Managed Care Notice of Proposed Rulemaking

On May 26, the Centers for Medicare & Medicaid Services (CMS) released a notice of proposed rule making (NPRM) that, once adopted as final regulation, represents the first major update to the rules governing Medicaid managed care since 2002. Since this time, Medicaid managed care has expanded in both scope and nature, with a considerable increase in beneficiaries enrolled in managed care and the addition of new, more vulnerable populations (e.g., individuals requiring long-term service and supports; individuals with complex health care needs) into this coverage type. Comments are due by 5pm on July 27, 2015. 

NASHP has developed a series of documents to help states identify key areas for comment, as well as highlight the proposed changes that are likely to have the biggest impact on the administration of Medicaid and the Children’s Health Insurance Program (CHIP) in the coming years.

Five things states should know about the proposed rule

 The potential scope and scale of policy changes resulting from this proposed rule are significant, to help states develop comments we have selected the “Top 5″ sections that are likely to most significantly affect future state administration of Medicaid managed care, based upon informational calls and conversations with partner organizations and state officials.

1) 14-day selection period for enrollees in Medicaid Managed Care

With adoption of the proposed rule, states with either a voluntary or mandatory managed care program (with limited exceptions) would establish a new preliminary period of Medicaid fee-for-service (FFS) to allow for active beneficiary choice of a managed care plan. Current regulation already provides all Medicaid managed care enrollees the opportunity to change plans, for any reason, within 90 days of enrollment. States may want to consider how the addition of 14 days of FFS coverage could affect beneficiaries and how shifting from FFS to managed care would work for vulnerable populations or the implementation of care coordination strategies. Many states require Medicaid managed care entities to promptly identify key vulnerable populations (e.g., high-risk pregnant women, individuals with complex care needs) and to have mechanisms in place that link these enrollees with specialty services and a primary care provider. States may wish to comment on: The proposed 14-day FFS- selection period could potentially interrupt and/or delay protections. (Pages 31134-31135).

2) Creation of a Medicaid Loss Ratio for Medicaid and CHIP.

Beginning January 1, 2017, states would be required to implement an 85 percent Medical Loss Ratio (MLR)[1] in contracting with managed care entities serving Medicaid and CHIP beneficiaries which mirrors the MLR established for large group plans under the ACA (individual and small group plans have an 80 percent MLR per the ACA). Twenty-eight states have already established an MLR for their Medicaid managed care plans that is equal to or higher than the level proposed, and under the NPRM each would retain the ability to set a higher standard.

States should also be aware that the rule does not require managed care entities to pay remittance to states when plans fall short of the proposed MLR. Instead, the proposed rule only encourages states to implement such a policy and, if a remittance is collected, requires the state to return a portion to the federal government. States will have to consider whether to implement a remittance policy when operationalizing this section of the NPRM, and may wish to comment on whether having an MLR without penalty would be beneficial to a state.

In the proposed rule there are certain Medicaid-specific costs that are considered medical expenses, including fraud prevention and care coordination activities, for the purposes of calculating the MLR. States may wish to comment on: Given the variation of Medicaid managed care populations is the adoption of a single nationwide standard appropriate? Does classifying these costs support the goals of the Medicaid program and does having a different set of rules for these plans pose challenges for state insurance regulators? (Pages 31107-31113).

3) Changes to Network Adequacy Rules

The NPRM maintains states flexibility in developing network adequacy standards. However, the rule reiterates that states must establish network adequacy standards that ensure access to all services contained in the managed care contracts, and states will be required to consider this language in the development of any standards as a result of this proposal. Additionally, the NPRM would require states to establish new time and distance standards for each of the following provider types:

  • Primary care (adult and pediatric)
  • OB/GYN
  • Behavioral Health
  • Specialists (adult and pediatric)
  • Hospital
  • Pharmacy
  • Pediatric Dental
  • Any additional provider types, “when it promotes the objectives of the Medicaid program for the provider type to be subject to such time and distance standards.”

