Over A Decade In The Making: CMS Releases Long-Awaited Medicaid Managed Care Rule

Introduction

On May 27, 2015, the Centers for Medicare and Medicaid Services ("CMS") published a 653-page proposed rule affecting the thirty-nine states (plus the District of Columbia) that use managed care organizations ("MCOs") to administer their Medicaid benefits. This represents the first major overhaul of the Medicaid managed care system since the rules were established in 2002, now covering approximately seventy percent of all Medicaid enrollees.

Public comments are due July 27, 2015, which gives health plans, providers, consumer groups, and even state Medicaid directors a narrow window to identify potential areas of concern and to propose solutions for formal CMS consideration. While some issues will align important stakeholder groups, others are likely to remain contested during the comment period and up to publication of the final rule.

As a backdrop leading to the publication of the proposed rules, the managed care landscape has become much more complex and variable among the states that have adopted this approach in their Medicaid programs. Because of this, CMS has been contemplating ways to ensure more consistent rules that promote adequate access to health services while also creating more synergy between Medicaid, Medicare, and even the commercial sector via delivery system reforms that improve quality and lower costs.

The proposed rule also addresses some areas of perceived inequity in the Medicaid program that range from behavioral and substance-abuse treatment to long-term care and insurance reforms akin to those in the Affordable Care Act ("ACA"), which was mostly targeted at commercial health plans.

But CMS's ambitions in proposing the rules need to be tempered by the reality that state Medicaid programs are administered by the individual states: through federal regulations CMS can establish minimal standards for the state Medicaid managed care systems but states may enact state regulations or impose managed care contract terms that go farther than the federal requirements. The managed care community must view federal regulations as a starting, not an end, point.

CMS categorizes the massive Medicaid managed care proposed rule into several issue areas in its Fact Sheet:

Beneficiary Experience

Requires states to improve access to care through regular assessment and certification of a health plan's provider network and time/distance standards to providers including behavioral health, pediatric dental, and pharmacy. Updates communication rules directed towards Medicaid/CHIP beneficiaries to include electronic methods, non-English language options, and additional information in provider/drug formulary directories, Sets standards for care coordination, assessments and treatment plans that include care transition services, initial health risk assessments within 90 days of enrollment, and regularly updated assessments and treatment plans for beneficiaries with special health care needs or long-term services and supports. Creates a new enrollment selection period of 14 days to allow beneficiaries to research and select managed care plan options. State Delivery System Reform

Encourages participation in Medicare-led alternative payment models and initiatives. Establishes minimum reimbursement standards or fee schedules for providers that deliver a particular covered service. Clarifies "short-term stay" rule that managed care plans are able to receive capitated payments for beneficiaries who are admitted to an institution for mental disease ("IMD") for no more than 15 days so long as the facility is an inpatient hospital or sub-acute short-term crises residential service. Quality Improvement

Creates a public notice and comment period to determine a core set of performance measures and improvement projects for states related to managed care plans. Establishes a Medicaid managed care quality rating system in each state that would report performance information on all health plans, akin to the Medicare Advantage ("MA") and marketplace ratings. Program and Fiscal Integrity

Requires certain types of data to be used for rate setting purposes and the level of documentation and detail about the development of the capitation rates such as trend factors, adjustments and the development of non-benefit costs. Establishes a medical loss ratio ("MLR") for both Medicaid and CHIP plans using standards similar to Medicare Advantage and the commercial market. Adds several components to fraud prevention efforts by implementing procedures for internal monitoring, auditing, and prompt referral of potential compliance issues, etc. Managed Long-Term Services and Supports ("MLTSS") Programs

Affirms recent updates such as Olmstead, stakeholder engagement requirements, and provider credentialing in the development and implementation of MLTSS programs. Requires MLTSS-specific elements to be included in a state's quality improvement strategy and reporting systems to protect MLTSS enrollees. Children's Health Insurance Program ("CHIP")

CMS proposes to align the CHIP managed care regulations, where appropriate. Alignment with Medicare Advantage and Private Coverage Plans

Importantly, CMS proposed where appropriate and possible, to align the Medicaid managed care regulations with those governing MA and private health insurance plans including the MLR, appeals and grievances, and marketing rules. Finally, other highlights from the proposed rule include a requirement that Medicaid managed care entities offering outpatient drug coverage must now collect the necessary information for the states to include those managed care drugs in rebate invoices to drug manufacturers pursuant to the Medicaid Drug Rebate Program ("MDRP") as well as modifications to the rules governing plan appeals and grievance procedures to increase uniformity with the procedures that apply to MA and commercial plans.

The discussion below provides a more in-depth analysis of a subset of these provisions.

Discussion

Alignment with Medicare Advantage and Private Coverage Plans

CMS proposes numerous changes aimed at aligning Medicaid managed care with other health care programs. The ultimate goal of these proposals is to promote consistency and, where possible, make it easier for states and health plans to manage the delivery of health care services across product lines.

Medical Loss Ratio

CMS proposes a nationwide minimum MLR of 85%, meaning 85% of the expenditures must be spent on care, and 15% on administrative costs. This change further serves the purpose of aligning Medicaid managed care program requirements with the standards set in the private health insurance and MA markets. CMS acknowledges that some states already require a minimum MLR, but pointed out that these standards vary significantly. CMS believes that a nationwide MLR will enable plans to set actuarially sound capitation rates and achieve consistency when offering products across multiple insurance markets. CMS does not establish a maximum MLR threshold, but encourages states to consider establishing appropriate maximum limits based on the services delivered.

CMS also proposes "minimum" standards for calculating and reporting MLR. The standards proposed more closely align with that of the private marketplace as opposed to MA, with CMS citing its belief in a need for greater similarity between Medicaid managed care plans and the commercial marketplace. However, CMS states that it proposes to incorporate MA standards where this need is outweighed by the need for protection for a public program.

Among the many standards for calculating and reporting MLR, one interesting proposal that stands out is the inclusion of fraud prevention expenditures as a cost of care in the calculation of MLR (rather than administrative cost), a significant difference from the MA MLR standards. But Medicaid managed care plans may only include fraud prevention expenditures up to 0.5% of premium revenue. CMS states that fraud prevention efforts do not include fraud recovery efforts.

Industry advocates are already speaking...