[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Proposed Rules]
[Pages 52022-52092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26068]



[[Page 52021]]

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Part III





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



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42 CFR Part 400, et al.



Medicaid Program; Medicaid Managed Care; Proposed Rule

  Federal Register / Vol. 63, No. 188 / Tuesday, September 29, 1998 / 
Proposed Rules  

[[Page 52022]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 400, 430, 431, 434, 435, 438, 440, and 447

[HCFA-2001-P]
RIN 0938-AI70


Medicaid Program; Medicaid Managed Care

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

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would amend the Medicaid regulations to 
allow the States greater flexibility by giving them the option to 
require Medicaid recipients to enroll in managed care entities without 
obtaining waivers. These revisions, which are authorized by the 
Balanced Budget Act of 1997, would establish new beneficiary 
protections in areas such as quality assurance, grievance rights, and 
coverage of emergency services. They would eliminate certain 
requirements viewed by State agencies as impediments to the growth of 
managed care programs, such as the enrollment composition requirement, 
the right to disenroll without cause at any time, and the prohibition 
against enrollee cost-sharing. They would also permit State agencies to 
amend their State plans to require enrollment in managed care 
organizations subject to certain conditions, including limits on whose 
enrollment can be mandated, and a requirement for beneficiary choice. 
In addition, this rule would extend most of these new requirements to 
prepaid health plans.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
November 30, 1998.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-2001-P, P.O. Box 7517, 
Baltimore, MD 21207-0517.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses: Room 413-G Hubert H. 
Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, 
or Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT: Subparts A and B--Michael Fiore (410) 
786-0623; Subpart C--Kristin McGinn (410) 786-4581; Subpart E--Ann Page 
(410) 786-0083; Nicole Martin (410) 786-1068; Subpart F--Nicole Martin 
(410) 786-1068; Brenda Jackson (816) 426-3406; Subpart H--Tim Roe (410) 
786-2006; Subpart I--Tim Roe (410) 786-2006; Subpart J--Michael Fiore 
(410) 786-0623.

SUPPLEMENTARY INFORMATION: Because of staffing and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission. 
In commenting, please refer to file code 2CFA-2001-P. 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 443-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).
    Copies: To order copies of the Federal Register containing this 
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the World Wide Web;

I. Introduction

    Title XIX of the Social Security Act (the Act) established the 
Medicaid program, under which matching Federal funds are provided to 
State agencies to pay for coverage of health care services to low-
income pregnant women, families and aged, blind, and disabled 
individuals. The Medicaid program is administered by States according 
to Federal statutory and regulatory requirements, under the aegis of a 
``State plan'' that must be approved by the Health Care Financing 
Administration (HCFA). At the program's inception, most health coverage 
under the Medicaid program was provided by reimbursing health care 
providers on a fee-for-service basis for services furnished to Medicaid 
beneficiaries.

    Note: The term ``beneficiaries'' is used throughout the preamble 
to refer to individuals eligible for and receiving Medicaid 
benefits. The term ``recipients'' is used in the text of the 
regulation and is synonymous to ``beneficiary''.

    Increasingly, however, State agencies have provided Medicaid 
coverage through managed care contracts, under which a health 
maintenance organization (HMO) or other similar entity is paid a fixed 
monthly capitation payment for each beneficiary enrolled with the 
entity for health coverage. Enrolled beneficiaries are required to 
receive the majority of health care services through the managed care 
entity. In most States, enrollment in such managed care arrangements is 
currently mandatory for at least certain categories of beneficiaries. 
Prior to the enactment of the Balanced Budget Act of 1997 (BBA), States 
agencies were required to obtain a waiver of a statutory ``freedom of 
choice requirement'' in order to operate such mandatory managed care 
programs, as discussed below. No such waiver was required for 
arrangements involving voluntary enrollment in managed care.
    Chapter One of the Medicaid provisions (Subtitle H) of the BBA 
significantly strengthens Medicaid managed care programs by modifying 
prior law to: (1) reflect the more widespread use of managed care by 
State agencies to serve Medicaid beneficiaries; (2) build on the 
increased expertise acquired by HCFA and the State agencies in the 
administration of managed care programs; (3) incorporate the knowledge 
that has been learned from Medicaid, Medicare and private sector 
managed care programs and their oversight organizations; and (4) 
provide a framework that will allow HCFA and State agencies to continue 
to incorporate further advances in the oversight of managed care, 
particularly as it pertains to the protection of beneficiaries and the 
quality of care delivered to Medicaid enrollees. This proposed rule 
would implement most of the provisions of that chapter (that is, 
sections 4701 through 4710). It addresses BBA provisions that reduce 
the need for State agencies to obtain waivers to implement certain 
managed care programs; eliminate enrollment composition requirements 
for managed care contracts; increase beneficiary protections for 
enrollees in Medicaid