By allowing states to retain flexibility in standard development, The Centers for Medicare & Medicaid Services (CMS) acknowledges the benefit in having states evaluate area-specific needs. States can provide comments on this approach. A time and distance standard has been proposed and states may wish to comment on whether this standard, or any other standard (e.g., provider-enrollee ration), best reflects the needs of their populations. States may also choose to comment on whether there should be a different type of standard for certain provider types or targeted populations (e.g., children and youth with special health care needs). Other considerations for comment include proposed time and distance requirements for “specialists”. The NPRM does not define this term and there are no time and distance requirements for these provider types in commercial plans. States may wish to comment on: How to best approach specialist care and alternative proposals for guaranteeing access. (Pages 31144-31146).

4) Streamlining of enrollee appeals and grievances

Under the proposed rule, states will be required to offer beneficiaries access to a state fair hearing after the completion of a plan’s internal review process and plan internal review is limited to one level of appeal. These policies are consistent with the rules in place for issuers offering individual marketplace insurance. States may want to consider capacity to provide fair hearings to the new appellants and whether further process within the plans could better facilitate resolution. Additionally, states currently have the option of allowing beneficiaries to seek a state fair hearing prior to the finalization of the plan appeal process.

Many states will be required to change the amount of time both for enrollees to appeal an adverse benefit decision and for state findings on an appeal. The proposed rule would create a standardized 60-calendar-day period for appeals. Previously, states had the ability to select a time period anywhere between 20 and 90 days. States may wish to comment on how this new time period could affect their processes and the benefit of the current flexibility. The proposed rule requires appeal decision in 30-calendar-days, with 72 hours for a response in an expedited appeal; current rules allow for a 45-day decision period or 3 business days for expedited matters. States may wish to comment on: Does current flexibility better meet the needs of the state’s Medicaid population? The capacity to process appeals and the fiscal impact of reducing appeal response time. (Pages 31102-31107).

5) States can require participation in multi-payer and value-based purchasing initiatives.

The rule reiterates that when states have agreements with plans to serve Medicaid and CHIP populations, there are limitations on the state’s ability to direct risk-bearing, contractor action. However, the rule lays out three exceptions to this underlying principle (which states have the option of executing) in recognition of the significant role Medicaid managed care has in health care delivery and the necessity of plan involvement for meaningful delivery system reform.


  1. The rule reiterates that states can require contractors to implement value-based purchasing models for provider reimbursement.
  2. The rule clarifies that states can require contractors to participate in multi-payer delivery system reform initiatives.
  3. The rule allows states to require plans to adopt certain types of uniform provider payment incentives and the adoption of a minimum provider payment fee schedule.

If states choose to execute any of the above options, the NPRM would require state contracts with the Medicaid managed care plans to include a common set of performance measures which will apply across all payers and providers “to evaluate the degree to which multi-payer efforts achieve the stated goals of the collaboration.”

States wish to comment on: Additional exceptions to the self-direction principle that would help them successfully engage Medicaid and CHIP MCOs in ongoing and/or planned transformation efforts. Whether the exceptions help achieve the stated goal of improving population health and how this provision interacts with other provisions within the NPRM. (Pages 31113-31115).

[1] A MLR requires that managed care entities expend a minimum established percentage of revenues on medical claims and quality improvement efforts. The remaining revenue may then be used for administrative costs (e.g., overhead, marketing, salaries), taxes, and profits.

Considerations for CHIP and Children’s Coverage

Many of the themes in the proposed changes may have an affect on children’s coverage, particularly potential policy variations for state Children’s Health Insurance Programs (CHIP). It is important to recognize that the recent extension of federal funding for CHIP was for only two years, which means funding for this program beyond September 2017 is uncertain. Although by and large, state officials support the principles of this NPRM to modernize managed care requirements and improve payment, accountability and quality, it will require substantial programmatic and policy changes once the final rule is promulgated. Many CHIP officials are reviewing this NPRM questioning if there will be time available for them to make some of these changes once they are finalized. This begs the question, is transforming managed care within separate CHIP programs, which may need to transition children to other sources of coverage should federal CHIP funding end, a good investment of time?

