PERM

Client Alert: CMS Proposed Rule: Medicaid and Children's Health Insurance Program (CHIP) Managed Care, Access, Finance, and Quality (CMS-2439-P) and Ensuring Access to Medicaid Services (CMS-2442-P)

Medicaid Disproportionate Share Hospital (DSH)

January 2019

On April 27, 2023, the Centers for Medicare & Medicaid Services (CMS) released two proposed rules: Ensuring Access to Medicaid Services (CMS 2442-P) and Managed Care Access, Finance, and Quality (CMS 2439-P). With these two new rules, CMS is prioritizing access to care, quality of care, and improved health outcomes for Medicaid beneficiaries.

Myers and Stauffer reviewed these proposed rules in detail to determine how they, if implemented as written, will affect our clients’ programs. We have prepared a comprehensive analyses of various aspects of the rules to show how they will impact your Medicaid and CHIP programs. In the meantime, if you have not yet had chance to review the rules, you can find links to a CMS summary and the actual proposed rules below.

CMS’ Summary of Proposed Rules

Managed Care Access, Finance, and Quality

Ensuring Access to Medicaid Services

Managed Care Access, Finance, and Quality (CMS-2439-P)

Medical Loss Ratio Standards

On May 3, 2023, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule titled: Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality (CMS-2439-P) in the Federal Register. Myers and Stauffer is providing this client alert to ensure states are aware of several notable provisions specific to the medical loss ratio (MLR) standards.

The proposed MLR rule revisions primarily focus on achieving the following CMS goals:

Align Medicaid and CHIP MLR regulations with Marketplace regulations.
Provide clarifications and definitions to promote consistency, enhance transparency, and provide comparability of MLR reporting state to state and among commercial, Medicare, Medicaid, and CHIP managed care plans.
Promote strengthened contractual requirements.

Provider Bonuses and Incentive Payments

Since the implementation of the 2016 Medicaid managed care rule, CMS states it has identified inconsistencies, financial and reporting risks, and missing contractual documentation standards related to the reporting of provider bonuses and incentive payments in the MLR. CMS notes a current disassociation between meeting measurable clinical or quality improvement standards and receiving provider incentive payments. The proposed rule outlines how this can create a potential risk for artificial inflation of qualifying costs, rate period shifting of reported costs, and ultimately manipulated MLR percentages by managed care plans to avoid paying remittances (if applicable) for non-compliance with state’s minimum MLR requirements. Additionally, this could further result in inflated rate setting calculations for both current and future managed care capitation rates. Therefore, CMS proposes to provide clarity to both the Medicaid and CHIP MLR regulations to require additional contractual provisions to be explicitly included within the state – managed care plan contracts and subsequently the managed care plan – provider incentive contracts to align with original intentions for inclusion of these payments within the MLR numerator. This proposed change also aligns with the recently updated Marketplace regulations.

MLR Regulation Update – §§ 438.8(e)(2)(iii)(A); 457.1203

■ To be includable as incurred claims within the MLR numerator, provider bonuses and incentive arrangement payments would be required to be tied to clearly defined, objectively measurable, and well documented clinical or quality improvement standards.

Contractual Language Requirement Updates – §§ 438.3(i)(3) and (4); 457.1201

■ State managed care plan contracts would require each provider incentive contract between the managed care plan and network provider(s) include the following provisions:

Defined performance period tied to the MLR reporting period(s).
Requirements that contracts must be signed and dated by all parties prior to the beginning of the performance period.
Well-defined quality improvement or performance metrics the provider must meet to receive the incentive payment.
A specified dollar value tied to the successful completion of the established metrics, as well as an established payment date.

■ The managed care plan would continue to determine the appropriate quality improvement or quantitative metrics to include within provider incentive contracts, but the state managed care plan contract would need to outline the documentation required to be maintained by the managed care plan; require that the health plan make the payment contracts and supporting documentation available to the state; and explicitly prohibit attestations from network provider(s) as suitable documentation.

Important Notes:

Proposed applicability date: 438.8(e)(2)(iii)(A); 60 days following the effective date of the final rule.

Proposed applicability date: 438.3(i)(3) and (4); No later than the rating period beginning on or after 60 days following the effective date of the final rule.

Compliance with the 438.8(e)(2)(iii)(A) 60 days following the effective date of the rule, which requires provider incentives to be linked to quality measures for inclusion in the MLR calculation, could be problematic given the contractual updates required in 438.3(i)(3) and (4) would not be required until the rating period beginning on
or after 60 days following the effective date of the final rule. Provider incentives not linked to quality measures would be excluded from the MLR calculation prior to the requirement for managed care plans to include the performance objectives in provider contracts.

Prohibited Costs in QIA (§§ 438.8(e)(3)(i) and 457.1203(c))

CMS’ proposed change to prohibit the inclusion of indirect or overhead expenses not directly improving health care quality for reporting of QIA costs in the numerator of the MLR further supports alignment with Marketplace guidance. In addition, it improves MLR reporting consistency for better comparison across health plans and lines of
business.

As explained in the Marketplace rule’s comments and responses, the previous lack of clarity in regulation resulted in wide discrepancies regarding the types of expenses reported as QIA, creating an unequal playing field among issuers. CMS clarified the non-salary benefits (health coverage, retirement contributions, life insurance, or similar benefits) of employees performing QIA functions would be considered direct QIA expenditures but are limited to the actual percentage of time spent performing QIA duties. However, many other indirect expenses would be incurred regardless of whether the issuer was engaged in QIA or not and thus are non-includable as QIA. CMS
provided a list of non-exhaustive examples of indirect expenses to be excluded from QIA reported costs, which includes: office space (including rent or depreciation, facility maintenance, janitorial, utilities, property taxes, insurance, and wall art), human resources, salaries of counsel and executives, computer and telephone usage,
travel and entertainment, company parties and retreats, IT systems, and marketing of issuers’ products. CMS further stated as a general guideline, there must be a quantifiable and reasonable relationship that exclusively or primarily supports health care quality to be considered as a direct QIA expense. Expenses supporting regular
business or other functions would be considered non-claims costs. CMS further clarified when a software license or IT infrastructure is utilized to support QIA activities, but is not the primary function, this expense is not considered QIA. Finally, CMS clarified when QIA is outsourced versus provided in-house, the same principles for determination of QIA costs is necessary, which means the vendor’s indirect costs and any profits cannot be includable as QIA within the MLR calculation.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.

States may have remaining questions related to CMS’ definition of overhead or indirect expenses directly improving health care quality, which would be an includable QIA expense for the MLR. In addition, the Marketplace rule outlined executive salaries as an example of overhead that would be considered indirect and therefore not considered a QIA cost. However, it did not clearly define who would be considered an executive.

Reporting of SDPs and Associated Expenses (§§ 438.8(f)(2)(vii) and (e)(2)(iii)(C); 438.74; 457.1203(e) and (f))

Due to the increasing volume in SDPs over the last several years, CMS is proposing to broaden the visibility of SDPs specifically as it relates to MLR reporting. This proposed change aligns with reporting required for Medicaid FFS supplemental payments.

CMS proposes to require SDPs, developed under 438.6(c), be included within premium revenue of the MLR calculation (denominator) and amounts managed care plans distributed to providers as the associated expense of SDPs be included within incurred claims of the MLR calculation (numerator).

Submission of MLR summaries for each managed care plan to CMS is currently required of the state. CMS proposes to require managed care plans to report SDPs and associated expenses separately within MLR reporting to states. Furthermore, states would be required to include and separately identify this information within the MLR summaries to CMS.

CMS does not propose adopting the new reporting requirements for separate CHIP managed care plans as SDPs are not applicable.

Important Notes:

Proposed applicability date: Managed care plan to state reporting – 60 days following the effective date of the final rule; State to CMS reporting – The first rating period that starts on or after the effective date of the final rule.

Expense Allocation Methodology (§§ 438.8(k)(1)(vii) and 457.1203(f))

Currently managed care plans provide a report regarding the methodologies utilized to allocate expenditures for MLR reporting purposes. However, CMS noted a lack of detailed information in the Medicaid managed care plans’ MLR cost allocation reporting to states.

CMS proposes managed care plans must include information to reflect the same information required under the Marketplace requirements in the MLR report submitted to the state to offer more oversight and transparency into cost allocations and to reduce administrative burden for managed care plans. This change expands the existing text to clarify that the managed care plans’ expense allocation methodology(ies) provided must contain detailed descriptions outlining the methods used to allocate the following expense types:

Incurred claims.
QIA.
Federal and state taxes and licensing or regulatory fees.
Other non-claims costs.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.
CMS does not propose specifying preferred or required allocation expense methodologies nor does it address consistency in allocation factors between MLR reporting periods.

Prompt Reporting of Overpayments and Recoveries (§§ 438.608(a)(2) and(d)(3); and 457.1285)

CMS proposes requiring a contract provision between the state and each managed care plan to report all overpayments identified or recovered within 10 business days to the state, specifically identifying which overpayments are due to potential fraud. (Note: The fraud distinction is relevant to the MLR calculation as this recovery amount, not to exceed the amount of fraud reduction expenses, may be added back/included as incurred claims as prescribed in § 438.8(2)(iii)(B).) Current regulations require managed care plans have procedures to provide for prompt reporting of overpayments; however the term “prompt” is not defined.

Additionally, CMS proposes to revise the required annual overpayment reporting each managed care plan must submit to the state to include both identified and recovered overpayments. Current regulations only require overpayment recoveries be reported to the state. All identified overpayment/ recovery amounts must be excluded (reduction) from capitation rates and MLR numerator, prior to special consideration of fraud overpayments noted above. This ensures a complete reporting of all overpayment amounts (i.e., not partial settlements) and in the correct reporting period for inclusion within the correct rating period. Some managed care plans were applying recovery amounts against future incurred claims which may be reported in a subsequent rating period.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.

MLR Reporting Resubmission Requirements (§§ 438.8(m) and 457.1203(f))

CMS proposes to amend current regulatory text which requires managed care plans to resubmit MLR calculations when a retroactive change in capitation payments occurs to only require resubmission when the state makes a retroactive change to capitation rates. This assists with any confusion regarding resubmissions not being required solely based on retroactive eligibility membership reviews that change the amount of capitation payments to the managed care plan, but do not change capitation rates. CMS notes the proposed regulatory change would require resubmission of the MLR by the managed care plan when a state modifies a state directed payment paid under a separate payment term.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.

It may be advantageous for states with MLR rebate requirements or similar risk corridor settlements contingent on MLR calculations to continue to require MLR resubmissions even if CMS does not require this practice. Retroactive changes due to eligibility reviews many times result in increases in capitation payments, which if
significant, could trigger or increase rebates due to states by the managed care plans.

Level of MLR Data Aggregation (§§ 438.74(a) and 457.1203(e))

CMS proposes to require states submit a summary description of each MLR report received from the managed care plans under contract with the state, rather than a summary aggregating MLR data over the entire state. CMS notes its original intention was for the summary description to include MLR data at a managed care plan-level
basis. However, based on submissions it received from several states, this was not stated explicitly enough.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.

Credibility Factor Adjustment Publication Frequency (§§ 438.8(h) (4) and 457.1203(c))

CMS proposes to remove the reference to the “annual” frequency basis for the credibility factor adjustment, as the factors and model have not changed since the original publication in 2017. The model utilized a statistical model applying the Central Limit Theorem (80 FR 31111) which produced factors not expected to change annually.

Important Notes:

Proposed applicability date: 60 days following the effective date of the final rule.