[[Page 52023]]

managed care entities; improve quality assurance; establish solvency 
standards; protect against fraud and abuse; permit a period of 
guaranteed eligibility for Medicaid beneficiaries; and improve certain 
administrative features of State managed care programs.
    The development of this regulation has been guided by knowledge 
shared with us by a number of constituencies and experts over the past 
decade. We have addressed the issues identified by advocates regarding 
the rights of Medicaid beneficiaries, particularly vulnerable 
populations, and how they can be protected as State agencies 
increasingly replace fee-for-service Medicaid delivery systems with 
managed care programs. In doing so, we have been guided by the 
Consumers Bill of Rights and Responsibilities (CBRR) issued in November 
1997, by the President's Advisory Commission on Consumer Protection and 
Quality in the Health Care Industry. A Presidential directive ordered 
the Medicaid program to comply, to the extent permitted by law, with 
the recommendations in the CBRR. As a result, when writing this 
regulation, we incorporated the CBRR recommendations whenever 
authorized by law.
    The knowledge and experience that State agencies have shared with 
us has also influenced the content of this proposed rule. Numerous 
State agencies have used waivers of Title XIX requirements authorized 
under section 1115 of the Act referred to as ``1115 waivers'' to 
implement research and demonstration projects to test innovative 
managed care programs. As part of our approval of a State agency waiver 
program, an evaluation of the effectiveness of these interventions is 
required. Many of these demonstrations have addressed the effectiveness 
of different approaches to Medicaid managed care programs. We have also 
incorporated knowledge learned from ``freedom of choice'' waivers 
authorized under section 1915(b) of the Act that also allows State 
agencies to waive limited provisions of the Act in order to implement 
managed care programs, consistent with State-specific design features. 
These waiver applications are also evaluated based on their impact on 
access to services, quality of care, and cost effectiveness. Our 
experiences with State agencies in overseeing both these types of 
waiver programs have influenced the development of this regulation. It 
should be noted here that, even with the implementation of BBA, State 
agencies still retain the option of applying for Federal waiver 
authority under sections 1915(b) and 1115 of the Act.
    In the last decade, private sector group purchasers, quality 
oversight organizations, the managed care industry, and quality 
improvement experts have greatly advanced our knowledge base of how 
managed care can be made more effective in serving consumers, through 
research, program evaluations, and tests of new administrative, 
payment, and healthcare delivery systems. We have attempted to 
incorporate the knowledge shared by these organizations, along with 
literature evaluating managed care, to develop the specifications for 
State Medicaid managed care purchasing programs and expect to continue 
work with these organizations and the State agencies.
    Several principles also guided the development of this proposed 
rule. First, when there was not clear evidence that one single approach 
to operationalizing statutory language was more effective than other 
approaches, we attempted to provide State agencies with sufficient 
flexibility to continue to be innovative in the development and 
improvement of their State Medicaid managed care programs. We deviated 
from this principle when there was not a clear need for State 
flexibility or when there was a potential to develop Medicaid 
regulatory language that is the same as the language used in the 
Medicare+Choice (M+C) rule published on June 26, 1998 at 63 FR 34967. 
That rule implements Medicare managed care provisions in the BBA, many 
of which are similar to the Medicaid provisions implemented in this 
proposed rule. Consistency between the Medicare and the Medicaid 
programs was intended to reduce the demand on the managed care industry 
to comply with multiple, different sets of standards. Second, this 
proposed rule was developed with a clear emphasis on consumer 
protections and an increased focus on quality in managed care. Third, 
the regulations were written to support State agencies in their role as 
``health care purchasers,'' in addition to their role as ``health care 
regulators.'' State agencies, like group purchasers in the private 
sector, are continuing to seek better value for their health care 
dollars, when ``value'' means the best possible combination of both 
quality and price. Relevant subparts of this proposed rule attempt to 
provide State agencies with the tools needed to become better 
purchasers.
    Finally, with respect to quality-related provisions, we opted to 
take a more conservative approach and not impose greater regulatory 
burden, without a strong evidence base. If commenters believe that 
additional or stronger requirements are needed, we ask that comments 
include, if possible, the evidence base in support of any such proposed 
modifications.
    This proposed rule would create a new part of the Code of Federal 
Regulations (Part 438). All new managed care regulations created under 
the authority of the BBA, other sections of existing Medicaid 
regulations pertaining to managed care, and appropriate cross 
references will appear in this new part. By creating this new part, we 
are attempting to help users of the regulations to better comprehend 
the overall regulatory framework for managed care. More detailed 
discussions of the content of each of the subparts of this proposed 
rule are found at the beginning of each subpart.