Aside from the overarching concerns regarding time constraints that some state CHIP officials have voiced, some of the proposed changes that could affect children’s coverage that emerged from discussions fall within the following three major themes.

1) Provider network adequacy standards and information: The Centers for Medicare & Medicaid Services (CMS) proposed that states make timeliness and distance requirements for primary care and certain specialty care providers as a way to ensure Medicaid and CHIP enrollees have access to care. Although this is not a current requirement, many Medicaid and CHIP programs already use such requirements as part of their contracting with managed care plans. At least one state recently stopped using timeliness in its urban areas as a measure of access and now only uses distance due to the high volume of traffic, which can be unpredictable. In recent discussions, state officials have also raised questions about how CMS is defining “specialty care”. Some also have concerns about using the same standards for primary care as for specialty care given the difference in the numbers of each within these two categories of providers. State officials want to use meaningful standards with their managed care plans to ensure beneficiaries are able to access necessary care.

The NPRM calls for Medicaid and CHIP programs to include access to managed care plan provider directories on their state program websites. Online, searchable provider directories can be valuable tools for consumers both in choosing their health plans and in identifying available providers once enrolled – but only if the directory is up-to-date and accurate. Maintaining accurate provider directories is a challenge for public and commercial insurance. State officials should consider how best to implement this and offer thoughts for the final rule. For instance, how often should the directory be reviewed for accuracy?

2) Ensuring continued services to Medicaid and CHIP enrollees: CMS proposes that state Medicaid and CHIP programs have care transition plans in place for beneficiaries that transition from a fee-for-service delivery system to a managed care plan or between managed care plans. The NPRM allows states to define the transition of care policy as long as it meets specific proposed standards. Such standards include: permitting a beneficiary to continue receiving services from a current provider for a specified time period and assuring the beneficiary’s new provider is able to obtain appropriate medical records. Presumably, this is designed to ensure continuity of care and access to specialty providers for Medicaid and CHIP beneficiaries, particularly those with complex medical needs like Children & Youth With Special Health Care Needs (CYSHCN) or high-risk pregnant women. State officials agree that policies supporting smooth care transitions that minimize disruption in care could be extremely beneficial to children and their families and are the right thing to do. However, CHIP officials noted if this policy becomes a requirement state officials may face some implementation challenges. A prior authorization for care made by one managed care plan for services from a specific provider may not necessarily be recognized by other managed care plans. Some states also have laws and regulations that restrict sharing behavioral and mental health medical records, particularly those of children and youth. To implement the proposed transition of care policy, states may need to make legislative or regulatory changes to share medical records and will likely need to work directly with plans and providers to ensure these transition plans are enforced.

3) Enrollment requirements: The NPRM proposes that Medicaid (this proposed policy change does not pertain to CHIP, but if made final would affect children) beneficiaries have a minimum of 14 days after they are determined eligible in the program to choose a managed care plan. During this period, states would need to provide individuals with a fee-for-service arrangement. In discussions about the NPRM, state officials acknowledged the value of consumer choice, but raised concerns with this proposed requirement. One concern state officials have expressed is that newly enrolled individuals, including children, can experience a delay in receiving necessary care if they are not immediately enrolled in a managed care plan with access to a case manager and primary care provider. There are also system issues to consider. Some state enrollment systems are designed to immediately enroll beneficiaries into health plans; then beneficiaries have a period of time in which they can make a plan change. In considering children’s health needs and particularly those of CYSHCN, it is very important that families have an opportunity to choose the Medicaid managed care plan that meets their needs. However, a delay in care while the plan choice is being made could also be detrimental to children.

