[Federal Register Volume 59, Number 88 (Monday, May 9, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11097]


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[Federal Register: May 9, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 434 and 435

[MB-044-P]
RIN 0938-AF15

 

Medicaid Program; Requirements for Certain Health Insuring 
Organizations and OBRA '90 Technical Amendments

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the Medicaid regulations to: 
make those health insuring organizations (HIOs) that provide or arrange 
for health care services to Medicaid recipients, but are not subject to 
the requirements for health maintenance organizations (HMOs) set forth 
in section 1903(m)(2)(A) of the Social Security Act, subject to the 
regulations governing prepaid health plans (PHPs); and
    Incorporate technical amendments relating to HMO enrollment, 
disenrollments, guaranteed eligibility and provisional status made by 
1990 legislation.

DATES: Written comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on July 8, 
1994.

ADDRESSES: Mail written comments (original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: MB-044-P, P.O. Box 7518, 
Baltimore, MD 21207.
    If you prefer, you may deliver your written comments (original and 
3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201; or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
Maryland 21207

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code MB-044-P. Written comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, in 
room 309-G of the Department's offices at 200 Independence Avenue, SW., 
Washington, DC, on Monday through Friday of each week from 8:30 a.m. to 
5 p.m. phone: (202) 690-7890.

FOR FURTHER INFORMATION CONTACT: Mike Fiore, (410) 966-4460.

SUPPLEMENTARY INFORMATION:

I. Health Insuring Organizations

A. Background

    Under the Medicaid program, States may arrange for the provision of 
services to Medicaid recipients through contracts with managed care 
entities such as health maintenance organizations (HMOs), health 
insuring organizations (HIOs), and prepaid health plans (PHPs).
    An HIO is an entity that receives a premium or subscription charge 
from the State, typically based on the number of persons enrolled in 
the HIO, and assumes some risk of loss if the cost of the actual 
services exceeds the monthly capitation amount. Unlike HMOs or PHPs, 
the original HIOs did not themselves provide or arrange for health care 
services for their enrollees, but merely paid for the cost of services 
furnished to their members by independent providers. These original 
HIOs were essentially risk-bearing fiscal agents.
    In recent years, certain entities that contracted with providers 
and required their enrolled members to obtain all of their medical care 
exclusively from these providers have either retained or adopted the 
label ``HIO'' in order to avail themselves of the less burdensome 
regulatory requirements applicable to HIOs, compared to the 
requirements applicable to HMOs or CMPs. This practice has had the 
effect of subjecting enrollees to the same membership restrictions that 
are characteristic of HMOs and PHPs, without the regulatory safeguards 
afforded the HMO and PHP enrollees.
    Contracts between State agencies and HIOs that act as risk-bearing 
fiscal agents are made under the broad authority of section 
1902(a)(4)(A) of the Social Security Act (the Act), which provides for 
``such methods of administration * * * as are found by the Secretary to 
be necessary for the proper and efficient operation of the plan'', and 
are subject to the regulatory requirements of 42 CFR 434.40. Section 
434.40 provides that HIO contracts must meet certain capitation, 
underwriting risk, and reinsurance requirements, but it is silent with 
regard to emergency services, grievance procedures, marketing 
practices, inspection of financial records, and other important 
regulatory issues that apply to HMOs and PHPs. Section 434.40 also 
specifies that HIO contracts must conform to Sec. 434.6, that is, the 
general requirements for all contracts and subcontracts entered into 
between State agencies and providers as set forth in part 434.
    Contracts with HMOs (and, as a result of legislation discussed 
below, some HIOs) that provide or arrange for ``comprehensive 
services'' on a risk basis are subject to the requirements of section 
1903(m)(2) of the Act and implementing regulations under Secs. 434.20 
through 434.36. ``Comprehensive services'' are defined under 
Sec. 434.21(b) as inpatient hospital services and any of the following 
services, or any three or more of the following services or groups of 
services: (1) Outpatient hospital services and rural health clinic 
services; (2) other laboratory and x-ray services; (3) skilled nursing 
facility (SNF) (now referred to as nursing facility (NF)) services and 
early and periodic screening, diagnosis, and treatment (EPSDT), and 
family planning; (4) physicians' services; and (5) home health 
services.
    Those HIOs which provided or arranged for the delivery of 
comprehensive services (and assumed financial risk for those services) 
were made subject to these HMO requirements by section 9517(c) of the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA '85) with 
some exceptions. The provisions of section 9517(c) of COBRA '85 were 
not made applicable to HIOs that became operational before January 1, 
1986. Also, HIOs that became operational after that date but which 
operate under a waiver approved under section 1915(b) of the Act before 
that date, were exempted by section 9517(c) from HMO requirements 
related to composition of enrollment and the right of enrollees to 
disenroll without cause, under sections 1903(m)(2)(A)(ii) and 
1903(m)(2)(A)(vi) of the Act, respectively. (Note: Section 
9517(c)(2)(b) of COBRA erroneously identified the exception clauses as 
(ii) and (iv). Section 1895(c)(4) of the Tax Reform Act of 1986, Public 
Law 99-514, corrected this error.)
    Section 9517(c) of COBRA '85 was silent on the requirements 
applicable to HIOs which it did not subject to HMO requirements. This 
would include those HIOs within the explicit exceptions discussed 
above, as well as HIOs with risk contracts providing less than 
comprehensive services.
    We believe that it would be inappropriate to permit an HIO that 
provides or arranges for services, yet is not subject to HMO rules, to 
remain subject to the HIO rules at Sec. 417.40 governing those HIOs 
that only function as risk-bearing fiscal agents. We did not, however, 
include such a provision in proposed regulations published on August 
25, 1988 (53 FR 32406). Those proposed regulations, which were designed 
to implement the statutory amendment subjecting some HIOs to section 
1903(m) of the Act, thus would permit HIOs that provide or arrange for 
less than comprehensive services on a risk basis to be subject only to 
the rules governing HIOs that perform the original basic HIO services 
of paying for and assuming risk for health care services. In the final 
rule published on December 13, 1990 (55 FR 51292), we recognized the 
omission and declared our intent to publish, in a separate proposed 
rule, revisions to the regulations that would make all HIOs that 
provide or arrange for services subject to the same regulations as PHPs 
if they are exempt from section 1903(m)(2)(A). However, we did not 
provide for a comment period on this policy. This document provides 
that comment period. Regulations that apply to PHPs are contained in 
Secs. 434.20 through 434.36 and are derived from the authority granted 
to the Secretary under section 1902(a)(4)(A) of the Act, not section 
1903(m)(2)(A) as discussed above. These are the same regulations that 
apply to Medicaid-contracting HMOs.