II. Background

A. Statutory Basis

    Section 4701 of the BBA creates section 1932 of the Act, changes 
terminology in Title XIX of the Act (most significantly, the BBA uses 
the term ``managed care organization'' to refer to entities previously 
labeled ``health maintenance organizations''), and amends section 
1903(m) of the Act to require that contracts and managed care 
organizations (MCOs) comply with applicable requirements in the new 
section. Among other things, section 1932 of the Act permits State 
agencies to require most groups of Medicaid beneficiaries to enroll in 
managed care arrangements without section 1915(b) or section 1115 
waiver authority. Under the law prior to the BBA, a State agency was 
required to obtain Federal authority to waive beneficiary free choice 
of providers in order to restrict their coverage to managed care 
arrangements. Section 1932 of the Act also defines the term ``managed 
care entity'' (MCE) to include MCOs and primary care case managers; 
establishes new requirements for managed care enrollment and choice of 
coverage; and requires MCEs and State agencies to provide specified 
information to enrollees and potential enrollees.
    Section 4702 of the BBA amends section 1905 of the Act to permit 
State agencies to provide primary care case management services without 
waiver authority. Instead, primary care case management services may be 
made available under a State's Medicaid plan as an optional service.
    Section 4703 of the BBA eliminates a former statutory requirement 
that no more than 75 percent of the enrollees in an MCO be Medicaid or 
Medicare beneficiaries.
    Section 4704 of the BBA creates section 1932(b) of the Act to add

[[Page 52024]]

increased protections for those enrolled in managed care arrangements. 
These include, among others, the application of a ``prudent 
layperson's'' standard to determine whether emergency room use by a 
beneficiary was appropriate; criteria for showing adequate capacity and 
services; grievance procedures; and protections for enrollees against 
liability for payment of an organization's or provider's debts in the 
case of insolvency.
    Section 4705 of the BBA creates section 1932(c) of the Act which 
requires State agencies to develop and implement quality assessment and 
improvement strategies for their managed care arrangements and to 
provide for external, independent review of managed care activities.
    Section 4706 of the BBA provides that, with limited exceptions, an 
MCO must meet the same solvency standards set by State agencies for 
private HMOs, or be licensed or certified by the State as a risk-
bearing entity.
    Section 4707 of the BBA creates section 1932(d) of the Act to add 
protections against fraud and abuse, such as restrictions on marketing 
and sanctions for noncompliance.
    Section 4708 of the BBA adds a number of provisions to improve the 
administration of managed care arrangements. These include, among 
others, provisions raising the threshold value of managed care 
contracts that require the Secretary's prior approval, and permitting 
the same copayments in MCOs as apply to fee-for-service arrangements.
    Section 4709 of the BBA allows State agencies the option to provide 
6 months of guaranteed eligibility for all individuals enrolled in an 
MCE.
    Section 4710 of the BBA specifies the effective dates for all the 
provisions identified in sections 4701 through 4709.