State officials share CMS’ interest in designing and implementing policies that support continuity and access to appropriate care and have many such policies in place currently to achieve those goals. Although there will be some challenges for both states and CMS to implement these proposed rules when they become final, there is also the opportunity for collaboration.

Considerations for Medicaid Managed Care Quality Requirements

For many states with large, long-running Medicaid managed care programs, these proposed requirements are a continuation of quality improvement work already in place. However, for states newer to managed care or with small managed care populations, there may be bigger implications. In general, the proposed rules seem to move quality requirements from compliance and oversight to a more strategic view on improving Medicaid and Children’s Health Insurance Program (CHIP) quality. According to The Centers for Medicare & Medicaid Services (CMS), these updated regulations are designed to modernize and move Medicaid and CHIP managed care towards alignment with exchange and Medicare quality requirements, as well as incorporate delivery system reforms that are already sweeping across state Medicaid managed care programs.

State review and approval of managed care plans: CMS proposes that each state Medicaid managed care program must implement a review and approval process for each of their Managed Care Organizations (MCO). The review must be similar to private accreditation programs run by entities already approved by CMS, namely, the National Committee for Quality Assurance (NCQA), URAC and Accreditation Association for Ambulatory Heath Care (AAAHC). Every three years, these organizations review a health plan’s policies and procedures in quality assurance, utilization management, provider credentialing, complaints and appeals, network adequacy, patient information programs, as well requiring plans to annually report quality measures.

To implement the required review and approval process, the NPRM gives states three options:

1) Contractually require their MCOs to obtain private accreditation;

2) Implement their own review and approval that is as stringent as the private accreditation programs; or

3) Some combination of 1 and 2.

When thinking about what option a state would want to implement, it should consider if accreditation is already used in the state’s oversight process (Option 1). An estimated 28 states already mandate accreditation for their Medicaid health plans. Also, if states chose to implement Option 1, then they could consider opportunities to reduce their External Quality Review Organization (EQRO)’s review process by deeming overlapping EQRO requirements as met through accreditation.

State quality rating system (QRS): CMS proposes to require that each state Medicaid program implement a quality rating system (QRS) over a period of three to five years. States will have the option to either implement a federally-defined quality rating system (QRS) for Medicaid managed care plans or seek CMS approval on an alternative or pre-existing rating system.

CMS proposing to develop a national Medicaid QRS aligns with CMS’s strategy for other federal programs. CMS currently operates two other national health plan level rating systems,

1) Medicare Advantage rating system (Medicare Advantage stars) in which all Medicare health plans must participate,

2) Exchanges (Marketplace) QRS that all health plans in both federal and state exchanges must participate

CMS proposes that similar to the Marketplace QRS, the Medicaid QRS would calculate three summary indicators for each health plan: clinical quality management, member experience, and plan efficiency/affordability/management. For both Medicare and Marketplace rating systems, each health plan reports results to CMS for a number of Health Effectiveness and Data Information Set (HEDIS) measures as well as Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey results, which CMS uses to calculate the three summary indicators to display to consumers during plan selection. These rating systems are designed to hold health plans accountable for the care they provide and offer transparency to those beneficiaries selecting the plans.

States that already have their own quality rating system can consider whether they want to seek CMS approval to use their pre-existing system. A number of states already have a system in place (e.g., California and New York) and could start working with CMS now to understand the intended review and approval process. States that don’t have a pre-existing QRS, but are interested in pursing their own alternative Medicaid QRS, can look to these example states and also start working with CMS to understand the intended review and approval process.

In the spirit of alignment across programs and requirements, it is likely that CMS will select federal adult Medicaid and Child Core set measures to be used in the calculation of the national Medicaid QRS. Most of these measures are HEDIS measures, which many state Medicaid managed care programs already require their MCOs to collect and report to the state. States likely to implement the national Medicaid QRS may want to consider if their MCOs are required to report HEDIS and/or the applicable federal measure sets.

