Medicaid and CHIP Managed Care Final Rule: But wait, there is more

The Centers for Medicare & Medicaid Services (CMS) recently released an unpublished version of its mammoth Medicaid and Children’s Health Insurance Program Managed Care Access, Finance and Quality Final Rule (Final Rule). In a previous client alert, we analyzed the Final Rule’s principal changes to state-directed payments. In this alert, we address additional highlights from the Final Rule, including standards for timely access to care, in lieu of services and settings (ILOSs), medical loss ratio (MLR) and a new quality ratings system for Medicaid and CHIP managed care plans. The Final Rule does not make significant changes to the proposed version regarding many of the areas identified below but solidifies the desire to continue to address common issues of concern across the nation regarding access to care and ways to address other social determinants of health. However, whether states will oblige with the additional funds and resources necessary to implement many of these changes is a question, depending upon which geographic area of the country Medicaid beneficiaries and providers sit.

The Final Rule is scheduled for Federal Register publication on May 10, 2024. The regulations in the Final Rule will become effective July 9, 2024. Table 1 of the Final Rule sets out “Applicability dates” for regulatory changes other than the effective date.

Timely access to care

CMS has finalized several changes intended to improve and monitor access to care. These changes include implementing maximum wait times, secret shopper surveys, enrollee experience surveys, provider payment analysis reports and accessibility requirements for state Medicaid managed care webpages.

Maximum wait times

The Final Rule provides for maximum appointment wait times for certain routine appointments, applicable for rating periods beginning July 9, 2027, or thereafter. According to CMS, these specific areas of care were targeted because they are “indicators of core population health.” For adult and pediatric primary care and obstetrics and gynecology (OB-GYN) services, the maximum wait time is 15 business days. For adult and pediatric outpatient mental health and substance use disorder services, the maximum wait time is 10 days. States are also responsible for selecting an area for maximum appointment wait times beyond those provided in the Final Rule, “chosen in an evidenced-based manner within State-established timeframes.” Maximum wait times are intended to ensure adequate network adequacy and the availability of providers to enrollees.

Annual secret shopper surveys

Applicable for the first rating period July 10, 2028, or thereafter, states are required to have annual secret shopper surveys to investigate whether managed care plans are meeting requirements in connection with maximum appointment wait times and the validity of provider directories. These secret shopper surveys must be conducted by an independent entity, meaning the entity must not be a part of the state Medicaid agency or any contracted plans subject to the survey. In the Final Rule, CMS states that “secret shopper surveys could provide unbiased, credible and representative data on how often network providers are offering routine appointments within the State’s appointment wait time standards and these data will aid managed care plans as they assess their networks…and provide an assurance to States that their networks have the capacity to serve the expected enrollment in their service area and that it offers appropriate access to preventive and primary care services for their enrollees.” In the case of provider directory errors, states must be provided information within three business days.

Annual enrollee experience surveys

Applicable to the first rating period on July 9, 2027, or thereafter, on an annual basis, states must have enrollee experience surveys to evaluate enrollee experience with Medicaid managed care plans within each state. 

Provider payment analysis

Also on an annual basis, states must submit payment analyses that compare state Medicaid managed care plan rates with Medicare or Medicaid state plan rates. This requirement is applicable to the first rating period beginning July 9, 2026. These analyses must compare state Medicaid managed care plan rates for primary care, OB-GYN, mental health and substance use disorder services with Medicare rates. They must also compare rates for homemaker services, home health aide services, personal care services and habilitation services with the Medicaid state plan rates. CMS notes that these analyses are meant to help assess payment adequacy to providers under state Medicaid managed care programs.

State remedy plan

The Final Rule requires the submission of state remedy plans applicable to the first rating period on July 10, 2028, or thereafter. In the event that a state identifies an area of improvement in connection with required access standards, that state must develop a remedy plan detailing how the access issue will be remedied. Specifically, the plan must identify “steps with timelines for implementation and completion, and responsible parties.” This plan must be submitted to CMS for approval within 90 days following the identification of the access issue.