B. Overview of Medicaid Managed Care

    Medicaid managed care programs have been in existence almost since 
the inception of the Medicaid program in 1965. In New York State, 
Medicaid beneficiaries were enrolled in the Health Insurance Plan of 
Greater New York beginning in 1967. The State of Washington began 
contracting with Group Health of Puget Sound in 1970, and, by 1972, 
various regional operations of Kaiser-Permanente served Medicaid 
beneficiaries in three different States. Initially, there were no 
statutory or regulatory provisions specifically addressing the use of 
managed care by State agencies.
    As a result of the increasing use of managed care in Medicaid, 
Medicare, and the private sector, however, statutory provisions and 
regulations have since been adopted to specifically address Medicaid 
managed care. In 1976, the Health Maintenance Organization Act put 
forth the first specific Federal requirements for Medicaid contracts 
with HMOs or comparable organizations, by essentially requiring, with 
some exceptions, that ``comprehensive'' specified services, be entered 
into only with Federally qualified HMOs. By 1981, little more than 1 
percent of Medicaid beneficiaries were enrolled in managed care. 
Further legislative and regulatory changes made in 1981 and 1982 made 
possible more widespread use of managed care by State agencies but were 
also accompanied by increased requirements in some areas (for example, 
The Omnibus Budget Reconciliation Act of 1981 (OBRA 1981) required that 
Medicaid enrollees be allowed to voluntarily disenroll without cause 
from HMOs, but was subsequently amended to permit a 6-month lock-in for 
individuals enrolled in Federally qualified HMOs. Until the BBA, 
modification of the laws and regulations governing Medicaid managed 
care subsequent to OBRA 1981 and the Tax Equity and Fiscal 
Responsibility Act of 1982 has occurred in a piecemeal manner. The BBA 
represents the first major revision of the statutes governing Medicaid 
managed care in over a decade.
    The period from 1981 to the present has seen significant changes in 
Medicaid managed care programs. While only approximately 250,000 
Medicaid beneficiaries were enrolled in managed care programs in 1981, 
by 1997 this number had increased to over 15 million. Over 50 percent 
of the entire Medicaid population now receive at least some services 
through a health plan or a primary care case management arrangement. In 
the last decade, a number of studies and reports have documented that 
State agencies need both flexibility and assistance to implement new 
approaches and tools to effectively administer their contracts with 
managed care organizations. A 1997 GAO Report entitled, ``Medicaid 
Managed Care--Challenge of Holding Plans Accountable Requires Greater 
State Effort,'' indicated the need for priority attention to 
beneficiary information and education, and access to care and quality 
monitoring.
    As noted above, Medicaid managed care contracts were originally 
entered into by some State agencies without any specific statutory 
provision for such arrangements. When the Congress acted to regulate 
managed care arrangements, it limited the applicability of these 
statutory requirements to contracts that were comprehensive in the 
services they covered.
    Specifically, the statutory requirements enacted by the Congress in 
section 1903(m) of the Act have always applied to contracts for 
inpatient services and any one of other services specified in section 
1903(m)(2)(A) of the Act, or for any three of the non-inpatient 
services specified therein. Managed care contracts that were less than 
comprehensive remained exempt from all statutory managed care 
requirements. In recognition of this fact, we have in the past 
exercised our authority under section 1902(a)(4) of the Act to specify 
``methods of administration'' that were ``necessary for proper and 
efficient administration'' to impose regulatory requirements on 
entities that were exempt from the statutory requirements in section 
1903(m) of the Act, either because they provided less than 
comprehensive services or because they were specifically exempted by 
the Congress from complying with requirements under section 1903(m) of 
the Act. These entities were called ``prepaid health plans,'' or 
``PHPs.''
    The regulatory requirements we applied to PHPs were not as 
stringent as those under section 1903(m) of the Act in many areas. For 
example, while PHPs were subject to an enrollment composition 
requirement like comprehensive HMO contractors, the PHP enrollment 
composition requirement could be waived by the State for ``good 
cause.'' PHPs also were not subject to the requirement under section 
1903(m) of the Act that beneficiaries have the right to disenroll 
without cause at any time, and beneficiaries enrolled in the PHPs could 
have their ability to disenroll restricted under section 1915(b) waiver 
authority, when the right to disenroll required under section 1903(m) 
of the Act could not be waived.
    In part because of the less stringent requirements that applied to 
PHPs, there has been a substantial growth in PHP enrollment. Some of 
these PHPs are single service managed care plans (for example, 
behavioral health plans) and their enrollees are also enrolled in other 
managed care plans for their routine primary and acute care. Other 
PHPs, such as the Health Insurance Plan (HIP) of New York, provide a 
full range of services but were exempted by Congress from the 
requirements in section 1903(m) of the Act. As discussed more fully 
below, in this proposed rule, we are proposing to require that most 
current PHPs meet most of the requirements that will apply to MCOs.