Next Steps

The proposed rule will have a significant impact on state requirements for MLR managed care plan reporting as well as monitoring and contract provisions. States will need to review MLR reporting templates, MLR reporting instructions, managed care plan contracts, and their managed care plans’ contracts with providers to determine the potential impact the proposal may have on their current managed care program. Myers and Stauffer partners with more than 20 states and CMS in ensuring proper oversight of managed care health plans and compliance with CMS regulatory requirements, including all aspects of MLR reporting and auditing.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Medical Loss Ratio (MLR) proposed changes one sheet.

State-Directed Payments

CMS states its intended purpose of the proposed SDP changes is to ensure the following policy goals:

Medicaid managed care enrollees receive access to high-quality care under SDP arrangements.
SDPs are appropriately linked to Medicaid quality goals and objectives for the providers participating in the SDP arrangements.
CMS and the state have the appropriate fiscal and program-integrity guardrails in place to strengthen the accountability and transparency of SDP payment arrangements.

Contract Requirements Considered to be SDPs (Grey-area Payments) (CMS CLARIFICATION ONLY)

CMS states its thinking has evolved since it published the November 2017 Center for Medicaid and CHIP Services (CMCS) Informational Bulletin (CIB) entitled, “Delivery System and Provider Initiatives under Medicaid Managed Care Contracts.” The CIB outlined scenarios to provide examples of payments states may require managed care plans to make to providers outside of claim payments, which would not require CMS approval under § 438.6(c). One example described a scenario in which a state included contract language requiring managed care plans to make 20 percent of their provider payments as value-based purchasing (VBP) or alternative payment arrangements when the state did not mandate a specific payment methodology. CMS continues to believe this scenario does not meet the criteria for an SDP or a pass-through payment. CMS clarifies, however, that this situation would not be considered an SDP as the state was imposing a quality metric on the managed care plans rather than the providers. This situation would be addressed in § 438.6(b)(2) or (3) rather than in § 438.6(c).

In January 2021, CMS published State Medicaid Director Letter (SMDL) #21-001, which closed an unintentional loophole created in the November 2017 CIB related to general contractual requirements to increase provider payments that provide for or add an amount to the provider payments rates, but do not specify an amount, timing, or payment methodology. CMS originally noted this scenario would not require approval under 42 CFR § 438.6(c) as long as the state was not mandating a specific payment methodology or amounts under the contract. In addition, CMS noted that when the provider payment is tied to usage and delivery of a specific service, such payments would not be considered pass-through payments. The proposed rule reiterates CMS’ amended position that these “grey-area payments” do require modification to comply with § 438.6(c) or (d). However, CMS did not propose any regulatory revision to reflect the reinterpretation of the regulation text. CMS seeks comment on whether additional clarification about these grey-area payments is necessary.

Important Notes:

States with contract containing payment provisions CMS considers grey-area payments, will need to work toward compliance with § 438.6(c) or (d) requirements.

Medicare Exemption, SDP Standards and Prior Approval (§ 438.6(c)(1)(iii)(B), (c)(2) and (c)(5)(iii)(A)(5))

The proposed rule offers an exemption from written prior approval of the SDP to states adopting a minimum-fee schedule using Medicare approved rates for providers that provide a particular service under the contract. This exemption is similar to the 2020 final rule revision allowing states to implement an SDP based on an approved state plan rate methodology from written prior approval. CMS considers Medicare approved rates to be reasonable, appropriate, and attainable under § 438.4 and § 438.5, and therefore review of SDPs adopting Medicare approved rates is duplicative and unnecessary. The exemption only applies if the SDP requires 100 percent of the total published Medicare payment rate.

The SDP arrangement must use a total published Medicare payment rate in effect no more than three years prior to the start of the rating period to be considered permissible. States that adopt a minimum fee schedule using 100 percent of total published Medicare payment rates will still need to document these SDPs in the managed care contracts and rate certifications and must still comply with other requirement for all SDPs other than prior written approval by CMS.

CMS is proposing to add Requirements for Medicaid Managed Care Contract Terms for State directed payments for oversight and review purposes. Managed care plan contracts would have to specify which Medicare fee schedule(s) the state directs the managed care plan to use and any adjustments due to geography, such as rural designations, and provider type, such as critical-access hospital or sole-community-hospital designation. In addition, the contract would need to identify the period for which the Medicare fee schedule is in place, as well as the rating period used for the SDP.

Important Notes:

Proposed applicability date: Upon effective date of the final rule.

CMS does not propose an alternative to the Medicare fee schedule for services such as home and community-based services (HCBS) or certain behavioral health and substance use disorder services not ordinarily covered by Medicare for which there would be no available fee schedule.

Non-Network Providers (§ 438.6(c)(1)(iii))

CMS is proposing to remove the term “network” from descriptions of SDP arrangements adopting minimum or maximum fee schedules or uniform dollar or percentage increases. The inclusion of the word “network” in the SDP arrangement descriptions has prevented states from including contract requirements to direct their Medicaid managed care plans on how to pay non-network providers. States may have an interest in ensuring their Medicaid managed care plans pay non-network providers at a minimum to avoid access to care concerns. The term “network” would continue to be included in reference to pass-through payments in § 438.6(d).

Important Notes:

Proposed applicability date: Upon effective date of the final rule.

This rule could eliminate the requirement for providers to become a network provider with a managed care organization (MCO), and eliminate the requirement to collect and document the network providers prior to developing SDP calculations.

SDP Submission Timeframes (§ 438.6(c)(2)(viii) and (ix))

CMS is proposing implementing the requirement for states to submit SDP requests for written prior approval 90 days in advance of the end of the rating period to which the SDP applies. Historically, CMS has experienced states routinely submitting SDP preprints at the end of the rating period with implementation dates retroactive to the beginning of the rating period. CMS strongly encourages states to submit SDPs in advance, preferably 90 days before the start of the rating period. However, it is proposing the aforementioned requirement to balance the need for state flexibility to address unforeseen changes that occur after the managed care plan contract and rates have been developed with the need to ensure timely processing of managed care contract and capitation rates. Amendments to approved SDPs, as well as all required documentation for written approval, must be submitted prior to the end of the rating period for CMS to consider approval.

The CMS proposal addresses the use of shorter-term SDPs in response to infrequent events, such as public health emergencies and natural disasters, by permitting states to submit all required documentation before the end of the rating period for SDP proposals that would start less than 90 days before the end of the rating period.

For SDPs approved for multiple rating periods, the proposed rule would allow states to amend the approved preprint within the first 120 days of each subsequent rating period for which the SDP is approved after the initial rating period. The requested amendment could not make any retroactive changes to the SDP for the prior rate setting
periods.

CMS notes that written prior approval of an SDP does not obligate a state to implement the SDP. If a state chose not to implement an SDP for which CMS has granted prior approval, elimination of the SDP would not require any prior approval.

Important Notes:

Proposed applicability date: No later than the first rating period beginning on or after two years after the effective date of the final rule.

CMS seeks comment on the proposed timeline, as well as additional options. States may need additional clarification regarding updating the final SDP paid amounts as amendments to the preprints for actual payments would have to be submitted after the end of the rating period.

Standard for Total Payment Rates of each SDP, Establishment of Payment Rate Limitations for certain SDPs and Expenditure Limit for all SDPs (§ 438.6(c)(2)(ii)(I) and (c)(2)(iii))

Standard for Total Payment Rates for Each SDP

CMS is proposing several requirements regarding the totality of provider payment rates under SDPs to ensure proper fiscal and programmatic oversight in Medicaid managed care programs. First, CMS is proposing to codify its direction provided in SMDL #21-001 that requires states to demonstrate that SDPs result in provider payments rates that are reasonable, appropriate, and attainable as part of the preprint review process. States would be required to provide documentation demonstrating this for each service and provider class. CMS proposes to define “total payment rate” as the aggregate for each managed care plan of:

The average payment rate paid by all managed care plans to all providers included in the specified provider class for each service identified in the SDP.
The effect of the SDP on the average rate paid to providers included in the specified provider class.
The effect of any and all other SDPs on the average rate paid to providers included in the specified provider class.
The effect of all allowable pass-through payments as defined in § 438.6(a) paid to providers included in the specified provider class.

The proposed language includes a requirement that states must provide documentation demonstrating the total payments upon CMS request.

Establishment of Payment Rate Limits for Certain SDPs

To address concerns regarding the growth of SDPs and the lack of a regulatory payment ceiling CMS proposes the following:

1. Historical Use of the Average Commercial Rate (ACR) Benchmark for SDPs.

CMS proposes to allow total payment rates in an SDP up to the ACR for certain services. Using the ACR allows states to ensure that Medicaid managed care enrollees have access to care that is comparable to access for the broader general public. It also provides for the least amount of disruption for states transitioning existing, and often long-standing pass-through payments, into SDPs. In addition, the ACR provides parity with Medicaid fee-for-service payment policy for qualified practitioners affiliated with and furnishing services at academic medical centers, physician practices, and safety-net hospitals where CMS has approved rates up to the ACR. States would be required to document the total payment rate specific to each service type included in the SDP and specific to each provider class identified in comparison with ACR.

2. Proposed Payment Rate Limit for Inpatient Hospital Services, Outpatient Hospital Services, Qualified Practitioner Services at Academic Medical Centers, and Nursing Facilities.

CMS proposes imposing the ACR as the regulatory limit on the projected total payment rate for inpatient hospital services, outpatient hospital services, qualified practitioner services at an academic medical center, and nursing facility services. The proposed total payment limit would apply across all SDPs in a managed care program; for example, states would not be able to create multiple SDPs that applied, in part or in whole, to the same provider classes and be projected to exceed the ACR. CMS is not proposing to establish ACR payment ceilings on other types of services as states have found it difficult to obtain data on commercial rates for services such as HCBS, which are generally not covered by commercial payers. Similar concerns exist with behavioral health services and substance use disorder services, where Medicaid is the most common payer.

A definition for inpatient hospital (42 CFR § 440.10), outpatient hospital (§ 440.20(a)), nursing facility (§ 440.40(a)), and academic medical center (§ 438.6(a)) services defined in other CFR sections would be added to the language.

The language also includes other limits that under consideration if ACR is not selected (for providers noted above and other provider types), including:

Limiting to the Medicare rate.
Limiting to a rate between the Medicare rate and the ACR.
Limiting to the ACR for certain types of SDPs with value-based arrangements and the Medicare rate for other SDPs.

CMS is seeking comment on these limit considerations, as well as, if a transition period should be implemented to phase in the limits applied for existing SDPs.

3. Average Commercial Rate Demonstration Requirements.

To monitor compliance with the ACR limit proposal, CMS proposes states be required to provide two pieces of documentation: (1) an ACR demonstration; and (2) a total payment rate comparison to ACR. The ACR proposal would be submitted with the initial preprint submission (new, renewal, or amendment) following the applicability date and then updated every three years, so long as the state continues to include the SDP in one or more managed care contracts, but would only be applicable to SDPs requiring prior written approval. CMS is not proposing to use a specific template for the demonstration and comparison to ACR. Nor is it requiring a specific source of data for the ACR analysis.

4. Average Commercial Rate Demonstration and Total Payment Rate Comparison Compliance.

The ACR demonstration and total rate comparison would be required for SDPs needing written prior approval as part of the initial submission or renewal starting with the first rating period beginning on or after the effective date of the rule. The rate comparison would need to be updated with each subsequent renewal. The ACR demonstration would need to be updated once every three years, as long as the SDP continues to be included in the MCO contracts.