Required webpage

Applicable to the first rating period on July 9, 2027, or thereafter, states will be required to maintain a webpage online for public access to improve transparency in connection with state Medicaid managed care plans. These webpages must provide content directly or link to plan websites that are easy to understand and navigate. States must verify, at least on a quarterly basis, the accuracy and functionality of such webpages. A webpage must also explain that assistance accessing the information on the webpage is available free of charge and have “information on the availability of oral interpretation in all languages, written translation available in each prevalent non-English language, how to request auxiliary aids and services, and a toll-free and TTY/TDY telephone number.” According to CMS, this requirement is meant to ensure that all states have accessible websites in connection with state Medicaid managed care plans, as there is variation in accessibility levels among states with the current minimum requirements.

State directed payments

For a detailed analysis of the changes finalized with modifications for state-directed payments (SDPs) in the Final Rule, please refer to the companion client alert, "Medicaid Managed Care Final Rule: Long-awaited pronouncement on permitted uses of state directed payments."

In lieu of service and setting

Previously, in a January 4, 2023, State Medicaid Director Letter, CMS explained that states and Medicaid managed care plans can use ILOSs to enhance access to care by “expanding settings and options” to address Medicaid enrollees health-related social needs (HRSNs), including housing and nutrition issues. ILOSs permit states to use substitutes for services and settings allowed under the state plan to promote accessibility to care.

The Final Rule implements standards in connection with ILOSs that, according to CMS, are intended to “promote effective utilization and that specify the scope and nature of ILOSs.” In connection with the Final Rule, CMS expressed its view that “there must be appropriate fiscal protections and accountability of expenditures on these ILOSs which are alternative services and settings not covered in the State plan.” The new standards are applicable for the rating period starting on September 9, 2024, and thereafter.

Limits on total costs

The Final Rule provides that the projected ILOS cost percentage may not be greater than five percent, and the final ILOS cost percentage may not exceed five percent.

Requirements for Medicaid

The Final Rule provides that ILOSs can be utilized as immediate or longer-term substitutes for covered services or settings under the state plan. ILOSs can also be utilized when such use is anticipated to lead to a reduction in future need for services or settings or to promote HRSNs.

State plan amendment

The Final Rule requires that ILOSs are considered approvable as a service or setting under the Medicaid state plan or a Medicaid section 1915(c) waiver. 

Required documentation

The Final Rule implements documentation requirements for Medicaid managed care contracts in connection with each ILOS. Plans must include the following: (1) the name/definition of each ILOS; (2) the covered service or setting for which the ILOS is a substitute under the state plan, (3) the target population for which the ILOS is considered appropriate by the state, (4) the process by which the plan will determine the enrollee’s documents and/or records deem the ILOS appropriate for the enrollee, (5) the rights and protections of the enrollee and (6) a requirement that the plan will use certain state-provided codes to indicate ILOS data. In the event that any state has a projected ILOS cost greater than one and a half percent, the following additional documentation requirements also apply: (1) an explanation of the process and evidence the state used to determine that each ILOS is a medically appropriate service or setting for the target population, and (2) an explanation of the process and date the state utilized to determine the cost-effectiveness of each ILOS. 

Evaluation and oversight

In the event that the final ILOS cost percentage exceeds one and a half percent in any of the five rating periods following authorization of the ILOS in the plan contract, the state must provide a retrospective evaluation of all of the ILOSs to CMS. The evaluation must include (1) the impact of the ILOS on utilization of approved services or settings under the state plan and related cost reductions; (2) trends in connection with plan and enrollee use of ILOSs; (3) whether the data supports that the ILOS is effective; (4) how the ILOS impacts quality of care; (5) the ILOS cost percentage per year; (6) any appeals or grievances related to each ILOS; and (7) the impact of the each ILOS on state initiatives to minimize health disparities. States must notify CMS within 30 days in the event that the state determines that any ILOS is no longer appropriate or cost-effective, or identifies any noncompliance in connection with any ILOS. In the event that any noncompliance is identified by CMS in connection with an ILOS, CMS may require the state to terminate any noncompliant ILOS.

Termination and transition

In the event that an ILOS is terminated on the basis of a state decision to terminate an ILOS, a plan decision to cease offering an ILOS, or CMS’s requirement that a state terminate an ILOS, the state must provide CMS with an ILOS transition plan for approval. The transition plan must include the following: (1) a process for notifying any enrollees currently receiving the ILOS; (2) a policy to transition care; (3) assurance that the state will amend plan contracts accordingly; and (4) an assurance that the state and its actuary will adjust rates based on removal of the ILOS. 