[[Page 52025]]

    Concurrent with the increasing need for stronger Medicaid managed 
care programs has been the development of improved tools, techniques, 
and strategies for delivering and monitoring managed care programs. In 
1991, we began the Quality Assurance Reform Initiative (QARI) to 
provide technical assistance tools and assistance to State agencies. In 
1993, we produced a QARI guide entitled, ``A Health Care Quality 
Improvement System for Medicaid Managed Care--A Guide for States,'' 
that contained four areas of guidance for States: (1) a framework for 
quality improvement systems for Medicaid managed care programs; (2) 
guidelines for internal quality assurance programs of Medicaid HMOs and 
PHPs; (3) guidelines for clinical and health services focus areas and 
use of quality indicators and clinical practice guidelines; and (4) 
guidelines for the conduct of external quality reviews conducted under 
section 1902(a)(30)(C) of the Act. In 1995, HCFA, working in 
collaboration with the National Committee for Quality Assurance (NCQA) 
and the American Public Human Services Association, produced a Medicaid 
version of Health Plan Employer Data and Information Set (HEDIS). HEDIS 
is a standardized quality performance measurement system used by 
private sector purchasers of managed care services modified for use by 
State Medicaid agencies. NCQA, under contract with HCFA, also developed 
``Health Care Quality Improvement Studies in Managed Care Settings: 
Design and Assessment--A Guide for State Medicaid Agencies.'' In 1997, 
the Agency for Health Care Policy and Research (AHCPR) produced a set 
of consumer survey instruments and measurement tools under the auspices 
of the Consumer Assessment of Health Plan Study (CAHPS). The CAHPS 
instruments include measures and tools specifically designed for use by 
State agencies. Also in 1997, the George Washington University Center 
for Health Policy Research published a compendium of provisions of 
State contracts with Medicaid managed care organizations. This 
nationwide study of Medicaid managed care contracts has provided 
valuable information that can be used by all State agencies in the 
design and management of their managed care contracts.
    These and multiple other tools can be applied to the efforts of 
State agencies to become even more effective in purchasing managed care 
services for Medicaid beneficiaries. This proposed rule provides an 
opportunity to clarify for MCOs, beneficiaries, and State agencies, how 
these advances in the management and oversight of health care can be 
applied to Medicaid managed care programs.
    Through these regulations, we promote uniform national application 
of knowledge and best practices learned from these initiatives. While 
we promote uniform best practice, the Medicaid statute has always given 
State agencies latitude to design their Medicaid programs, as long as 
they meet certain minimum Federal standards. Current Federal 
requirements in the Medicaid managed care area are imposed either as 
conditions for Federal matching funds to support contracts with MCOs, 
as conditions for receiving a waiver of freedom of choice under section 
1915(b) of the Act, or as conditions for falling within the section 
1932 of the Act exception to the freedom of choice requirement in 
section 1902(a)(23) of the Act. In the first case, failure to comply 
with section 1932 of the Act requirements could result in a 
disallowance of Federal financial participation (FFP) in contract 
payments. In the latter two cases, if the State agency fails to meet 
conditions for the section 1932 of the Act exception to the freedom-of-
choice requirement in section 1902(a)(23) of the Act, or has its 