B. Provisions of the Proposed Rule

    This proposed rule would subject all HIOs that assume risk and 
provide or arrange for services, but are exempt from section 
1903(m)(2)(A) of the Act, to the same requirements that apply to PHPs 
as set forth in Secs. 434.20 (d) and (e), 434.21 through 434.36, and 
434.50 through 434.65. It would affect (1) HIOs that provide or arrange 
for comprehensive services and either were operational before January 
1, 1986 or are otherwise exempted from section 1903(m)(2)(A) of the Act 
by statute, and (2) HIOs that provide or arrange for less than 
comprehensive services. We propose to amend Sec. 434.44 by adding a new 
paragraph (c) to incorporate this provision.
    This proposed rule also would expressly limit the applicability of 
the existing HIO requirements at Sec. 434.40 to HIOs that only process 
claims and underwrite risk and do not provide or arrange for the 
delivery of health care services.
    In addition, we propose revising the definition of ``prepaid health 
plan'' at Sec. 434.2 to include HIOs that provide or arrange for health 
care services.

II. Technical Revisions--Omnibus Budget Reconciliation Act of 1990

    Section 4732 of the Omnibus Budget Reconciliation Act of 1990 (OBRA 
'90) made several changes to the Social Security Act which affected 
HMOs and Medicare-contracting competitive medical plans (CMPs) (defined 
in Sec. 417.407(c)) which participate in the Medicaid program.