Medical loss ratio standards

To keep the Medicaid and CHIP managed care rules aligned with regulatory changes in the private market and the Medicare Advantage program, CMS is finalizing several proposed MLR policies. These include provider incentive arrangements, quality improvement activity and reporting overpayments, among others. The Final Rule also requires states to report MLRs for each managed care plan in their annual report to CMS.

Provider incentive payment arrangements

Finalized proposals targeting contractual requirements for provider incentive payments in the Final Rule require that the state, through its contract(s) with a managed care plan, incorporate specific provisions related to provider incentive contracts. These include a requirement that incentive payment contracts provide for well-defined quality improvement or performance metrics that providers must attain to receive the incentive payment.

To address concerns that provider incentive arrangements “may create an opportunity for a managed care plan to more easily pay network providers solely to expend excess funds to increase their MLR numerator under the guise of paying incentives,” CMS has finalized proposals requiring that incentive payment contracts between managed care plans and network providers (1) have a clearly defined performance period that can be tied to the applicable MLR reporting period, (2) be fully executed, and clearly dated prior to when the performance period commences, (3) include well-defined quality improvement or performance metrics that providers must meet to receive the incentive payment and (4) specify a dollar amount that can be clearly linked to the successful completion of these metrics as well as a date of payment.

CMS also finalized a proposal to prohibit Medicaid and CHIP managed care plans from including provider bonuses or incentive payments that are not based on clinical or quality improvement standards in their MLR numerator. Additionally, states must prohibit managed care plans from using attestations as documentation to support provider incentive payments under the Final Rule.

Acknowledging in the Final Rule’s comment and response section “that 60 days may not be long enough to engage with the contracted providers and complete the legal review necessary to implement new provider incentive arrangements,” CMS revised the proposed effective date for the new provider incentive contract requirements as the first rating period beginning on or after one year after the Final Rule’s effective date.

Quality improvement activity (QIA)

CMS noted in the preamble that prior examinations of MLR reporting of issuers in the private market found “wide discrepancies in the types of expenses the issuers include in QIA expenses” that “creates an unequal playing field among issuers.” To provide further clarity on the types of costs that may be included in MLR calculations in the future, CMS is finalizing a proposal that prohibits the inclusion of indirect or overhead expenses that do not directly improve healthcare quality when reporting QIAs. CMS believes this “change will provide States with more detailed QIA information to improve MLR reporting consistency, allow for better MLR data comparisons between the private market and Medicaid and CHIP markets, and reduce administrative burden for managed care plans that participate in Medicaid, CHIP and the private market.” This provision is applicable 60 days after the Final Rule's effective date.

Reporting overpayments

The agency further finalizes a proposal that requires managed care plans for Medicaid and CHIP to promptly report any identified or recovered overpayments to the state within 30 calendar days (instead of 10 as originally proposed). The proposed effective date for reporting overpayments was also revised to the first rating period beginning on or after one year after the Final Rule’s effective date.

Expense allocation reporting

Noting that recent CMS state-level Medicaid MLR reviews demonstrate a lack of expense allocation information describing, for example, how certain costs that may apply across multiple lines of business were allocated to the MLR report, CMS finalizes a new requirement that Medicaid and CHIP managed care plans submit actual expenditures and revenues for SDPs as part of their MLR reports to the states. This provision is applicable 60 days after the Final Rule's effective date.

Credibility factor adjustment to publication frequency

Medicaid and CHIP managed care calculated MLRs may be adjusted using credibility factors to account for potential variability in claims due to random statistical variation. These factors are applied to plans with fewer enrollees to adjust for the higher impact of claims variability on smaller plans. Since the publication of the credibility adjustment factors in 2017, these factors have not changed. As a result, CMS is finalizing its determination that annual updates to these factors are not required. The Final Rule further provides that CMS will use the methodology specified at § 438.8(h)(4)(i) through (vi) in the event credibility adjustment factors require updating in the future.