CMS is considering (and seeking comments for) applying an overall expenditure limit to SDPs to help address and improve program and fiscal protections and oversight risks. Examples considered include:

Limit SDP expenditures similar to the five cost limit for In Lieu of Services.
Limit SDP expenditures to 10 to 25 percent of cost limit, or something within a reasonable range.
Apply SDP limits as a portion of total costs for each MCO plan.
Apply SDP limits as a portion of only inpatient, outpatient, nursing facility, and qualified practitioner costs for each MCO plan.
Apply SDP limits on a rate-cell basis.

Important Notes:

Proposed applicability date § 438.6(c)(2)(ii)(I): Upon effective date of the final rule.

Proposed applicability date § 438.6(c)(2)(iii): No later than the first rating period for contracts beginning on
or after the effective date of the final rule.

Although CMS did not propose a specific overall SDP limit, imposition of such a limit would significantly affect many states’ SDP arrangements.

Financing (§ 438.6(c)(2)(ii)(G) and (H))

In addition, CMS proposes states be required to ensure that each participating provider in an SDP arrangement attests that it does not participate in any hold-harmless arrangement with respect to any health care-related tax as specified in § 433.68(f)(3). CMS notes that such hold-harmless arrangements include those that produce a reasonable expectation that taxpaying providers would be held harmless for all or a portion of their cost of a health care-related tax.

States would be required to note in the preprint their compliance with this requirement prior to CMS written prior approval of any contractual payment arrangement directing how Medicaid managed care plans pay providers. Under this proposal, CMS may deny written prior approval of an SDP if it does not comply with requirements for financing of the non-federal share and/or the state does not require an attestation from each provider receiving a payment based on the SDP that it does not participate in any hold-harmless arrangement. Under the proposal, this would apply to all SDPs, regardless of whether written prior approval is required.

Important Notes:

Proposed applicability date § 438.6(c)(2)(ii)(G): Upon effective date of the final rule.

Proposed applicability date § 438.6(c)(2)(ii)(H): No later than the first rating period for contracts beginning on or after two years after the effective date of the final rule.

The proposed regulation is similar to the guidance outlined in CMCS Informational Bulletin February 23, 2023, as well as proposed the Medicaid Fiscal Accountability Regulation, which was withdrawn by CMS. The state of Texas filed a lawsuit against CMS and the U.S Department of Health and Human Services challenging the legality of CMS’ February 23, 2023, bulletin. The proposed attestation requirement would not go into effect until the first rating period for contracts beginning on or after two year after the effective date of the final rule, providing an opportunity for the court to weigh in on CMS’ authority regarding private contractual agreements. As many states use provider taxes to finance of the non-Federal share of SDPs, developments on this issue could be very influential.

Tie to Utilization and Delivery of Services for Fee Schedule Arrangements (§ 438.6(c)(2)(vii))

A fundamental requirement of SDPs is that they are payments related to the delivery of services under the contract. SMDL #21-001 explained SDPs should be based on actual utilization and cannot be based solely on historical utilization. CMS proposes to codify this clarification. For fee schedule and uniform increase SDPs, CMS would require that all payments made under the SDP be conditioned on the utilization and delivery of services under the MCO plan contract for the applicable rating period only. CMS proposes to prohibit states from requiring managed care plans to make interim payments based on historical utilization and reconciling the interim payments to account for actual utilization after the close of the rating period. CMS states the reconciliation is inconsistent with prospective risk-based capitation rates developed for the delivery of services in the rating period.

CMS proposed two administratively less burdensome options in lieu of reconciliations: 1) using a minimum fee schedule; and 2) using a uniform increase. CMS previously issued guidance related to pass-through payments that were not directly linked to the delivered services or the outcomes of those services, thereby noting passthrough payments were not consistent with actuarially sound rates. CMS reached a similar conclusion in review of SDP proposals, which use reconciliation of historical to actual utilization. CMS states removing risk from managed care plans in connection with these types of SDPs is inconsistent with the nature of risk-based Medicaid managed care.

CMS notes the post-payment reconciliation process and SDP arrangements with separate payment terms are not the same. CMS is proposing guardrails around the use of separate payment terms through (§ 438.6(c)(2)(ii)(J), (c)(6), and § 438.7(f)).

Important Notes:

Proposed applicability date: No later than the first rating period beginning on or after two years after the effective date of the final rule.

States requiring health plans to pay providers based on a retrospective reconciliation process many times also use separate payment terms to pay the SDPs to health plans. The proposed prohibition on the retrospective reconciliation process may also affect how states pay health plans for the SDPs.

Value-Based Payments and Delivery Reform Initiatives (§ 438.6(c)(2)(vi))

CMS is proposing several changes to address how VBP initiatives can be tied to delivery of services to remove barriers that prevent states from using SDPs to implement VBP initiatives. It is proposing to codify existing policy that a multi-year written prior approval may be for up to three rating periods. Specific to SDPs involving VBP initiatives included in § 438.6(c)(1)(i-ii), CMS is proposing:

Important Notes:

Proposed applicability date § 438.6(c)(2)(vi)(A): Upon effective date of the final rule.

Proposed applicability date § 438.6(c)(2)(vi)(B), (C)(1), and (2): No later than the first rating period for contracts beginning on or after the effective date of the final rule.

Proposed applicability date § 438.6(c)(2)(vi)(C)(3), and (4): No later than the first rating period for contracts beginning on or after two years after the effective date of the final rule.

CMS does not appear to address how new VBP programs for which no baseline statistics are available will be impacted.

Quality and Evaluation (§ 438.6(c)(2)(ii)(D) and (F), (c)(2)(iv) and (v), and (c)(7))

Evaluation Plan

CMS proposes revisions to enhance its ability to collect evaluations of SDPs and enhance the level of detail described in the evaluation to shine a spotlight on evaluation results in determining future SDP approvals. States would be required to submit an evaluation plan for each SDP that requires written approval. The evaluation plan must:

Identify at least two metrics that would be used to measure the effectiveness of the payment arrangement in advancing the identified goal(s) and objectives(s) from the state’s managed care quality strategy on an annual basis, with at least one of the metrics measuring performance at the provider-class level for population- or condition-based payments.
The metrics would need to be specific to the SDP and attributable to the performance by the providers for enrollees in all of the state’s managed care program(s) to which the SDP applies, when practical and relevant.
At least one of the selected metrics must be a performance measure, as proposed by definition. States would be allowed to select maintaining access to care as a metric, but if a state elects access as a metric, CMS proposes to require states to choose a metric that measures maintenance of access and at least one additional performance-based metric.
States will be required to include baseline performance statistics for all metrics used in the evaluation, and would need to include measurable performance targets relative to the baseline statistic for each of the selected measures in their evaluation plan.

Evaluation Report

States would be required to provide commitment to submit an evaluation report if the final SDP cost percentage exceeds 1.5 percent. The proposed evaluation-reporting requirement is limited to states with SDPs that require prior approval. The “final state-directed payment cost percentage” would be calculated based on the portion of the total capitation payments (including separate term payments) that is attributable to the state-directed payments, divided by the actual total capitation payments (including all SDPs, pass-through payments, and SDPs that are paid under separate terms).

The final SDP cost percentage would be measured distinctly for each managed care program and SDP. An actuary would be required to calculate the absolute change the SDP has on base capitation rates. The cost percentage would be calculated on an annual basis, and must only be submitted if needed to demonstrate a SDP is below 1.5 percent cost percentage to avoid evaluation plan submission requirements. The cost percentage calculation would be a separate report submitted concurrent with the rate certification submission for the rating period beginning two years after the completion of each 12-month rating period that included an SDP.

Evaluation reports would be required to include all of the elements approved in the evaluation plan. In addition, they would be required to include the three most recent and complete years of annual results for each metric. The first evaluation report would be required to be submitted no later than two years after the conclusion of the three-year evaluation period and subsequent reports would have to be submitted to CMS every three years after. States would also be required to publish their evaluation reports on their public facing website. All SDPs must result in achievement of the stated goals and objectives in alignment with the evaluation plan to receive continued approval. A new optional external quality review activity could be performed to support evaluation requirements. CMS invites public comment on requiring states procure an independent evaluator for SDP evaluations.

Important Notes:

Proposed applicability date: No later than the first rating period for contracts with MCOs beginning on or after three years after the effective date of the final rule.

CMS plans to issue additional technical assistance on this subject.

Contract Term Requirements (§ 438.6(c)(5))

CMS has noted a variety of ways states include SDP requirements in their contracts, many of which CMS notes lack critical details to ensure that plans implement the contractual requirement with the approved SDP. CMS proposes to codify the following minimum requirements for the content of Medicaid managed care contract that include one or more SDP contractual requirement:

Start date and, if applicable, end date within the applicable rating period.
Description of the provider class eligible for the payment arrangement and all eligibility requirements.
Descriptions of each payment arrangement. Specific requirements are outlined based on the type of SDP (minimum fee schedule, uniform increase, maximum fee schedule, and VBP initiatives).
Encounter reporting and separate reporting requirements the states need to audit the SDP and report provider-level payment amounts to CMS.
Indication of whether the state would be using a separate payment term for the SDP.
SDP terms would be required to be described and documented in the contract no later than 120 days after the start of the SDP or approval of the SDP, whichever is later.

Important Notes:

Proposed applicability date § 438.6(c)(5)(i) through (v): No later than the first rating period for contracts with MCOs beginning on or after two years after the effective date of the final rule.

Proposed applicability date § 438.6(c)(5)(vi): No later than the first rating period for contracts beginning on or after four years after the effective date of the final rule.

Including SDPs in Rate Certifications and Separate Payment Terms (§ 438.6(c)(2)(ii)(J), (c)(6), and § 438.7(f))

Contractual Requirements

Separate payment terms are unique to Medicaid managed care SDPs. CMS has not previously formally defined separate payment terms in regulations. CMS noted the increase in usage of separate payment terms in SDP arrangements, and notes that while there is risk for the providers, there is often little or no risk for the health plans related to the directed payment, which is contrary to the nature of risk-based managed care. CMS proposes to define “separate payment term” as a pre-determined and finite funding pool that the state establishes and documents in the Medicaid managed care contract for a specific SDP for which the state has received written approval. CMS proposes the following requirements for states using separate payment terms in their SDP arrangements:

Separate payment terms must be reviewed and approved as part of the SDP. CMS notes this is effectively its current practice today.
Separate payment terms would be prohibited to fund SDPs that are exempted from the written prior approval process-specifically minimum fee schedules using state plan approved rates and approved Medicare fee schedules.
Separate payment terms would be required to be specific to both an individual SDP and to each Medicaid managed care program.
Separate payment term would not be allowed to exceed the total amount documented in the written prior approval for each SPD.
1. CMS seeks comments and is considering requiring that the separate payment term equal the exact amount initially approved.
Separate payment terms must be documented in the MCO contracts no later than 120 days after the start of the payment arrangement or CMS approval, whichever is later.
Separate payment terms would be prohibited from amendment after CMS approval except to account for an amendment to the payment methodology that is first approved by CMS as an amendment to the approved SDP.

Managed care contracts would be required to include the following components for separate payment terms:

The total dollars the state would pay to the plans.
The timing and frequency of payments that would be made.
A description or reference to the contract requirement for the specific SPD for which the separate payment term would be used.
Any reporting that the state requires to ensure appropriate reporting of the separate payment term for purposes of medical loss ratio (MLR) reporting under § 438.8.

