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At a Glance: What Providers Need to Know About the Medicaid Managed Care Final Rule
April 27, 2016

On April 21, 2016, the Centers for Medicare & Medicaid Services (CMS) issued its final rule on managed care in the Medicaid program (the Final Rule), which will be published in the Federal Register on May 6, 2016.  This is the first major update to the federal Medicaid managed care program requirements in 42 C.F.R. Part 438 in over a decade.  As nearly two-thirds of Medicaid enrollees are enrolled in some form of managed Medicaid, this Final Rule will impact every health care provider that treats Medicaid patients both financially and operationally.

Through this Final Rule, CMS seeks to align Medicaid managed care with Medicare Advantage and private market policies, bolster state delivery reforms, strengthen consumer protections, impose new quality ratings and program integrity requirements, and set up best practices.  The proposed rule directly impacts states, Managed Care Organizations (MCOs), Prepaid Inpatient Health Plans (PIHPs), Prepaid Ambulatory Health Plans (PAHPs), and Primary Care Case Managers (PCCMs) and will have downstream impacts on healthcare providers.

Key components of the rule include:

  • Continued Authorization of “Pass-Through” Payments for a Limited Time:  The Final Rule restricts the authority of states to direct how Medicaid managed care plans pay providers, except to implement value-based purchasing models, to support delivery system reform or performance improvement initiatives, or to adopt a minimum fee schedule, a uniform dollar or percentage increase or maximum fee schedule for network providers.  Importantly, CMS will permit states to make pass-through payments, such as the “Upper Payment Limit” payments under various state Medicaid programs, for a limited period of time to hospitals, physicians and nursing facilities.  Pass-through payments to hospitals must be phased out on a 10-year schedule, starting on or after July 1, 2017, and must decrease by 10 percentage points each successive year.  Pass-through payments to physicians or nursing facilities must be phased out for contracts beginning on or after July 1, 2022. 
  • Medical Loss Ratio: CMS adopted its proposal to require Medicaid managed care plans to calculate and report a medical loss ratio (MLR).  The Final Rule finalizes the authorization to states to establish a minimum MLR of at least 85 percent.  Despite comments from many stakeholders requesting that the MLR become a mandatory requirement, the Final Rule grants states the discretion as to whether to require Medicaid managed care plans to provide a remittance if the plan does not meet the MLR.
  • Actuarial Soundness:  The Final Rule requires that capitation rates for Medicaid managed care plans be actuarially sound and establishes a set process to be used by states in setting capitation rates.  This process must consider, among other things, the plan’s past and projected MLR.  In addition, the Final Rule provides for CMS review and approval of rates for actuarial soundness.
  • Benefit Flexibility: CMS finalized its proposal to permit MCOs and PIHPs to receive a capitation payment from the state for an enrollee aged 21 to 64 that spends a portion of the month for which the capitation is made as a patient in an institution for mental disease (IMD).  In a departure from the proposed rule, the Final Rule grants increased flexibility for Medicaid managed care plans to cover services or settings in lieu of services or settings covered under fee-for-service Medicaid upon certain conditions, including approval by the State. 
  • Network Adequacy/Accessibility:  The Final Rule requires states to develop network adequacy requirements that apply to contracts covering medical services, behavioral health services and Long Term Supports and Services (LTSS).  States will be required to establish time and distance standards for certain network provider types, including: primary care (adult/pediatric); OB/GYN; behavioral health (mental health and substance use disorder, adult and pediatric); specialist (adult/pediatric); hospital, pharmacy; and pediatric dental.  In addition, in acknowledging the special situation of LTSS where the provider site is the enrollee’s residence, states with managed Medicaid contracts covering LTSS will be required to develop: (1) time and distance standards for LTSS provider types in which an enrollee must travel to the provider to receive services and (2) network adequacy standards other than time and distance standards for LTSS provider types that travel to the enrollee to deliver services.  The Medicaid managed care entity will be required to ensure that network providers meet the state standards for timely access and offer hours of operation that are no less than the hours of operation offered to commercial enrollees or fee-for-service beneficiaries.
  • Integration of Long Term Supports and Services: The Final Rule addresses the rapid expansion of Medicaid managed care in the delivery of LTSS by, among other things, requiring Medicaid managed care plans to address the unique needs and vulnerabilities of this population in all aspects of their operations. In order to effectuate this integration of LTSS into the more established Medicaid benefits implemented by these plans, CMS is requiring a heightened level of stakeholder engagement, including the development of beneficiary support systems and “choice” counseling specifically tailored for LTSS recipients and those who represent them. CMS is likewise requiring the implementation of comprehensive assessments of individuals requiring LTSS as well as the production of treatment/service plans for these individuals that are developed by experts in LTSS service coordination and “person-centered” care. These required processes are designed to ensure that LTSS recipients are able to understand the benefits available to them through Medicaid managed care plans and how to access necessary services.  This includes the significant requirement that Medicaid managed care plans allow enrollees to disenroll if they would have to change their LTSS provider based on the provider’s change of status from an in-network to an out-of-network provider.  The overarching goal in the Final Rule as to LTSS is to ensure that these individuals’ transitions through different care settings (particularly between home, nursing facility and/or hospital) are handled in a manner that best addresses their medical and non-medical needs and maximizes their quality of life and independence.
  • Provider Screening and Enrollment:  Prior to the Final Rule, states varied as to whether they require that network providers with MCOs, PIHPs, PAHPs and PCCMs be enrolled in the respective state Medicaid program.  The Final Rule requires the screening, enrollment, and revalidation by states of all network providers of MCOs, PIHPs, PAHPs, and PCCMs or PCCM entities, to the extent the primary care case manager is not otherwise enrolled with the state to provide services to Fee-for-Service (FFS) beneficiaries.  State enrollment of these providers does not obligate the providers to render services to FFS beneficiaries.  Network providers will also be required to be credentialed pursuant to the applicable state’s uniform credentialing and recredentialing policy for acute, primary, behavioral, substance use disorders and LTSS providers.
  • Other Provider Program Integrity Provisions:  One welcome change in the Final Rule is the distinction between a “network provider” and a “subcontractor,” and a clarification of the different obligations of Medicaid managed care entities with respect to each of these categories.  The Final Rule clarifies that a network provider is not a subcontractor by virtue of entering into a network provider agreement with a Medicaid managed care plan.  A network provider may become a subcontractor if it enters into a contract that relates directly or indirectly to the performance of the entity’s obligations under its contract with the State.  A network provider would likely be treated as a subcontractor under arrangements where the provider accepts risk for Medicaid managed care beneficiaries or performs administrative functions like utilization management for a Medicaid managed care entity.  The Final Rule requires that Medicaid managed care entities impose broader obligations on subcontractors than network providers.