Quality strategy and external quality review (EQR)

CMS is finalizing the rules for the quality strategy, as proposed, to require that states (1) make their quality strategy available for public comment at the three-year renewal, regardless of whether or not the state intends to make significant changes, as well as whenever significant changes are made; (2) post on their website the results of its three-year review; and (3) submit a copy of their quality strategy to CMS.

CMS also finalized the following changes to the EQR regulations, which aim to eliminate burdensome requirements and make EQRs more meaningful for driving quality improvement.

PCCM providers

CMS has finalized a proposal to eliminate EQR requirements from primary care case management (PCCM) entities under Medicaid and CHIP. The Final Rule also notes Medicaid agencies have discretion to perform EQR-like activities for PCCMs and can still use external quality review organizations for these activities.

EQR review periods

The Final Rule (1) establishes a 12-month review period for applicable EQR activities as beginning 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; and (2) requires that EQR-related activities must be performed in the 12 months preceding the finalization and publication of the annual report. CMS also finalizes the December 31, 2025, compliance deadline, and revises the requirement for posting annual EQR technical reports from December 31, as proposed, to April 30.

Accreditation review

CMS has finalized a proposal to remove the requirement that PAOs (private, national accreditation organizations) apply for Medicare Advantage “deeming authority” from CMS so that states can rely on PAO accreditation reviews in lieu of EQR activities. This change is effective as of the Final Rule’s effective date.

Enhanced data reporting

Changes to the data included in the EQR reports were finalized as proposed, and CMS intends to release an updated EQR protocol implementing the changes. Specifically, the Final Rule requires EQR technical reports to include (1) any outcomes data and results from quantitative assessments for the applicable EQR activities, in addition to whether the data has been validated; and (2) this type of data from the mandatory network adequacy validation activity. States will be required to comply with the updated EQR protocol no later than one year from the date of issuance by CMS.

Website requirements for historical EQR technical reports

CMS finalizes, as proposed, a change requiring that states maintain at least the previous five years of EQR technical reports on their websites no later than December 31, 2025.

Medicaid managed care quality ratings systems (MAC QRS)

The Final Rule institutes federal standards for quality rating systems in Medicaid and CHIP managed care plans and establishes the state’s MAC QRS website as a “one-stop-shop” where beneficiaries may access information about Medicaid and CHIP eligibility and managed care. CMS finalized proposals that aim to compare managed care plans based on their performance data and other important factors crucial for beneficiary decision-making, including the plan's drug formulary and provider network. Such comparisons will be made under the state’s MAC-QRS website, effective prior to the end of calendar year 2028.

The Final Rule also clarifies (1) the scope of flexibility states have regarding the methodology used in the QRS; (2) that states may display additional quality measures and website features in addition to the mandatory minimum measures specified by CMS, and the mandatory minimum content of the MAC QRS website; and (3) that CHIP managed care programs must comply with implementing their MAC QRS (or alternative QRS) by the end of the fourth calendar year following the Final Rule’s effective date.

CMS also finalized a number of significant revisions to existing regulations and the proposed MAC QRS framework that includes mandatory measures (including an initial mandatory measure set in Table 2 of the Final Rule), a rating methodology (either the CMS-developed methodology or an alternate methodology approved by CMS), and a mandatory website display format (discussed above).

CMS has made the following modifications to reduce the QRS implementation burden “with minimal impact on beneficiary access to the information” in response to feedback from commenters to the Final Rule:

• Providing an option for states to request a one-time, one-year extension to fully comply with one or more of the requirements of the MAC QRS rating methodology;
• Limiting the scope of mandatory measures for which a quality rating must be displayed to only those that are applicable to the state’s managed care program(s);
• Removing the requirement for states to obtain input from the state’s Medical Care Advisory Committee and provide an opportunity for public comment of at least 30 days on a request for, or modification of a previously approved, alternative Medicaid managed care quality rating system;
• Limiting the scope of the proposed MAC QRS requirements to apply only to managed care plans that participate in managed care programs with two or more participating plans; and
• Requiring states to collect Medicaid FFS and Medicare data, validate the collected data, and use the validated data to calculate quality ratings for managed care plans for MAC QRS mandatory measures to “the extent feasible without undue burden.”

If you have any questions about the Final Rule or the Medicaid program, please do not hesitate to contact us.