Rate Certification Requirements

CMS proposes to codify existing practices that allow the state to pay each managed care plan a different amount under the separate payment terms as long as the aggregate dollars do not exceed the total dollars of the SDP. In addition, the state, through its actuary, would have to provide an estimate of the impact of the separate payment term on a rate-cell basis. CMS proposes new requirements for the state through its actuary to certify the total dollar amount for each separate payment term and submit rate certifications or amendments incorporating separate payment terms within 120 days of either the start of the payment arrangement or written approval of the SDP, whichever is later.

The state would be required to submit documentation to CMS that demonstrates that the total amount of the separate payment term in the rate certification is consistent with the SDP approval, no later than 12 months after the rating period.

CMS states it strongly prefers that SDPs be included as adjustments to capitation rates, as this is consistent with the nature of risk-based managed care. It is considering prohibiting all separate payment terms or additional restrictions on their use (such as restricting to only value-based SDPs) and seeks public comment.

Important Notes:

Proposed applicability date § 438.6(c)(2)(ii)(J), § 438.6(c)(6)(i) through (iv), § 438.7(f)(1) through (3): Upon effective date of the final rule.

Proposed applicability date § 438.6(c)(6)(v), § 438.7(f)(4): No later than the first rating period for contracts beginning on or after four years after the effective date of the final rule.

SDPs included through Adjustments to Base Capitations Rates (§ 438.7(c)(4) through (6))

CMS proposes three new requirements to address adjustments to managed care capitation rates that used for SDP.

Retroactive adjustments to capitation rates resulting from an SDP would have to be the result of an approved SDP being added to the contract, an amendment to an already approved SDP, a minimum fee schedule SDP, or a material error in the data, assumptions or methodologies used to develop the initial rate so that modification is necessary to correct the error.
Revised rate certifications would have to be submitted to CMS regardless of the size of the capitation change per rate cell if related to SDP arrangements. Currently, states are permitted flexibility to increase or decrease the capitation rate per rate cell up to 1.5 percent during the rating period without submitting a revised-rate certification.
Required rate certification documentation for SDPs incorporated through adjustments to base rates would have to be submitted no later than 120 days after either the start date of the approved SDP or 120 days after the date CMS issued written prior approval of the SDP, whichever is later.

Important Notes:

Proposed applicability date § 438.7(c)(4) and (5): Upon effective date of the final rule.

Proposed applicability date § 438.7(c)(6): No later than the first rating period for contracts beginning on or after four years after the effective date of the rule.

Appeals (§ 430.3(d))

CMS proposes an avenue to permit states to dispute written disapprovals of SDPs. These disputes would be heard by the Health and Human Services Departments Appeals Board (Board) in accordance with procedures set forth in 45 CFR part 16. States would have 30 days to appeal to the Board after an appellant receives final written decision from CMS communicating written disapproval of an SDP. The Board has established general goals for consideration of cases within six to nine months.

CMS seeks comment on whether appeals should be channeled through the CMS Offices of Hearing and Inquiries or the Board to best serve the purposes of resolving disputes fairly and efficiently.

Important Notes:

Proposed applicability date: Upon effective date of the final rule.

CMS seeks comment on whether appeals should be channeled through the CMS Offices of Hearing and Inquiries or the Board to best serve the purposes of resolving disputes fairly and efficiently.

Reporting Requirements to Support Oversight (§ 438.6(c)(4))

CMS proposes two approaches to gaining more knowledge and insight into actual SDP spending to help in fulfilling its oversight and monitoring obligations. The first near-term proposal would use existing MLR reporting as a vehicle to collect actual expenditure data associated with SDPs, requiring managed care plans to include SDPs and associated revenue as separate lines in their MLR reports to states. States would be required to submit managed care plan-level SDP expenditures to CMS in compliance with § 438.74 MLR reporting.

CMS proposes a long-term requirement for states to annually submit data, no later than 180 days after each rating period to CMS’ Transformed Medicaid Statistical Information System (T-MSIS), specifying the total dollars expended by each managed care plan for SDPs that were in effect for the rating period, including amounts paid to individual providers. CMS proposes to develop and provide a form through which the reporting would occur so that there would be one uniform template for all states to use. Minimum data fields would include: provider identifiers, enrollee identifiers, managed care plan identifiers, procedure and diagnosis codes, and allowed, billed, and paid amounts. Paid amounts would include the amount that represents the managed care plans’ negotiated payment amount, the amount of the SDP, and amount for any pass-through payments under § 438.6(d), and any other amounts included in the total paid to the provider.

CMS also discusses other options that could be used to collect provider-level SDP data to gain insight into SDP payments. CMS considered supplemental reporting through the Medicaid Budget and Expenditure System similar to supplemental payment reporting. It also considered leveraging T-MSIS encounter data reporting and building additional fields in T-MSIS to capture more details about paid amounts, including the amount that was the managed care plan’s negotiated payment amount, the amount of the SDP, the amount for any pass-through payments under § 438.6(d), and any other amounts included in the total payment amount paid to the provider.

Lastly, CMS considered whether to use a separate reporting mechanism for the new reporting of SDP provider level data. It provided the example of the new portal developed for the submission of the Managed Care Program Annual Report. CMS seeks public comment on its proposal to use T-MSIS for the new reporting, or whether another reporting vehicle would be better suited for SDP reporting. It also seeks comment on how T-MSIS or another reporting vehicle could support capturing VBP arrangements in which payment is not triggered by an encounter or claim.

States would submit this data to CMS no later than 180 days after each rating period.

Important Notes:

Proposed applicability date:The first rating period following the release of CMS guidance on the content and form of for the report.

Next Steps

The proposed rule will have a significant impact on the way states operationalize and monitor their SDP payment programs. States will need to review their SDP arrangements, managed care plan contracts, and financing structures as well as their rate certifications to determine the potential impact the proposal may have their current managed care program.

In addition, states will want to assess the new requirements outlined within the proposed rule to determine the potential impact on future program operations. Myers and Stauffer partners with more than 20 states and CMS in ensuring proper oversight of managed care health plans and compliance with CMS regulatory requirements, including all aspects of SDP arrangements. We are available to discuss any issues in the proposed rule. If you have any questions about the information in this alert or you would like help drafting formal comments, please contact the following members of our managed care engagement team.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our State-Directed Payments (SDP) proposed changes one sheet.

In Lieu of Services and Settings

CMS’ proposed ILOS rule revisions focus on requiring compliance with key principles. The principles would require ILOSs to:

Meet general parameters.
Be provided in a manner that preserves enrollee rights and protection.
Be medically appropriate and cost-effective substitutes for state plan services and settings. (Note: does not require budget neutrality.)
Be subjected to monitoring and oversight.
Undergo a retrospective evaluation, when applicable.

Background

CMS previously issued sub-regulatory guidance regarding ILOSs through the January 7, 2021, State Health Official Letter #21-001 and through the January 4, 2023, State Medicaid Director Letter (SMDL) #23-001. The proposed rule codifies this into regulation through the revisions outlined below. The effective date based on the SMDL was for contract rating periods beginning on or after January 1, 2024. However, this appears to be conflicting with effectives dates proposed within this rule.

ILOS Definition (§§ 438.2 and Conforming Changes 438.3(e)(2)(i) through (iv), and 457.1201(e))

“A service or setting that is provided to an enrollee as a substitute for a covered service or setting under the State plan in accordance with § 438.3(e)(2). An ILOS can be used as an immediate or longer-term substitute for a covered service or setting under the State plan, or when the ILOS can be expected to reduce or prevent the future need to utilize the covered service or setting under the State plan.”

Based on the addition of the ILOS definition in § 438.2, conforming language changes are proposed to incorporate the downstream impact of the definition on language in § 438.3(e) and § 457.1201(e).

Important Notes:

Proposed applicability date:Upon effective date of the final rule.

General Parameters (§§ 438.16(a) through (d), 457.1201(c) and (e))

CMS proposes to require that ILOSs must be approvable as a service or setting through a state plan amendment, including sections 1905(a), 1915(i), or 1915(k) of the Act or a waiver under section 1915(c). CMS notes there should be a limitation on the types of substitute services or settings that can be offered as ILOSs to ensure an ILOS is an appropriate and efficient use of Medicaid and CHIP resources. The only exceptions would be to short-term stays or substance use disorder treatment in an institution for mental disease (IMD) currently allowed under managed care regulations.

ILOS Cost Percentage

CMS proposes to limit allowable ILOS costs to a portion of the total costs for each managed care program, referred to as an ILOS cost percentage.

The state’s actuary would be required to calculate the projected ILOS cost percentage and final ILOS cost percentage annually, in the same manner as rates are developed and percentages need to be certified.
ILOS cost percentages would be limited to five percent (excluding short-term stays in an IMD) of capitation payments distinctly for each managed care program, including state directed payments and pass-through payments in the denominator. This limitation was proposed to prevent unrestrained ILOS cost growth.
The projected cost percentage would be included in the annual rate certification.
A two-year period would be provided to perform the final cost percentage based on actual paid amounts reflected in the encounter data, which will be submitted in a separate summary report of actual managed care plan ILOS costs concurrent with the new rate certification submissions.

Important Notes:

Proposed applicability date: The first rating period that starts on or after 60 days following the effective date of the final rule.

Enrollee Rights and Protection (§§ 438.3(e), 457.1201(e), and 457.1207)

CMS proposes to add language to state explicitly that all rights and protections afforded to an enrollee who is eligible for, offered, or has received an ILOS will remain. If the enrollee chooses not to receive ILOS, the enrollee retains their right to receive the service or setting covered under the state plan as if an ILOS was not an option. The enrollee handbook needs to clearly incorporate the rights and protections, if ILOSs are added to the managed care plan contracts.

Important Notes:

Proposed applicability date: Upon effective date of the final rule.

Medically Appropriate and Cost-Effective (§§ 438.16(d) and 457.1201(e))

Contract Requirements

State contracts would be required to include each ILOS, along with the name and definition for each, and clearly identify the state plan-covered services or setting for which each ILOS has been determined by the state to be a medically appropriate and cost-effective substitute. The contract must also document the clinically defined target population(s) for each ILOS. In addition, the contract would be required to include that the process by which a licensed network or managed care plan staff provider determines and documents each ILOS is medically appropriate for a specific enrollee. Enrollee rights and protections would be required to be included in the contract as well as the requirement that managed care plans use specific codes established by the state that identify each ILOS in encounter data.

Risk-Based Approval Process

CMS proposes to use a risk-based approval process in evaluating ILOS arrangements.

States with projected ILOS cost percentages less than or equal to 1.5 percent would be eligible for a streamlined review and less robust documentation requirements.
Expanded documentation for ILOS in excess of 1.5 percent must be submitted concurrent with the contract submission for CMS review and approval.

Important Notes:

Proposed applicability date: The first rating period that starts on or after 60 days following the effective date of the final rule.

Payment and Rate Development (§§ 438.3(c), 438.7(b), and 457.1201(c))

CMS proposes to require ILOS costs be included in determining final capitation rate development. Existing regulations require the final capitation rates must be based only on services covered under the state plan and additional services necessary to comply with Parity in Mental Health and Substance Use Disorder Benefits, but do not encompass ILOS costs. In addition, the rate certification would be required to describe special contract provisions related to ILOS.

Important Notes:

Proposed applicability date § 438.3(c): Upon effective date of the final rule.

Proposed applicability date § 438.7(b): The first rating period that starts on or after 60 days following the effective date of the final rule.

State Monitoring (§§ 438.16(d) and (e), 438.66(e), and 457.1201(c))

The 2016 final rule outlined existing requirements for managed care plan performance monitoring, which included approved ILOSs. To allow for appropriate monitoring of ILOSs, as mentioned above, CMS proposes to require states to include contractual requirements that managed care plans use specific codes established by the state to identify each ILOS within the encounter data. This proposed rule also notes that the availability and accessibility of ILOSs would be required in the managed care program annual report.