A. Waiver of Enrollment Requirements

    Before the enactment of OBRA '90, an HMO that was a public entity 
could receive a waiver of the composition of enrollment requirement 
that Medicare and Medicaid recipients constitute less than 75 percent 
of the entity's total enrollment only if HCFA determined that the 
entity had special circumstances and the entity continued efforts to 
enroll individuals who were not eligible for Medicare or Medicaid. 
Section 4732(a) of OBRA '90 eliminated the requirement that special 
circumstances must exist as the basis for granting the waiver.
    We propose to revise our regulations at Sec. 434.26 (b)(2) and 
(b)(3) to eliminate the requirement for the existence of special 
circumstances in order for HCFA to grant a waiver of the composition of 
enrollment requirements.

B. Guaranteed Eligibility in CMPs

    Section 4732(b)(1) of OBRA '90 amended section 1902(e)(2)(A) of the 
Act (which allows for a minimum guaranteed enrollment period of up to 6 
months) to add CMPs that contract with Medicare under section 1876 to 
the list of entities that, at a State's option, may deem individuals 
who lose eligibility before the end of the minimum enrollment period, 
to continue to be eligible until the end of the period.
    We propose to amend Secs. 435.212 and 435.326 to identify CMPs that 
contract with Medicare as one of the entities with which States may 
guarantee Medicaid eligibility.

C. Disenrollments in CMPs

    Section 4732(b)(2) of OBRA '90 amended section 1903(m)(2)(F) of the 
Act, which, for purposes of Federal financial participation (FFP) 
imposes disenrollment restrictions on certain prepaid health plans, to 
add CMPs that contract with Medicare to the list of entities that may, 
at a State's option, restrict disenrollment without cause for Medicaid 
enrollees for up to 6 months. Disenrollment without cause would be 
permitted only in the first month of each period of enrollment.
    We propose to amend Sec. 434.27(d)(1) to add a new paragraph (vi) 
to identify CMPs that contract with Medicare as one of the 
organizations, with which States may contract, that may restrict 
disenrollment rights of Medicaid enrollees.

D. Reenrollment in HMOs

    Section 4732(c) of OBRA '90 amended section 1903(m)(2) of the Act 
to provide that if a Medicaid-eligible individual is enrolled in an HMO 
in a given month and loses eligibility in the next month (or in the 
next 2 months) but in the succeeding month is again eligible for 
Medicaid benefits, the State agency may enroll that individual in the 
same HMO in which he or she was enrolled at the time of loss of 
eligibility.
    We propose to add a new Sec. 434.25(c) to incorporate this 
provision. We also propose to add a new paragraph (h) to Sec. 434.27 to 
explain that a new restricted period of disenrollment begins following 
each period of ineligibility as outlined by Sec. 434.25(c).

E. Elimination of Provisional Qualification of HMOs

    Section 4732(d) of OBRA '90 amended section 1903(m) of the Act to 
eliminate a provision under which a State Medicaid agency could 
determine that a Federally qualified HMO was in provisional status 
because more than 90 days had elapsed since the HMO applied to the 
Public Health Service (PHS) for Federal qualification and the PHS had 
not made a final determination. This status continued until the PHS 
made the final determination or the contract with the Medicaid agency 
was terminated, whichever occurred first.
    Section 434.20 of the Medicaid regulations contained the provision 
that allowed State agencies to contract with provisional status HMOs 
and Sec. 434.72 provided for FFP in expenditures for payments to these 
provisional status HMOs. We propose to revise Sec. 434.2 to delete the 
definition of a provisional status HMO, revise Sec. 434.20(a)(l) to 
remove all references to provisional status HMOs, and delete 
Sec. 434.72 in its entirety.