With respect to network providers, the Final Rule confirms that Medicaid managed care entities will also have to have processes in place for: (1) notifying the State when the entity receives information about a change in a network provider’s circumstances that may affect the provider’s eligibility to participate in Medicaid managed care; (2) verifying whether services are actually provided by network providers; and (3) suspending payments to a network provider for which the State determines there is a credible allegation of fraud.  In addition, CMS finalized its proposal that each MCO, PIHP or PAHP requires and has a mechanism for a network provider to report to the entity when it has received an overpayment, to return the overpayment within 60 calendar days after the date on which the overpayment was identified, and to notify the entity as to the reason for the overpayment. 

  • Quality Reforms:  The Final Rule authorizes states to develop and implement a Medicaid quality rating system, and extends requirements for external quality review and a managed care quality strategy to all types of managed care.  CMS adopted a policy not previously proposed to require states to include in their quality strategy a plan to identify, evaluate and reduce health disparities based on age, race, ethnicity, sex, primary language, and disability status, and mechanisms to identify individuals who need LTSS or who have special health care needs.  The Final Rule will also require states to make their quality strategy reviews available on the internet.
  • Appeals and Grievances:  The Final Rule revises the appeal and grievance requirements on managed Medicaid to align those provisions with Medicare Advantage and private insurers.  Importantly for providers, the Final Rule limits a plan’s internal appeal processes to a single level and would only permit a state fair hearing until after that internal plan appeal is exhausted.  The Final Rule also authorizes states to offer and arrange for external medical review under certain conditions.

For additional information, please contact Mark E. Reagan, Felicia Y Sze or Katrina A. Pagonis in San Francisco at (415) 875-8500; Lloyd A. Bookman or Nina Marsden in Los Angeles at (310) 551-8111; or Keith Fontenot in Washington, D.C. at (202) 580-7706.

For media assistance, please contact Maura Fisher at 202-580-7714.