In building a national QRS that will have to apply to all states, both states and CMS could begin to think about the design of the rating system, in particular how one national rating system can be applicable and appropriate for all states. For example, do states that include different Medicaid populations in managed care use the same set of measures and methodology (e.g., families versus dual-eligibles, expansion versus non-expansion)? Do MCOs report one result for their entire Medicaid population or stratified results? Are states required to report the results to Medicaid beneficiaries?

Changes to Performance Improvement Project (PIP): Currently state Medicaid managed care programs must require and review from each of their MCOs, annual PIPs that describe efforts to improve a topic area (e.g., diabetes, maternal care) with defined measures of improvement (e.g., HbA1c control, postpartum care). Currently, state Medicaid programs implement this requirement in different ways, for example requiring each MCO to develop one PIP on a state-identified topic area that is of strategic importance to the state, and then MCOs can name another topic based on their own opportunities for improvement.

The NPRM calls for CMS to solicit public comment to establish a national core set of PIP measures and topics. In this proposal, states would be required to have their MCOs develop PIPs from that national lists alongside state-specified topics, or go through an exemption mechanism to select alternative topics and measures. To limit the effect on state Medicaid programs, states could start speaking with CMS now about how this proposed requirement would be implemented. For example, its unclear if all PIP topics have to be from the national list or if states must require a minimum number of national PIP topics. It is also important to consider how broad the list of topics will be. If CMS offers a wide-range of topics and measures, and regularly updates the list then it is likely that most states’ priority topics will be on this national list. However, if CMS only includes a small number of topic areas, then state Medicaid programs are less likely to be able to align their MCO PIP requirements with their state’s comprehensive quality strategy, or the program will spend resources on seeking an exemption.

Comprehensive quality strategy: CMS proposes to expand the state Medicaid managed care program quality strategy to all delivery systems including fee-for-service (FFS) in both Medicaid and CHIP. CMS proposes that the quality strategy would include goals and objectives for improvement, as well as the specific metrics and targets that states plan to use for measuring improvement. Since this a new requirement that would take additional resources, states can work with CMS to clarify if states are required to calculate and track quality measures for their FFS population and whether there is an enhanced match rate or other federal support for the work. It will also be important to define when FFS populations should be in the strategy and the expectations for how they are incorporated into the strategy. For example, for states that only have FFS populations of those waiting fourteen days to be enrolled in managed care, should have different expectations with a larger FFS population. States can also start planning now for this potential requirement by working across state programs to understand current initiatives and potential alignment for a comprehensive strategy.

CHIP quality requirements: CMS proposes that the existing and proposed quality requirements for state Medicaid managed care programs now apply to CHIP managed care programs. Specifically, state CHIP programs would review and approve the performance of each MCO and determine a quality rating for each, include CHIP in their Medicaid EQRO review and comprehensive quality strategy, and require CHIP MCOs to have ongoing quality assessment and PIPs. Since there are currently limited quality requirements for CHIP MCOs, states will want to consider the resources required to implement and oversee this piece of their program.

For states operating combined Medicaid and CHIP programs, especially through the same MCOs, there are opportunities to build CHIP into current Medicaid quality programs. States will want to clarify the extent to which combined oversight and review is allowed. For example, do states need to calculate separate quality measure results for each population or can they calculate a combined Medicaid and CHIP result? Related, can states produce one quality rating for these MCOs or are separate ratings required? If separate ratings are required, then “small numbers” issues could affect the availability of reliable measure data to use in calculating a rating system. Another big question is can the state’s External Quality Review Organization jointly review Medicaid and CHIP plans? For states with separate CHIP programs, resources to implement these requirements are especially a concern, and they can begin to work with sister Medicaid agencies and CMS to identify how most efficiently and effectively to implement these requirements.

In summary, CMS’ move to modernize and align Medicaid and CHIP’s quality requirements is an initiative designed to assure the quality of care for patients. CMS and states working together could implement these rules in a way that balances the need for national priorities and state flexibility, and accounts for limited state resources.