Important Notes:

Proposed applicability date § 438.16(d) and (e): The first rating period that starts on or after 60 days following the effective date of the final rule.

Proposed applicability date § 438.66(e): Upon effective date of the final rule.

Retrospective Evaluation (§§ 438.16(e) and 457.1201(e))

For states with a final ILOS cost percentage above 1.5 percent, a retrospective evaluation of the ILOS would be required for submission to CMS two years after completion of the first five-year period included the ILOS. CMS notes it encourages all states that include ILOSs in their managed care plan contracts to conduct a retrospective evaluation of all ILOSs.

At minimum, the evaluation must include cost, utilization, access, grievances and appeals, and quality of care for each ILOS. This must be completed separately for each managed care program that includes an ILOS. States would be required to evaluate the impact each ILOS had on utilization of state plan-covered services and settings, including any associated savings. The state would also be required to evaluate the trends in managed care plan and enrollee usage of ILOSs. In addition, CMS proposes to require that states use encounter data to evaluate if each ILOS is a cost-effective and medically appropriate substitute for the identified state plan-covered service or setting, or that each ILOS is a cost-effective measure to reduce or prevent the future need to use the identified state plan-covered service or setting. Other required evaluation components would include the impact of each ILOS on quality-of-care and health-equity efforts, appeals, grievances, and state fair-hearings reporting.

CMS considered proposing to require that states procure an independent evaluator for ILOS evaluations. Included in the proposed rule is a new optional external quality review protocol, which could be used to help evaluate the ILOSs. CMS also seeks comments on whether it should require independent evaluation on the appropriateness of the proposed evaluation period length and timing.

Important Notes:

Proposed applicability date: The first rating period that starts on or after 60 days following the effective date of the final rule.

State and CMS Oversight (§§ 438.16(e) and 457.1201(e))

If the state identifies an ILOS that is no longer medically appropriate or cost-effective, or the state identifies noncompliance with the ILOS requirements, the proposed rule would require that CMS be notified within 30 calendar days. CMS, through its compliance oversight processes or through receipt of state notification, may require termination of the ILOS, thereby requiring the state to submit a transition plan to CMS within 15 calendar days. The plan would include beneficiary notification and timely access to medically appropriate state plan-covered services. The state would also need to remove the ILOS from managed care plan contracts and capitation rates.

Important Notes:

Proposed applicability date:The first rating period that starts on or after 60 days following the effective date of the final rule.

Next Steps

The proposed rule will have a significant impact on the way states operationalize and monitor the above ILOS areas. States will need to review managed care plan contracts and ILOS documentation processes and begin discussions with the state actuary to determine the potential impact the proposal may have on their current managed care programs. Myers and Stauffer partners with more than 20 states and CMS in ensuring proper oversight of managed care health plans and compliance with CMS regulatory requirements.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our In Lieu of Services and Settings (ILOS) proposed changes one sheet.

External Quality Review

On May 3, 2023, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule titled: Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality (CMS-2439-P) in the Federal Register. Myers and Stauffer is providing this client alert to states to make them aware of several notable provisions specific to the external quality review (EQR) standards and to help inform each state’s evaluation of the proposed language and potential concerns.

EQR protocols are part of the tools available to states to monitor their managed care delivery systems. Some of the protocols are required, while others are voluntary. In this proposed rule, CMS is proposing several changes to the EQR regulations that seek to accomplish two overarching goals: (1) eliminate unnecessary burdensome requirements; and (2) make EQR more meaningful for driving quality improvement. Increased transparency of the data and results are part of this goal so that states can use the results of the protocols to make informed decisions about the Medicaid program.

The current standards (§§ 438.350, 438.354, 438.358, 438.360, 438.364, 457.1201, 457.1240, and 457.1250) provide requirements for annual reporting related to Medicaid managed care programs on quality, timeliness, and access to health care services. The activities are performed by states or a qualified EQR organization (EQRO), and a technical report is submitted to CMS, which describes the data.

The proposed rule, aimed to strengthen the standards and monitoring applicable to EQR requirements in the Medicaid managed care environment, would do the following:

Remove certain primary care case management (PCCMs) described in § 438.310(c)(2) from the mandatory review set forth in the 2016 Medicaid Managed Care Final Rule.
Define the 12-month EQR review period for all but one of the EQR-related activities described in § 438.358(b)(1) and the optional activities described in § 438.358(c). States must comply with these updates to § 438.358 no later than December 31, 2025. This applicability date aligns with the new annual due date for EQR Technical Reports as proposed at § 438.364(c)(2)(i).
Provide optional protocols with enhanced matching funds (up to 75 percent), including a new optional protocol to evaluate in lieu of services (ILOSs) and state-directed payments (SDPs).
Use Medicare or accreditation reviews for EQR.
Require enhanced reporting of EQR results §§ 438.364 and 457.1250(a).
- Data Included in EQR Technical Reports.
- Revising the date annual EQR Technical Reports must be finalized and posted.
- Notifying CMS when annual EQR Technical Reports are posted.
- Revising website requirements for historical EQR Technical Reports.

Removal of PCCM Entities from Scope of Mandatory External Quality Review (§ 438.310(c)(2))

PCCMs described in § 438.310(c)(2) would be removed from the mandatory EQR activities set forth in the 2016 Medicaid Managed Care Final Rule. A PCCM is recognized as a physician or a physician group practice or, at state option, a physician assistant, nurse practitioner, or certified nurse-midwife that contracts with the state to furnish case management services to Medicaid beneficiaries. The 2016 final rule added “PCCM entity” as defined in §§ 438.2 and 457.10 as an organization that provides one or more additional functions to the case management services, such as development of care plans. Based on contract reviews and other information, CMS is proposing to remove PCCM entities from the managed care entities subject to EQR. Other risk-bearing PCCM requirements are not impacted the proposed rule.

States may perform additional oversight activities that may be similar to EQR; however, these activities would not be subject to the EQR regulations.

Proposed applicability date: The revision would become effective as of the effective date of the final rule.

EQR Review Period (§ 438.358)

The current regulations refer to most EQR activities as performed using information from the preceding 12 months; however, it is not clearly defined as to which 12-month period. This has resulted in a lack of uniformity in the review periods in the annual reports. To support the use of the reports for quality improvement and oversight, CMS is proposing to modify the regulation to ensure consistency and align data reported with the most recently available information.

The proposed rule would add a new paragraph (a)(3) in § 438.358 to define the 12-month review period for all but one the EQR-related activities described in § 438.358(b)(1) and the optional activities described in § 438.358(c). The one exception is the activity described in § 438.350(b)(1)(iii), which requires a review within the previous three years.
Under proposed § 438.358(a)(3), the 12-month review period for the applicable EQR activities begins on the first day of the most recently concluded contract year or calendar year, whichever is nearest to the date of the EQR-related activity.
The 12-month period for the EQR activities does not have to be same. For example, performance measurement validation can be performed with a different 12-month period than the performance improvement project (PIP).
At § 438.358(b)(1) and (c), CMS is also proposing to require that the EQR-related activities must be performed in the 12 months preceding the finalization and publication of the annual report.
These modifications are designed to allow for more recent data being publicly posted in the annual technical report, and work towards the consistency that will make the annual technical report more meaningful.

Proposed applicability date: States would be required to comply with these updates to § 438.358 no later than December 31, 2025. This applicability date aligns with the new annual due date (see item 5.B. below) for EQR technical reports as proposed at § 438.364(c)(2)(i).

Using an Optional EQR Activity to Support Current and Proposed Managed Care Evaluation Requirements (§ 438.358(c)(7))

CMS is proposing to add a new optional protocol to evaluate the quality strategies, ILOSs, and SDPs. CMS’ reviews of the quality strategies indicate the need for more technical assistance for the states. CMS would develop this new optional EQR activity, in coordination with the National Governors Association, to assist with the evaluation activities for these requirements. CMS believes the EQROs are well positioned to perform these evaluations.

Proposed applicability date: This optional activity would be available to states as of the effective date of the final rule.

Non-Duplication of Mandatory EQR Activities with Medicare or Accreditation Review (§ 438.360)

Currently, § 438.360 provides an option for states to exempt MCOs from EQR activities that would be duplicated as part of either a Medicare review of a Medicare Advantage plan or a private accreditation review. To exercise that option, the private accreditation organization (PAO) must be recognized by CMS as applying standards at least as stringent as Medicare under the procedures in § 422.158. PAOs must therefore obtain deeming authority from CMS before a state could use the PAO’s accreditation review of the health plan.

CMS believes this causes an administrative burden and may restrict the use of the EQR non-duplication option, so the proposed rule removes the requirement that PAOs must apply for deeming authority for states to rely on PAO accreditation reviews in lieu of EQR activities.

States would still be required to ensure the review standards are in compliance and will need to explain the rationale of the state’s determination that the activity is comparable.

Proposed applicability date: This revision would become effective as of the effective date of the final rule.

External Quality Review Results (§§ 438.364 and 457.1250(a))

A. Data included in EQR Technical Reports

The current regulations describe the information to be included in the annual technical report and the public availability of the reports; however, the regulations limit the data included in the reports to performance measurement data. Other types of data are not required in the report. No requirement for data from the network adequacy validation activity is included either.

CMS is proposing to require the Technical Reports include any outcomes data and results from quantitative assessments, whether the data was validated, and require similar data and results from the network adequacy validation activity. This change intends to make the annual technical report a more meaningful and effective tool to drive quality improvement and oversight activities.

CMS is considering adding guidance related to stratification performance measures, which would allow states to monitor gaps and address equity gaps. CMS is specifically requesting public comment on how CMS could best support states using future guidance developed in the EQR protocols.

Proposed applicability date: States would be required to comply with updates to the type of data in the EQR technical report no later than one year from the issuance of the associated protocol.

B. Revising the date annual EQR Technical Reports must be finalized and posted

Currently, the annual Technical Reports are to be completed, available on the state’s website, and submitted to CMS by April 30. Most states use Healthcare Effectiveness Data and Information Set (HEDIS) measures, which use the previous calendar year’s data and are audited and finalized in June each year. CMS is proposing to change the April 30 date to following December 31. This change would align with the HEDIS measures being completed and the data being report being not more than one year old.

CMS is requesting comment on changing the posting date to December 31 annually. CMS is also seeking comment on whether additional time beyond December 31 is needed by states, and if so, how much time and why, or whether the posting date should remain at April 30th of each year, or a date between April 30th and December 31 and why.

States may want to consider how this change will affect the MCOs, EQROs, and other resources that are required for the EQR activities. EQROs may need to begin work earlier in the year, which might affect the state’s budget if the start of the work currently aligns with the start of the state fiscal year (SFY). A clarification question to CMS may be necessary to determine how the EQR Review Period proposed change (item 2 above) would affect the technical report data moving to December 31.

For example, if the PIP review has a different 12-month period and does not align with the December 31 date, how does CMS envision states’ addressing this mandatory protocol in the technical report?

Proposed applicability date: States would be required to comply no later than December 31, 2025.

C. Notifying CMS when annual EQR Technical Reports are posted.

States are not currently required to notify CMS when EQR Technical Reports are completed and posted to the state’s website. CMS is proposing to revise § 438.364(c)(2)(i) to require that states notify CMS within 14 calendar days of posting their EQR Technical Reports on their website.

Proposed applicability date: This revision would become effective as of the effective date of the final rule.