section 1915(b) waiver non-renewed or terminated for a failure to meet 
waiver conditions, the State agency would be out of compliance with the 
freedom of choice requirement in section 1902(a)(23) of the Act, and 
the State agency would be subject to a compliance enforcement action 
under section 1904 of the Act.
    Because the Medicaid program is a State administered program 
subject to Federal guidance and rules, Medicaid regulations do not 
generally adopt the same approach to regulating managed care 
organizations as Federal Medicare regulations. Instead, Medicaid rules 
generally regulate State agencies and place requirements in their 
contracts with managed care organizations or managed care programs.
    This proposed rule adopts this direction in implementing the new 
requirements in the BBA, and, as discussed below, extending these 
requirements to PHPs.
    Section 4710(c) of the BBA provides for a limited exemption from 
the BBA requirements in sections 4701 through 4710 for approved waiver 
programs under the authority of section 1115 or 1915(b) of the Act. 
Specifically, none of the provisions contained in sections 4701 through 
4710 of the BBA will affect the terms and conditions of any approved 
waiver under section 1115 or 1915(b) of the Act, because the waiver was 
in effect on the date of the enactment of the BBA (that is, August 5, 
1997.)
    In general, any provision of a State's approved section 1115 or 
1915(b) waiver program (which was approved or effective as of August 5, 
1997) that is specifically addressed in the State's waiver proposal, 
statutory waivers, special terms and conditions, operational protocol, 
or other official State policy or procedures approved by HCFA, would 
not be affected by the BBA provisions, even if it differs from the BBA 
managed care requirements. As long as the BBA provisions are addressed 
in the State's approved waiver materials, no determination needs to be 
made as to whether the State's policy or procedures meet or exceed the 
BBA requirements. If the BBA provisions are not addressed, then the 
State agency must meet the BBA requirements, except as specified below 
for newly submitted or amended waivers.
    The exemption from the BBA requirements will apply to all States' 
section 1915(b) waiver programs until the date that the waiver 
authority approved or in effect as of August 5, 1997 expires. As of the 
date of any section 1915(b) waiver renewal or any temporary extension 
of that authority granted after August 5, 1997, the State agency will 
be required to comply with all BBA requirements that are in effect.
    Exemptions from the BBA managed care provisions will apply to those 
section 1115 demonstration waivers approved or in effect as of August 
5, 1997, which may be extended for up to 3 years under the authority of 
section 4757 of the BBA. These waiver extensions are specifically 
limited to the Medicaid section 1115 comprehensive statewide health 
care reform demonstrations, which must be approved under the same terms 
and conditions that applied before the extension. Therefore, any 
exemptions from the BBA requirements to which these programs are 
entitled may continue during the period of the extended waiver 
authority.
    For newly submitted or amended section 1115 waivers, the Secretary 
of DHHS retains the discretionary authority to waive the BBA managed 
care provisions. Generally, waivers are granted allowing State agencies 
some flexibility in operating their Medicaid programs while promoting 
the proper and efficient administration of a State's plan. In 
particular, for the BBA provisions related to increased beneficiary 
protections and quality assurance standards, we anticipate that

