The CIB highlights and clarifies the provisions in 42 Code of Federal Regulations (CFR), outlined below, to assist in determination of amounts to include and exclude from incurred claims, particularly when a health plan uses a third-party vendor in a subcontracted arrangement. When a health plan subcontracts with a third-party vendor to administer, and potentially provide, a portion of Medicaid covered services to enrollees, the subcontractor must report to the health plan all of the underlying data needed to report the health plan’s MLR.
42 CFR 438.8(e)(2)(ii)(B)
Prescription drug rebates received and accrued must be deducted from incurred claims.
CMS interprets this regulation to require any time a health plan receives something of value for the provision of a Medicaid covered outpatient drug (e.g., manufacturer rebates, incentive payments, direct or indirect remuneration, goods in kind, etc.), regardless from whom the item of value is received (e.g., pharmaceutical manufacturer, wholesaler, retail pharmacy, etc.), the value of that rebate must be deducted from the amount of incurred claims used for calculating and reporting the MLR.
CMS also interprets this requirement to apply equally regardless of whether the prescription drug rebate is received directly by the health plan or indirectly by a subcontractor administering the covered outpatient drug benefit on behalf of the health plan. This clarification is to ensure the MLR calculation does not include artificially inflated totals for incurred claims because a subcontractor has been used by the health plan.
42 CFR 438.8(e)(2)(v)(A)
Incurred claims must exclude non-claims costs, which include the following:
(1) Amounts paid to third-party vendors for secondary network savings.
(2) Amounts paid to third-party vendors for network development, administrative fees, claims processing, and utilization management.
(3) Amounts paid, including amounts paid to a provider, for professional or administrative services that do not represent compensation or reimbursement for state plan services or services meeting the definition for in-lieu-of services in 42 CFR 438.3(e) and provided to an enrollee.
(4) Fines and penalties assessed by regulatory authorities.
42 CFR 438.8(k)(3)
Managed care plans must require any third-party vendor providing claims adjudication activities to provide all underlying data associated with MLR reporting to the managed care plan to calculate and validate the accuracy of MLR reporting.
42 CFR 438.230(c)(1)
If a managed care plan delegates any of its activities or obligations under its contract with the State to a subcontractor, then:
(1) The delegated activities or obligations, and related reporting responsibilities, must be specified in a contract or written agreement.
(2) The subcontractor must agree to perform the delegated activities and reporting responsibilities specified in compliance with the managed care plan’s contract obligations.
(3) The contract or written arrangement must either provide for revocation of the delegation of activities or obligations, or specify other remedies in instances where the State or the managed care plan determine that the subcontractor has not performed satisfactorily.