D. Revising website requirements for historical EQR Technical Reports

States are currently encouraged to keep previous EQR Technical Reports on their website. The proposed rule would require states to maintain at least the previous five years of EQR Technical Reports on their website.

Proposed applicability date: States would be required to comply no later than December 31, 2025.

Next Steps

Assess contractual requirements in the managed care organizations, EQROs, and other entities that may have EQR responsibilities. The contractual requirements may need to be amended to address the rule requirements, if finalized as proposed.
Timelines for EQR activities may affect other requirements for reporting and auditing the MCOs may have that could be adjusted to accommodate the new rules.
Questions/clarifications developed to either submit to CMS for public comment or directly to confirm timeline change and how the 12-month review change might affect your state.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our External Quality Review proposed changes one sheet.

Access to Care/Network Adequacy

On May 3, 2023, the Centers for Medicare and Medicaid Services (CMS) published a proposed rule titled: Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality (CMS-2439-P) in the Federal Register. Myers and Stauffer is providing this alert to states to make them aware of several notable provisions related to network adequacy and access and to help inform each state’s evaluation of the proposed language and potential concerns.

The proposed rule, aimed to strengthen the standards and monitoring applicable to access to care in the Medicaid managed care environment, would:

Establish national maximum appointment wait time standards for routine primary care, obstetric/gynecological (OB/GYN), outpatient behavioral health and substance use disorder (SUD) services.
Require secret shopper surveys as part of monitoring activities, using independent entities.
Require an annual enrollee experience survey.
Require the performance of an annual payment analysis to compare managed care organization (MCO) payment rates for certain services as a proportion of Medicare’s payment rates and the state’s Medicaid state plan payment rate.
For any MCO with access issue(s) that need improvement, requires a remediation plan.
Require reporting of assurances related to adequate capacity and services.
Require public transparency.

Establish maximum appointment wait-time standards for routine primary care, OB/GYN, outpatient behavioral health and SUD services and a state-selected service. (§§ 438.68(e), 457.1218).

CMS is proposing in the rule to set the following national wait-time standards:

No longer than 10 business days for routine outpatient mental health and SUD services
No longer than 15 business days for routine primary care and OB/GYN services.

In addition to the service types listed above, states would need to select at least one additional type of service and establish corresponding wait time, using an evidence-based approach for Medicaid. It is understood that some services may not be covered for all health plans. The state would be required indicate the additional provider type(s) in the Managed Care Program Annual Report, per § 438.66(e), and the Network Adequacy and Access Assurances Report, per § 438.207(d).

The proposed standards are based on the Affordable Care Act (ACA) marketplace standards, which will become effective in 2024. States would have the authority to vary the wait times for the same provider type – for example, adult or pediatric; in person or telehealth; geography, etc. It is important to note that CMS is not defining “routine” and is expecting the states to work with the health plans to determine the definition for their state. States can take the initiative to set appointment wait times for urgent appointments, too.

The standards would be a requirement in the health contract. CMS also proposes to revise § 438.206(c)(1)(i) which would require including the appointment wait time standards as a required provision in the managed care plan Medicaid contract.

CMS is specifically requesting comment from states and stakeholders related to behavioral health prepaid inpatient health plans and prepaid ambulatory health plans regarding whether these health plans have other provider types to choose from for the state-specific requirement. States will want to consider if this requirement is feasible for all health plans. Also, CMS is considering other provider types to add, so an opportunity to provide feedback to CMS about state preferences is available.

Comments regarding alignment of the ACA Marketplace standards are also requested. States may wish to consider if these standards would be feasible in their unique Medicaid managed care programs.

While exceptions to the standards may be granted by states, CMS reminds states to consider whether low MCO reimbursements to providers is a factor to building a provider network, which may determine whether an exception will be granted.

Finally, a new § 438.214(d)(2) is being proposed to ensure health plan contracts contain a requirement that terminated providers cannot participate as a provider in any Medicaid managed care plan network.

Proposed applicability date: These standards would become effective by the first rating period beginning on or after three years after the effective date of the final rule.

Require secret-shopper surveys as part of monitoring activities and use independent entities (§§ 438.68(f), 457.1207, 457.1218).

To more effectively monitor access and identify any gaps, the proposed rule would require states to perform annual secret-shopper surveys and report the results. To ensure unbiased results, CMS’ proposed rule would also require states to use an independent entity to perform this activity.

Four data elements accuracy need to be verified: active network status with MCO; street address (§ 438.10(h) (1)(ii)); telephone number (§ 438.10(h)(1)(iii)); and whether provider is accepting new enrollees (§ 438.10(h)(1)(vi)).

The survey process would also include a review of electronic provider directories (no paper) (§ 438.10(h)(1)), for primary care providers, OB/GYN, outpatient mental health and SUD providers, and the state-chosen provider type.

The proposed rule would require the secret-shopper survey be completed with a statistically valid sample of providers, using a random sample and including all areas of the state covered by the managed care contracts (§ 438.68(f)(4)).

For health plans to be considered compliant, the independent results need to show that the appointment availability standards were met at least 90 percent of the time. Offered telehealth appointments would only be counted for compliance purposes if in-person appointments are available, and telehealth appointment should be identified separately in the survey results.

In § 438.68(f)(1)(iii) and (iv) respectively, to maximize the value, identified errors from the secret-shopper survey must be communicated to states no later than three business days, and the state must send to the health plan within three days of receipt. The error information must be sufficient to facilitate correction. Health plans would have to update the provider directory within the time frames specified in § 438.10(h)(3)(i) and (ii).

Proposed applicability date: CMS is requesting comment on the type of technical assistance states would need and which would be most useful in implementing this requirement. The effective date would be by the first rating period beginning on or after four years after the effective date of the final rule.

Conduct an annual enrollee experience survey (§§ 438.66(b) and (c), 457.1230(b)).

The proposed rule will add the requirement that states conduct an annual survey of its enrollees to solicit comment and better understand the challenges that those individuals might face in obtaining timely and quality care to meet their needs. The disparities in access to care may be a function of the availability of providers who are willing to provide care to the medically underserved populations, and this could provide a means for states to address that issue.

These surveys can focus on matters important to enrollees, as well as on the perceived experience from the enrollees who participate in the survey. Some states are using this type of survey, like the Consumer Assessment of Healthcare Providers and Systems (CAHPS®) and the National Core Indicators-Aging and Disabilities (NCI-AD®) Adult Consumer Survey.™ These surveys should support other network adequacy activities.

Most states are utilizing a CAHPS® survey as part of the external quality review voluntary protocols and includes an enhanced federal match up to 75 percent; however, for those states who are not or only periodically, this proposed change would impact the scope of work for the external quality review organization, if contracted to perform, or the health plans, if the requirement is added to the health plan contract. The frequency of the survey (proposed annually), while important to know how policies implemented are changing the managed care program, may impact the results of received in the survey. “Survey fatigue,” which is when respondents lose interest in responding due to frequency or amount of effort to respond, could be a bias introduced into the results.

It is important to note that provider survey results alone would not be compliant for § 438.66(c)(5). CMS is not requiring provider surveys at this time; however, it is indicated in the proposed rule that the results of these surveys and the secret-shopper results may impact decisions at a later date.

The proposed rule would require posting the results of the survey on the state’s website within 30 calendar days of submitting the report to CMS. The surveys would need to meet the interpretation, translation, and tagline criteria in § 438.10(d)(2).

Comments are requested for this requirement, especially related to cost and feasibility, and states may want to consider the impacts to the managed care programs and how this requirement may influence other policy decisions.

Proposed applicability date: The requirement would become effective by the first rating period beginning on or after three years after the effective date of the final rule.

Annual payment analysis to compare MCO payment rates for certain services as a proportion of Medicare’s payment rates and the state’s Medicaid state plan payment rate (§§ 438.207(b), 457.1230(b)). Quality Review Results (§§ 438.364 and 457.1250(a))

In its efforts to improve enrollee safety and quality of care, CMS has encouraged states to link Medicaid payments to quality measures. CMS believes that payment rates are linked to provider network sufficiency and that greater transparency of the rates is needed to determine if those rates are impacting enrollee access to care.

The proposed requirement in § 438.207(b)(3) would require the health plan to conduct a payment analysis and submit annual documentation to the state. The requirement includes the criteria for services to be included and the methodology for the comparison.

Although health plans are required to submit payment information to states as a component of the encounter data they provide, historically, it has been difficult to receive information from health plans if the health plan deems the information as proprietary to the business operations. Another concern could be the quality of the claims data being used for this analysis and how the state would ensure the data quality is in an acceptable range. The states would be receiving self-reported (health plan) data and would need to evaluate what validation steps would be needed to ensure the information the health plan submitted is accurate. In addition, CMS’s proposed rule does not address how payments made outside of the claims adjudication, such as state-directed payments or value-based payment, will reflected in the annual payment analysis.

Proposed applicability date: This requirement would become effective by the first rating period beginning on or after two years after the effective date of the final rule.

Implement a remedy plan for any MCO with access issue(s) that need improvement (§ 438.207(f)).

Under the proposed rule, if an issue is identified with a managed care plan’s performance with regard to any state standard for access to care, the state would need follow the paragraphs (i) through (iv).

Submit remedy plan to CMS no later than 90 calendar days following the date the issue was identified.
Develop a remedy plan to address the identified issue that if addressed could improve access within 12 months and that identifies specific steps, timelines for implementation and completion, and responsible parties.
Some approaches to address the issues are located in § 438.207(f)(1)(ii) for states to consider.
Improvements in access to care need to be measurable and sustainable.
States would submit quarterly progress updates to CMS after the remedy plan has been implemented.
If progress is not sufficient, state may be required to continue past the initial 12 months or revise the remedy plan.

Proposed applicability date: This requirement would become effective for contracts beginning on or after four years after the effective date of the final rule.

Assurances of Adequate Capacity and Services Reporting (§§ 438.207(d), 457.1230(b)) CMS’ proposed rule would include the provision of additional assurances and reporting of capacity and services.

The proposed rule would require states to use a CMS-published template for reporting assurance of compliance. CMS published the “Network Adequacy and Access Assurances Report” template in a July 6, 2022, CMCS Informational Bulletin. The proposed rule would require the secret-shopper evaluation results as well as the payment analysis results as a component of the assurance report. The submission would be required at the time of a readiness review, on an annual basis no later than 180 days after the end of the contract year, or any time there is a significant change and with submission of an associated contract.

Proposed applicability date: The assurance report submission requirement would become effective for the first rating period beginning on or after one after the effective date of the final rule. The requirement to include the payment analysis results in the assurance report would become effective for the first rating period for contracts
beginning on or after two years after the effective date of final rule. The requirement would be effective for the first rating period beginning on or after one after the effective date of the final rule.

Transparency (§§ 438.10(c), 438.602(g), 457.1207, 457.1285)

Ensuring that enrollees can easily and efficiently locate the information needed for them to obtain timely, quality care is the focus of this section of the proposed rule. CMS is proposing to build upon the requirements that states must already adhere to in the information that must be made available on a single, public-facing website, by proposing to impose a number of minimum qualities that each website must include, as well as information regarding the network adequacy standards that are required.

CMS also believes that states and MCOs should implement and use web analytics to monitor traffic on the website and inform needed changes in the design. States will need to check their websites quarterly to verify the website is functioning as expected and information is current. There are currently four types of information required to post; this proposed rule would add nine more items, including enrollee handbooks, provider directories, formularies, information on rate ranges, state-directed payment evaluation reports, network adequacy standards, documentation of compliance with Subpart K-Parity in Mental Health and Substance Use Disorders, reports required by §§ 438.66(g) and 438.207(d), and secret-shopper survey results.