III. Regulatory Impact Statement

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless the Secretary certifies that a proposed rule would 
not have a significant economic impact on a substantial number of small 
entities.
    The RFA defines ``small entity'' as a small business, a nonprofit 
enterprise, or a governmental jurisdiction (such as a county, city, or 
township) with a population of less than 50,000. We do not consider 
States to be small entities. However, we do consider HMOs, PHPs, and 
HIOs to be small entities.
    The provision that would subject HIOs that provide or arrange for 
services to the requirements governing PHPs would affect HIOs in at 
least three States. HIOs in two of these States that are currently 
fully operational serve a 3 combined Medicaid enrollment of 
approximately 43,800 individuals. These HIOs currently operate under 
section 1915(b) freedom of choice waivers which require adequate access 
to quality services. They are also regulated by their respective States 
in a manner similar to HMOs and PHPs. There is no anticipated change in 
operation other than they would be required to afford HIO Medicaid 
enrollees the same protections as those Medicaid enrollees enrolled in 
other prepaid plans that arrange for or provide services.
    The technical provisions in this proposed rule are necessary to 
conform the Medicaid regulations to provisions of OBRA '90. We 
anticipate that these provisions would have a negligible impact.
    We have not prepared a regulatory flexibility analysis because we 
have determined, and the Secretary certifies, that this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities.
    Also, section 1102(b) of the Social Security Act requires the 
Secretary to prepare a regulatory impact analysis for any proposed rule 
that may have a significant impact on the operations of a substantial 
number of small rural hospitals. Such an analysis must conform to the 
provisions of section 603 of the RFA. For purposes of section l102(b) 
of the Act, we define a small rural hospital as a hospital with fewer 
than 50 beds located outside a metropolitan statistical area. We have 
determined, and the Secretary certifies that this proposed rule would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

IV. Paperwork Reduction Act

    This proposed rule does not contain any information collection 
requirements that are subject to review by the Executive Office of 
Management and Budget (OMB) under the authority of the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

V. Response to Public Comments

    Because of the large number of items of correspondence we normally 
receive on a proposed rule, we are not able to acknowledge or respond 
to them individually. However, we will consider all comments that we 
receive by the date and time specified in the ``Dates'' section of this 
preamble, and we will respond to the comments in the preamble of the 
final rule that is issued.

List of Subjects

42 CFR Part 434

    Grant programs-health, Health maintenance organizations (HMO), 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 435

    Aid to Families with Dependent Children, Grant programs-health, 
Medicaid, Reporting and recordkeeping requirements, Supplemental 
Security Income (SSI), Wages. 42 CFR Chapter IV would be amended as 
follows:
    A. Part 434 would be amended as set forth below:

PART 434--CONTRACTS

    1. The authority citation for part 434 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. In Sec. 434.2, the introductory text is republished, the 
definition of ``Prepaid health plan'' is revised and the definition of 
``Provisional status HMO'' is removed, to read as follows:


Sec. 434.2  Definitions.

    As used in this part, unless the context indicates otherwise--
* * * * *
    Prepaid health plan (PHP) means an entity, including an HIO, that 
provides or arranges for the provision of medical services to enrolled 
recipients, under contract with the Medicaid agency and on the basis of 
prepaid capitation fees, but is not subject to the requirements in 
section 1903(m)(2)(A) of the Act.
* * * * *
    3. In Sec. 434.20, the introductory text of paragraph (a) is 
republished and paragraph (a)(1) is revised to read as follows:


Sec. 434.20  Basic rules.

    (a) Entities eligible for risk contracts for services specified in 
Sec. 434.21. A Medicaid agency may enter into a risk contract for the 
scope of services specified in Sec. 434.21 only with an entity that--
    (1) Is a Federally-qualified HMO;
* * * * *
    4. In Sec. 434.25, a new paragraph (c) is added to read as follows:


Sec. 434.25  Coverage and enrollment.

* * * * *
    (c) If a Medicaid eligible individual is enrolled in an HMO in a 
given month and loses eligibility in the next month (or in the next 2 
months) but in the succeeding month is again eligible for Medicaid 
benefits, the State agency may enroll that individual in the same HMO 
that he or she was enrolled in at the time of loss of eligibility.
    5. In Sec. 434.26, paragraphs (b)(2) and (3) are revised to read as 
follows:


Sec. 434.26  Composition of enrollment.

