for any population as compared to the population with the lowest average FFP; factoring in the additional costs of contractually-required fee schedules or minimum reimbursement above that for the population with the lowest average FFP; and using a lower remittance threshold for a medical loss ratio for any population compared to the population with the lowest average FFP.

Rate Development (42 CFR 438.5)

CMS proposes to clarify that the two-year time period for corrective action plans for states to come into compliance with the requirement to provide data demonstrating the soundness of rates begins on the last day of the rating period in which an exception was granted due to the unavailability of data.

Incentive, Risk-Sharing and Withhold Arrangements (42 CFR 438.6)

CMS proposes amending the regulations to include an express prohibition against retroactively adding or amending risk-sharing mechanisms after the start of the rating period (rates, on the other hand, could continue to be adjusted retroactively as needed and permitted under 42 CFR 438.7). The proposed regulations also clarify that if a minimum fee schedule was approved within a Medicaid state plan, it does not need to be submitted for prior approval of the directed payments. That, however, does not apply to supplemental payments.

CMS also proposes making several significant changes to the provisions allowing exceptions to the general prohibition on states directing carrier expenditures. In addition to the existing exceptions, these changes would allow states to direct payments to adopt a market-based rate for provider payments, such as a cost-based rate, a Medicare equivalent rate, or a commercial rate. The proposed regulations would also allow for multi-year approval for directed payments tied to value-based purchasing arrangements and delivery system reform efforts. To receive multi-year approval, the state must:

• Explicitly identify the request as multi-year and describe the multi-year payment arrangement in the contract, including a description of the payment arrangement by year if it varies by year;
• Develop and describe its plan for implementing a multi-year payment arrangement, including a multi-year evaluation; and
• Affirm that it will not make changes to the payment methodology or magnitude of the payments without prior approval from CMS.

The regulations would also eliminate the prohibition on contracts with value-based purchasing or delivery system reform or performance improvement initiatives from setting the amount or frequency of expenditures.

Finally, CMS proposes to allow states to temporarily maintain supplemental payments as pass-through payments, even if they are newly transitioning populations and/or services from fee-for-service to managed care. Pass-through payments could be made to hospitals, nursing facilities, and physicians when Medicaid populations and services are initially transitioning to managed care, provided that:

• The services are being covered for the first time under managed care and were previously covered via fee-for-service;
• The state made supplemental payments for the same provider types under fee-for-service during the 12-month period two years immediately prior to the first rating period under managed care, which were related to services that will now be covered under managed care; and
• The aggregate amount of the pass-through payments is less than or equal to the amount of supplemental payments for each provider type during the 12-month period two years immediately prior to the first rating period under managed care.

These pass-through payments could continue for up to three years as long as the services continue to be provided.

Rate Certification Submissions (42 CFR 438.7)

CMS proposes to exempt those states making permitted rate changes within the 1.5% modification threshold from submitting a revised rate certification or justification unless CMS specifically requests they do so. Such adjustments would continue to be subject to the requirements related to differing capitation rates across populations as outlined in 42 CFR 438.4(b)(1). CMS announced in its proposal that it will issue annual guidance regarding the Federal rate review and approval process.

Non-Emergency Medical Transportation (NEMT) PAHPs (42 CFR 438.9)

The proposed regulations clarify that medical loss ratio standards do not apply to NEMT PAHPs.

Information Requirements (42 CFR 438.10)

CMS proposes to limit certain standards relating to beneficiary notices. The requirement that the state and carriers include taglines regarding access support in large print and certain languages would only apply to materials for potential enrollees that are considered critical to obtaining services. The regulations also propose to update the definition of large print.

In regard to notifying enrollees of provider terminations, carriers would be allowed to do so 30 days prior to the effective date of the termination if that date is later than the current standard of 15 days after the receipt/issuance of the termination notice. Carriers would also no longer be required to include in their provider directories information about which providers have completed cultural competence training. Finally, carriers would be able to update hard-copy provider directories only quarterly (instead of monthly) if they have a mobile-enabled directory.

Disenrollment (42 CFR 438.56)

CMS proposes to clarify that Primary Care Case Management (PCCM) and PCCM entities are not required to have a grievance procedure.

Network Adequacy (42 CFR 438.68)

The proposed regulations would allow states to adopt any quantitative minimum access standards, rather than time and distance standards specifically, for provider networks. States would also be able to define the specialists to which those standards apply, and the category of “other providers that promote the objectives of the Medicaid program” would be eliminated from the scope of network adequacy requirements.

Health Information System (42 CFR 438.242)

CMS proposes to clarify that the encounter data states must submit includes the allowed and paid amounts.

Quality Requirements and Activities (42 CFR 438.310 – 438.370)

The regulations propose several changes regarding quality initiatives. First, CMS would no longer require prior approval for states’ alternative Quality Rating Systems (QRSs). CMS could, however, request that states submit alternative QRS frameworks – including documentation of public comments and responses. CMS also proposes to develop mandatory measures to be incorporated into alternative QRSs, and to qualify the requirement that information yielded by alternative QRSs be substantially comparable to allow comparison across states by adding the phrase “to the extent feasible.” CMS proposes to undertake a stakeholder process to develop guidance on how to meet that standard, to develop mandatory performance measures, and to seek to align with Qualified Health Plan QRSs and other rating system approaches as appropriate.

Second, in regard to quality strategies, CMS proposes to include disability status unrelated to eligibility among the health disparities that must be addressed.

Last, the proposed regulations would require states to include the names of any MCOs exempted from External Quality Reviews (EQRs), as well as the start date of the exemption, on the state’s website where EQR technical reports are posted. CMS stated that it is considering requiring information about exemptions to instead be posted in the technical report itself.

Grievance and Appeals System (42 CFR 438.400 – 438.424)

CMS proposes to eliminate the requirement that carriers notify enrollees of adverse benefit determinations related to claims not being clean. It also seeks to eliminate the requirement that beneficiaries submit a written, signed appeal after requesting an oral appeal. Finally, it seeks to give states greater flexibility in determining the time period during which beneficiaries may request fair hearings; rather than requiring beneficiaries be given 120 days, states could set the cut-off between 90 and 120 days.

CHIP Provisions

In large part, the revisions to the Medicaid provisions adopted above are applied to CHIP (as applicable) via the pre-existing cross-references to those provisions. CMS also clarified that—for the purposes of CHIP—states must comply with the prior changes as of the first day of the State Fiscal Year beginning on or after July 1, 2018, even if that date falls during the term of multi-year contracts.

CHIP Grievance and Appeals System (42 CFR 457.1260)

The regulations propose to make much of this section specific to CHIP, rather than simply incorporating the Medicaid provision. In particular, CMS proposes to change the definition of adverse benefit determination to exclude denials of an enrollee’s request to obtain out-of-network services; to specifically reference external reviews under CHIP; and to clarify CHIP-specific notice requirements. CMS also proposes to eliminate the requirement that states pay for disputed services while an appeal is pending under CHIP.