Proposed applicability date: The requirement would become effective for the first rating period for contracts beginning on or after two years the effective date of the final rule.

Next Steps

Assess your managed care health plans’ reporting in network adequacy. Determine if required information needed to be in compliance with the proposed requirements is currently being obtained.
Assess other monitoring currently being performed to determine if these proposed requirements are already in place.
Consider performing an environmental scan related to network adequacy. This exercise will provide each state with the current status regarding what requirements are in place, identify gaps, and reveal opportunities to enhance current processes.
Consider including comments and concerns during the public comment period which ends July 3, 2023.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Access to Care/Network Adequacy proposed changes one sheet.

Medicaid and CHIP Quality Rating System

In the 2016 final managed care rule, the Centers for Medicare & Medicaid Services (CMS) adopted requirements for states to operate a managed care quality-rating system. On May 3, 2023, CMS promulgated a Notice for Proposed Rulemaking, which would refine those requirements and establish a framework for the Medicaid and Children’s Health Insurance Program (CHIP) Quality Rating System (MAC QRS).

The MAC QRS is envisioned to be a one-stop-shop where beneficiaries can access information about Medicaid and CHIP eligibility and managed care; compare plans based on quality, performance, and other factors key to beneficiary decision making; and ultimately select a plan that meets their needs. CMS reports that the proposed rule reflects extensive stakeholder engagement and employs a person-centered design approach to ensure the MAC QRS provides meaningful and digestible information to its targeted audience.

Timeline

CMS proposes an implementation deadline of the end of the fourth year following the effective date of the final rule. For example, if the final rule is effective April 1, 2024, states would be required to implement no later than December 31, 2028, with data displayed in 2028 reflecting the January 1, 2026, to December 31, 2026, measurement year. After initial implementation, the first update to the measures would be 2029 and then every other year thereafter.

Burden Minimization

To the extent possible, CMS emphasizes the desire to leverage existing systems and processes during the development and operations of the MAC QRS. For example, CMS proposes states should leverage their existing beneficiary support system and technical assistance infrastructure to help individuals access and understand the content of the MAC QRS. Additionally, CMS plans to leverage the quality measure reporting systems and measures such as the Qualified Health Plan Quality Rating, the Medicare Advantage and Part D QRS, and other CMS quality rating approaches (i.e., Child Core Set, Adult Core Set, the Scorecard, etc.) that are already being reported to avoid unnecessary administrative burdens to states.

Measures

In the proposed rule, CMS puts forward a set of 18 mandatory measures to be included in the initial MAC QRS. As noted above, many of these measures are already being reported today and have established measure specifications. CMS also outlines a sub-regulatory process for selection of additional measures, updates to adopted measures, and removal of measures over time. CMS proposes to communicate changes to the mandatory measure set through a technical resource manual. CMS plans to update this manual annually, even if no changes are made to mandatory measures.

As under the current regulations, states would be permitted to continue to implement an alternative QRS. CMS proposes to reduce some of the conditions under which alternative QRS approval would be required. These changes include:

In addition to the mandatory measures, states could add measures without prior approval from CMS.
States would be able to adopt modifications to measures made by measure stewards for mandatory measures without CMS approval.

CMS proposes to hold states undertaking an alternative QRS responsible for submitting documents and evidence that demonstrates the alternative QRS is substantially comparable to the established MAC QRS methodology.

Comprehensive Data

To comply with the proposed rule, states may have to collect data from a combination of managed care entities, fee-for-service (FFS) Medicaid, and Medicare. States that collect data from managed care organizations, FFS, and Medicare will need to identify which program is providing each service assessed by the measure and then rate accordingly. Medicaid and separate CHIPs would be required to issue quality ratings as performance measure rates.

States will be responsible for ensuring the quality ratings include data from all members who receive coverage from the managed care plan for the specific service or action, including full-benefit duals. Importantly, CMS is not proposing that states would calculate or assign quality rating to Medicaid FFS or Medicare plans. Also, the proposal for the MAC QRS framework excludes contracts between states and Medicare Advantage (MA) Dual Eligible Special Needs Plans (D-SNP), where the contract is only or the D-SNP to provide Medicaid coverage of Medicare cost sharing for the D-SNP enrollees.

Website Display

CMS seeks to set new requirements for the website display of the MAC QRS. These requirements are a result of CMS’ stakeholder engagement efforts and desire to promote the usability of the QRS information presented. CMS’ proposed criteria for the MAC QRS website display includes that it contains:

Clear information that is understandable and usable for navigating a MAC QRS website.
Interactive features that allow users to tailor specific information, such as formulary, provider directory, and quality ratings based on their entered data.
Standardized information so that users can compare managed care programs and plans based on our identified information.
Information that promotes beneficiary understanding of and trust in the displayed quality ratings, such as data collection time frames and validation confirmation.
Access to Medicaid and CHIP enrollment and eligibility information, either directly on the website or through external resources.

Phased Implementation. To facilitate a common understanding of these expectations, CMS has created two MAC QRS prototypes at https://www.medicaid.gov/medicaid/quality-of-care/medicaid-managed-care-quality/quality-rating-system/index.html for review and public comment. The two prototypes correspond to the two phases for implementation, which are also described in the proposed rule.

The first phase, to be implemented by the end of the fourth year following release of the final rule, would provide a one-stop-shop for beneficiaries to access the information key to their decision-making, but would not require states to develop the interactive tools. However, this phase must include stratification by dual-eligible status, race/ethnicity, and gender.
In the second phase, proposed at two years following the initial implementation of the MAC QRS, states would be required to modify the website to provide a more interactive user experience. The state’s QRS would be required to permit viewing and filtering on factors such as age, rural/urban status, disability, language spoken by the enrollee, and additional factors as identified by CMS.

Plan Comparison. The end user of the QRS website must be able to identify available managed care plans, including name, website, customer service hot line for each plan, premium and cost-sharing information, summary of covered benefits, certain metrics of managed care plan access and performance, and whether plan offers an integrated Medicare-Medicaid plan. The site must include metrics related to secret-shopper survey, grievances, appeals, and accessibility of services. The tool must indicate whether the plan offers an integrated Medicare-Medicaid plan or a highly or fully MA D-SNP and link to plans rating under MA and Part D QRS. Each measure would also require a plain-language explanation, as well as details regarding how the measure relates to a beneficiary’s health and well-being.

Technical Resource Manual

CMS proposes to develop and annually update a MAC QRS technical resource manual. This manual would be issued by August 1, 2025, and updated annually thereafter. It would include Information such as the mandatory measure set; the subset of mandatory measures that must be stratified by race, ethnicity, sex, age, rural/urban status, disability, language, or such other factors; method used to calculate the quality ratings for managed care plans; technical specifications for mandatory measures; and other information. CMS proposes to release the technical resource manual update at least five months prior to the measurement period for which the updates would apply.

Annual State Reporting

CMS proposes to require states submit an annual MAC QRS report in a form and manner determined by CMS. The report would include:

A list of all measures included in the state’s MAC QRS, including a list of the mandatory measures reported and any additional measures a state has chosen to display.
An attestation that displayed quality ratings for all mandatory measures were calculated and issued in compliance with the CMS codified requirements, and a description of the methodology used to calculate any additional measures when it deviates from the established methodology.
Supporting documentation for additional quality measures the state may display.
The date on which the state publishes or updates their quality ratings for the state’s managed care plans.
The link to the state’s MAC QRS website to enable CMS to ensure the MAC QRS ratings are current.
The use of any technical specification adjustments to MAC QRS mandatory measures, which are outside the measure steward’s allowable adjustment for the mandatory measure, but that the measure steward has approved for use by the state.
A summary of each alternative QRS approved by CMS, including the effective dates (the period during which the alternative QRS was, has been, or will be applied by the state) for each approved alternative QRS.
CMS plans to create a portal for submission and give states a minimum of 90 days’ notice to provide this report.

Next Steps

Myers and Stauffer’s team of health policy and quality professionals are available to support your state’s review of the proposed rule and the MAC QRS requirements. We have national experience supporting the following related tasks.

Selection and calculation of quality measures.
Customization of quality and outcome measures.
Development of data visualization tools to present quality performance to public audiences.
Negotiation of alternative measure use with CMS.
Preparation of CMS reports.
Compliance with CMS requirement.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Medicaid and CHIP Quality Rating System proposed changes one sheet.

Ensuring Access to Medicaid Services (CMS-2442-P)

Payment Rate Transparency Standards

On April 27, 2023, the Centers for Medicare & Medicaid Services (CMS) released a notice of proposed rulemaking titled: Medicaid and Children’s Health Insurance Program (CHIP) Ensuring Access to Medicaid Services (CMS-2442-P). The proposed rule rescinds the existing access monitoring review plan (AMRP) requirements at 42 CFR § 447.203(b) and replaces it with new requirements around Medicaid fee-for-service (FFS) payment rate transparency.

The intended purpose of the new requirements is to ensure State compliance with the Section 1902 (a)(30)(A) of the Medicaid statute. Specifically, states must “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”1

The new requirements address this intent by:

Increasing Medicaid FFS payment rate transparency, standardizing state data and information requirements, and decreasing state administrative burden though targeted rate review.
Offering greater clarity into how Medicaid payment levels affect beneficiary access to care.
Providing data to CMS to demonstrate that any provider rate reductions or restructuring will not harm beneficiary access to care.

State Agency Publication of Medicaid FFS Rates

Proposed 42 CFR § 447.203(b)(1)

1. States will be required to publish all Medicaid FFS rates on a website developed and maintained by the state that is accessible from a hyperlink on the state Medicaid agency’s website.
2. Rates must be published by January 1, 2026, for rates effective as of January 1, 2026. Thereafter, when rates are changed, states must ensure the posted rates are updated no later than one month after CMS approval of the applicable state plan amendment (SPA) or waiver, or in the case of rates updated based on previously approved rate methods, no later than one month after the effective date of the rate update. The state must include the date the rates were last changed.
3. Rates must be organized in such a way that the public can easily determine what Medicaid would pay for a service. For bundled rates, the state must identify each service and how much of the bundled payment is allocated to each service.
4. If rates vary, such as by population (pediatric and adult), provider type, geographic location, or other differentiators, each rate must be identified.

Comparative Payment Rate Analysis and Payment Rate Disclosure Requirements and Timeline

Proposed 42 CFR § 447.203(b)(2)

1. States will be required to develop and publish a comparative payment rate analysis of Medicaid payment rates for the following categories of service:

Primary care services.
Obstetrical and gynecological services.
Outpatient behavioral health services.

2. If the rates vary, the state must separately identify the payment rates by population (pediatric and adult), provider type, and geographical location, as applicable.

3. States will be required to develop and publish a payment rate disclosure of Medicaid payment rates for the following categories of service:

Personal care, home health aide, and homemaker services, as specified in § 440.180(b)(2) through (4), provided by individual providers and providers employed by an agency.

Proposed 42 CFR § 447.203(b)(3)

1. The comparative payment rate analysis for primary care services, obstetrical and gynecological services, and outpatient behavioral health services must compare Medicaid FFS rates to the most recently published Medicare rates for the same period for evaluation and management (E/M) codes applicable to the category of service. Rates must be compared at the Current Procedural Terminology (CPT) or Healthcare Common Procedure Coding System (HCPCS) code level.