* * * * *
    (b) Exceptions--
* * * * *
    (2) Waiver for public HMOs with risk comprehensive contracts. The 
Regional Administrator may approve waiver or modification of the 
requirement of paragraph (a) of this section, for an HMO that is owned 
or operated by a State, county, or municipal health department or 
hospital if the HMO has made and continues to make reasonable efforts 
to enroll individuals who are not eligible for Medicare or Medicaid.
    (3) Waiver for certain nonprofit HMOs with risk comprehensive 
contracts. The Regional Administrator may approve waiver or 
modification of the requirement of paragraph (a) of this section, for a 
nonprofit HMO which has a minimum of 25,000 members; is and has been 
federally qualified for a period of at least 4 yrs; provides basic 
health services through members of its staff; is located in an area 
designated as medically underserved under section 1302(7) of the Public 
Health Service Act; and has previously received a waiver under section 
1115 of the Act of the requirement described in paragraph (a) of this 
section, if the HMO has made and continues to make reasonable efforts 
to enroll individuals who are not eligible for Medicare or Medicaid.
* * * * *
    6. In Sec. 434.27, (d) introductory text and (d)(1) introductory 
text are republished, paragraph (d)(1)(v) is revised, and new 
paragraphs (d)(1)(vi) and (h) are added, to read as follows:


Sec. 434.27  Termination of enrollment.

* * * * *
    (d) A State plan may provide for contracts with certain 
organizations which restrict disenrollment rights of Medicaid enrollees 
under paragraph (b)(2) of this section if the following conditions are 
met:
    (1) The organization is--
* * * * *
    (v) An entity described in Sec. 434.26(b)(3); or
    (vi) A competitive medical plan as defined in Sec. 417.407(c) of 
this chapter that has a valid contract with HCFA under section 1876 of 
the Act; and
* * * * *
    (h) When an agency has elected to restrict disenrollment, the 
restricted disenrollment period commences with each enrollment, 
including reenrollments permitted under Sec. 434.25(c). Disenrollment 
without cause will be permitted during the first month of each new 
restricted disenrollment period.
    7. In Sec. 434.40, paragraphs (a) introductory text is revised to 
read as follows:


Sec. 434.40  Contract requirements.

    (a) Contracts with health insuring organizations that are not 
subject either to the requirements in section 1903(m)(2)(A) of the Act 
or to Secs. 434.21 through 434.36 must:
* * * * *
    8. In Sec. 434.44, a new paragraph (c) is added to read as follows:


Sec. 434.44  Special rules for certain health insuring organizations.

* * * * *
    (c) A health insuring organization that provides or arranges for 
the provision of services, and meets the definition of a PHP in 
Sec. 434.2, must meet the requirements in Secs. 434.20(d) and (e), 
Secs. 434.21 through 434.36 and in Secs. 434.50 through 434.65 that 
apply to PHPs.


Sec. 434.72  [Removed]

    9. Sec. 434.72 is removed.
    B. Part 435 would be amended as set forth below:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

    1. The authority citation for part 435 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).
    2. In Sec. 435.212, the introductory text is revised to read as 
follows:


Sec. 435.212  Individuals who would be ineligible if they were not 
enrolled in an HMO.

    The agency may provide that a recipient who is enrolled in a 
federally qualified HMO (under a risk contract as specified in 
Sec. 434.20(a)(1) of this chapter) or a competitive medical plan with a 
current Medicare contract under section 1876 of the Act and who becomes 
ineligible for Medicaid is considered to continue to be eligible--
* * * * *
    3. Section 435.326 is revised to read as follows:


Sec. 435.326  Individuals who would be ineligible if they were not 
enrolled in an HMO.

    If the agency provides Medicaid to the categorically needy under 
Sec. 435.212, it may provide Medicaid under the same rules to medically 
needy recipients who are enrolled in a federally qualified HMO or in an 
entity specified in Sec. 417.407(c) of this chapter with a current 
contract with Medicare under section 1876 of the Act; Sec. 434.20(a)(3) 
and (a)(4), Sec. 434.26(b)(3), or Sec. 434.26(b)(5)(ii) of this 
chapter, or section 1903(m)(6) of the Act which provides services as 
described in Sec. 434.21(b) of this chapter.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: November 3, 1993.
Bruce C. Vladeck
Administrator, Health Care Financing Administration.
    Dated: February 20, 1994.
Donna E. Shalala
Secretary.
    Editorial Note: This Document was received at the Office of the 
Federal Register on May 4, 1994.
[FR Doc. 94-11097 Filed 5-6-94; 8:45 am]
BILLING CODE 4120-01-P