2. The comparative payment rate analysis must:

Be organized by category of service in 42 CFR § 447.203(b)(2)(i) through (iii), e.g., primary care services, obstetrical and gynecological services, and outpatient behavioral health services.
Identify the Medicaid base payment rate by E/M, CPT, or HCPCS code, including, if the rates vary, separate identification by population (pediatric and adult), provider type, and geographical location, as applicable.
Identify the Medicare non-facility payment rates effective for the same period for the same E/M, CPT, or HCPCS codes for the same geographical location as the Medicaid base payment rates and including, separate identification of the payment rates by provider type.
Specify the Medicaid base payment rate as a percentage of the Medicare non-facility rate for each of the services for which a Medicaid base payment rate is published.
Specify the number of Medicaid-paid claims and the number of Medicaid beneficiaries who received a service within a calendar year for each of the services for which the Medicaid base payment rate is published.

3. For personal care, home health aide, and homemaker services, the state will be required to publish a payment rate disclosure that expresses the state’s payment rates as the average hourly payment rates, separately identified for payments made to individual providers and to providers employed by an agency, if the rates vary. The payment rate disclosure must:

Be organized by category of service in 42 CFR § 447.203(b)(2)(iv), e.g., personal care, home health aide, and homemaker services.
Identify the average hourly payment rates by category of service, including, if the rates vary, separate identification of the average hourly payment rates for payments made to individual providers and to providers employed by an agency, by population (pediatric and adult), provider type, and geographical location, as applicable.
Specify the number of Medicaid-paid claims and the number of Medicaid beneficiaries who received a service within a calendar year for each of the services for which the average hourly payment rates are published.

Proposed 42 CFR § 447.203(b)(4)

States much publish their initial comparative payment rate analysis and payment rate disclosure for Medicaid rates in effect as of January 1, 2025, by January 1, 2026. Thereafter, states must update the analysis and disclosure no less than every two years, by January 1 of the second year after the latest update. Publication requirements are the same as under § 447.203(b)(1).

Proposed 42 CFR § 447.203(b)(5) compliance with payment rate transparency, comparative payment rate analysis, and payment rate disclosure requirements.

If a state fails to comply with the payment rate, transparency, comparative payment rate analysis, and payment rate disclosure requirements, CMS may reduce future grant awards. CMS will estimate the amount of federal financial participation (FFP) attributable to the state’s administrative expenditures relative to total expenditures for the categories of service for which the state has not complied. FFP will be released once the state is in compliance.

Interested-Parties Advisory Group for Rates Paid for Certain Services

Proposed 42 CFR § 447.203(b)(6) Interested parties advisory group for rates paid for certain services

States must establish an “interested parties advisory group” to advise and consult on provider rates under the state plan, 1915(c) waiver, and demonstration programs where payments are made to direct care workers. The group must include direct care workers, beneficiaries and their representatives, and other interested parties impacted by the rates.
The group will advise consult with the state regarding payment rates, home and community-based services (HCBS) payment adequacy data, and access to care metrics to ensure rates are sufficient to ensure access. The group will meet at least every two years and make recommendations to the state about the sufficiency of direct care worker payment rates. The state must publish the recommendations within one month of when the group makes a recommendation to the state. The state must make information available to the group regarding payment rates, HCBS provider payment adequacy minimum performance and reporting standards, and access to care metrics.

Rate Reduction or Restructuring Analysis Requirements

Proposed 42 CFR § 447.203(c)(1) Initial State analysis for rate reduction or restructuring

1. For any SPA that seeks to reduce payment rates, or restructure payment rates in a way that could result in diminished access, the state must provide written assurance and relevant supporting documentation that the following are met:

Aggregate Medicaid payment rates (base and supplemental) for the service category are at or above 80% of the most recently published Medicare rates for the same or comparable service.
The proposed reduction or restructuring for the service, combined with any other reductions or restructurings in the state fiscal year, results in no more than a four percent reduction in aggregate Medicaid expenditures.
The public process in § 447.203(c)(4) yielded no significant access to care concerns from beneficiaries, providers, or other interested parties, or if there are concerns, the state can reasonably respond to or mitigate the concerns.

Proposed 42 CFR § 447.203(c)(2) Additional State rate analysis

1. For any SPA that seeks to reduce payment rates, or restructure payment rates in a way that could result in diminished access, if the three criteria in § 447.203(c)(1) are not met, the state must: submit the items required in § 447.203(c)(1), plus:

Proposed 42 CFR § 447.203(c)(3) Compliance with requirements for state analysis for rate reduction or restructuring

1. An SPA to reduce or restructure payment rates in a way that could result in diminished access is subject to disapproval by CMS if the states does not provide the information and analysis under § 447.203(c)(1) and § 447.203(c)(2) to support approval.

2. If the state submits the required information, but there are unresolved access concerns, the SPA may be subject to disapproval.

3. If state monitoring of beneficiary access after the reduction or restructuring of payment rates takes effect shows reduced access to care, or if the state or CMS experience an increase in beneficiary or provider complaints about access, CMS may take compliance action under 42 CFR § 430.35 Withholding of payment for failure to comply with Federal requirements.

Mechanisms for Ongoing Beneficiary and Provider Input

Proposed 42 CFR § 447.203(c)(4)

States must have mechanisms for beneficiary and provider input on access to care and should promptly respond to public input with an appropriate investigation, analysis, and response. States must maintain a record of public input and the state’s response and provide to CMS upon request.

Remediation of Inadequate Access to Care

Proposed 42 CFR § 447.203(c)(5)

When access to care deficiencies are identified, states must submit a corrective action plan within 90 days of discovery. The corrective action plan must have specific steps and timelines, with remediation occurring within 12 months.

Compliance Actions for Access Deficiencies

Proposed 42 CFR § 447.203(c)(6)

To remedy an access deficiency, CMS may take compliance action under 42 CFR § 430.35 Withholding of payment for failure to comply with Federal requirements.

Next Steps

Most of these new requirements must be met by January 1, 2026. To be compliant, states will need assistance with disclosing their rate information, performing required comparative payment rate analysis, identifying potential deficiencies, and addressing CMS concerns. Our experienced rate-setting team will ensure compliance by drawing on our more than 45 years of Medicare and Medicaid knowledge to meet our clients’ Medicaid policy and program objectives and promote the best use of limited public funds.

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Payment Rate Transparency proposed changes one sheet.

CMS Considering Application of Additional Access Standards for Fully Fee-for-Service States

The Centers for Medicare & Medicaid Services (CMS) is considering timeliness standard requirements similar to those published in the CMS 2439-P Managed Care Access Finance and Quality proposed rule. The timeliness standards relate to proposed appointment wait-time standards, secret-shopper survey requirements, and publication requirements, and would apply to fully fee-for-services (FFS) states. CMS is seeking comment on the application of the following specific standards.

Proposed § 42 CFR 438.68 (e) Appointment Wait Time Standards

States would be required to enforce wait-time standards for:
1. Pediatric and adult outpatient mental health and substance abuse – wait time of no more than 10 days.
2. Pediatric and adult primary care – wait time of no more than 15 days.
3. Obstetrics and gynecology – wait time of no more than 15 days.
4. Additional types of services determined by state in an evidenced-based manner – states would establish the wait-time standard using information such as claims data and provider complaints. CMS views this as an opportunity for states to address local access challenges.
State agencies would enforce these requirements through secret-shopper surveys.
States would be considered compliant with wait-time standards when the secret-shopper survey results demonstrate compliance at least 90 percent of the time.
CMS proposes a compliance date of four years after the effective date of the final rule.
States are required to post appointment wait-time standards on their websites and make standards available at no cost to enrollees with disabilities in alternate formats or through auxiliary aids, upon request. States must publish these standards within three years of the final rule effective date.

CMS also seeks comment on the methods through which they can collect data to demonstrate that states are
meeting wait-time standards at least 90 percent of the time.

Proposed §§ 42 CFR 438.68 (f), 457.1207, and 457.1218 Secret-Shopper Surveys

CMS proposes to require states to use independent entities to conduct secret-shopper surveys to ensure compliance with proposed wait-time standards and to determine the accuracy of electronic provider directories.
The requirement applies to stand-alone Children’s Health Insurance Programs (CHIP).
CMS would also require the secret-shopper survey to verify four pieces of provider information:
1. Active network status.
2. Street address.
3. Telephone number.
4. If the provider is accepting new patients.
States must receive all provider directory errors identified in secret-shopper surveys no later than three business days from identification by independent entity conducting the survey. The information sent to the state must be sufficient to facilitate quick correction of the error and update the provider directory.
Appointments offered via telehealth will only be counted towards compliance with appointment wait-time standards if the provider also offers in-person appointments and if telehealth visits offered during the secret-shopper survey are identified in the survey results.
The results of the secret shopper surveys must be reported to CMS annually and posted on the state’s website within 30 calendar days of the submission to CMS.
State would have to comply with these standards within four years of the final rule effective date.

Next Steps

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Additional Access Standards for Fully Fee-for-Service States proposed changes one sheet.

Home and Community-Based Services Reporting and Rate Adequacy Requirements

In the proposed rule, CMS identifies the desired initiatives to amend and add Federal requirements related to HCBS programs. These proposals were released in an attempt to improve access to care, improve the quality of care, and improve the health and quality-of-life outcomes for HCBS beneficiaries. These proposals would affect services provided under 1915(c) waiver programs and state plan services included in sections 1915(i), (j), and (k). These requirements would also apply to 1115 demonstration project services, unless specifically waived.

Should the rule be finalized, Myers and Stauffer will work directly with each of our clients to determine the most
efficient way to meet reporting requirements and evaluate payment adequacy.

Reporting (§§ 441.302(h) and 441.311)

This proposed rule establishes new consolidated reporting requirements for states related to HCBS programs. The reporting requirements would start three years after the effective date of the final rule for fee-for-service (FFS) systems. For any services delivered through a managed care plan, the rule proposes that the effective date will be three years after the first managed care plan contract rating period that starts on or after three years after the effective rate of the final rule. If the rule is finalized, CMS stated it would establish new reporting processes and forms to assist states in meeting the new requirements. This includes providing additional technical guidance.

States will be required to report the following information:

Payment Adequacy (§§ 441.302, 441.464(f), 441.570(f), and 441.745(a)(1)(vi))

States will continue to ensure that provider payments follow the requirements of Section 1902(a)(30)(A) of the Act, which requires payments to be “consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers…” to deliver services. In an effort to continue to provide access to homemaker, home
health aide, and personal care services, the rule proposes that Medicaid state agencies demonstrate a minimum of 80 percent of all Medicaid payments are paid for direct-care worker compensation for these services. This will require states to collect information from service providers to identify what percentage of payments are used to compensate the direct care workers. It is proposed for this requirement to take effect four years after the rule is finalized, if implemented.

CMS defined compensation for direct-care workers to include any payments for, “salaries, wages, and other remuneration as defined by the Fair Labor Standards Act and implementing regulations…” and includes benefits that provide a financial benefit to the worker, such as health insurance or tuition reimbursement. Benefits also include any payroll taxes that are the responsibility of the employer.

Website Transparency (§§ 441.313, 441.486, 441.595, and 441.750)

States will be required to operate a website that will provide information in a clearly identified manner for each of the required reporting elements, as documented in § 441.311. The website should be easily accessible and contained within a single web page. This website must be implemented within three years following the effective date of the final rule for FFS systems and until the first managed care plan starts three years or later after the effective date of the final rule.

Next Steps

The proposed rule is open for comments until July 3, 2023. Formal comments can be submitted here.

Download our Home and Community-Based Services Reporting and Rate Adequacy Requirements proposed changes one sheet.