[[Page 52026]]

the BBA provisions will apply effective with the BBA enactment unless a 
State agency can demonstrate that a waiver program beneficiary 
protection or quality standard would equal or exceed what the BBA 
requires.

III. Provisions of the Proposed Rule

    Under our proposal, virtually all managed care regulations would be 
set forth in 42 CFR part 438. This new part would integrate existing 
sections from part 434. We propose this restructuring to assist the 
reader in easily accessing all managed care regulations. The proposed 
new organizational format for part 438 is as follows:

Subpart A--General Provisions
Subpart B--State Responsibilities
Subpart C--Enrollee Protections
Subpart D--[Reserved]
Subpart E--Quality Assessment and Performance Improvement
Subpart F--Grievance Systems
Subpart G--(Reserved)
Subpart H--Certifications and Program Integrity Protections
Subpart I--Sanctions
Subpart J--Conditions for FFP

    The basis and purpose of the provisions of this proposed rule are 
described below.

A. General Provisions (Subpart A)

1. Basis and Scope (Sec. 438.1)
    Section 438.1 of the regulations sets forth the basis and scope of 
part 438, including the fact that regulations in this part implement 
authority in sections 1902(a)(4), 1903(m), 1905(t), and 1932 of the 
Act. Section 438.1 of the regulations also briefly describes these 
statutory provisions.
2. Definitions (Sec. 438.2)
    Section 438.2 includes definitions of terms that apply for purpose 
of part 438. These definitions reflect revisions in terminology made in 
section 4701(b) of the BBA. The most significant of these changes is 
the use of the term Managed Care Organization (MCO) to refer to 
entities with comprehensive risk contracts that were formerly referred 
to by the term ``health maintenance organization'' (HMO). There is a 
new statutory definition of Medicaid MCO, which builds on the pre-BBA 
definition of HMO. As was the case with respect to the pre-BBA 
definition of HMO, absent a statutory exemption, an entity must be 
found to meet the definition of MCO in order to enter into a Medicaid 
``comprehensive risk contract'' (defined in Sec. 430.5, discussed below 
in section III. C.). The new statutory definition defines an MCO as one 
of several listed types of full risk arrangements (for example, HMOs, a 
provider sponsored organization, a ``M+C organization'' that contracts 
with Medicare) or any other ``public or private entity'' that complies 
with advanced directive requirements in section 1902(w) of the Act, and 
meets a modified version of the same two requirements included in the 
pre-BBA definition of HMO. The first of these two requirements, 
involving access to services covered under the contract, is unchanged 
by the BBA. See section 1903(m)(1)(A)(i) of the Act. The second 
requirement, involving meeting State-approved solvency standards, has 
been amended to require (with some exceptions discussed in section 3 
below) that the MCO be licensed as an HMO or as a risk bearing entity. 
(See section 1903(m)(1)(A)(ii), (c) of the Act.) Finally, the new 
statutory definition provides that an entity that is a Federally-
qualified HMO under title XIII of the Public Health Service Act is 
deemed to meet the above access and solvency requirements (but not the 
advance directive requirements).
    In Sec. 438.2, we essentially have adopted the statutory definition 
of MCO. Because the managed care entities specifically listed in the 
revised version of section 1903(m)(1)(A) of the Act all necessarily 
fall within the category ``public or private organization,'' our 
definition refers only to a ``public or private entity'' that meets the 
requirements in question. Because Federally qualified HMOs are deemed 
to meet the access and solvency requirements in sections 
1903(m)(1)(A)(i), (A)(ii), and (C) of the Act, we do not apply these 
requirements to Federally qualified HMOs in our definition of MCO. 
Finally, we have retained a third requirement from the current 
regulation implementing the pre-BBA definition of HMO. See 
Sec. 434.20(c)(1). This provision requires that the entity be organized 
primarily for the purpose of providing health care services.
    Section 438.2 of the regulations also includes existing definitions 
of current managed care terms, and the statutory definitions of 
``managed care entity'' (MCE), primary care case management, and 
primary care case manager. While most existing managed care definitions 
are unchanged, we are proposing to revise the definition of PHP to 
exclude from the current definition entities that have comprehensive 
risk contracts, but have been exempted by the Congress from the 
requirements in section 1903(m) of the Act. We are making this change 
in light of our decision in proposed Sec. 438.8 (discussed below) to 
apply most of section 1903(m) MCO requirements to PHPs. In cases in 
which the Congress has explicitly directed that particular entities, 
which we currently treat as PHPs, be exempt from the requirements in 
section 1903(m) of the Act, we did not believe it would be appropriate 
to apply section 1903(m) requirements to such entities by regulation. 
The entities that the Congress has determined should be exempted from 
section 1903(m) requirements even if they have comprehensive risk 
contracts include the entities described in section 1903(m)(2)(B) of 
the Act. Also exempt from section 1903(m) requirements are certain 
``health insuring organizations'' (``HIOs'') that the Congress has 
expressly exempted from the requirements in section 1903(m) of the Act, 
that is, HIOs that began operating before 1986 and certain county-
operated HIOs in California. Our revised definition of PHP would have 
the effect of giving entities described in section 1903(m)(2)(B) of the 
Act the same status as HMOS that were exempted by the Congress from 
section 1903(m) of the Act. Currently, entities described in section 
1903(m)(2)(B) of the Act are included in the definition of PHP, and 
subject to PHP regulations that are not as strict as the rules that 
have applied to HMOs.
    The new requirements enacted by the Congress in the BBA apply to 
managed care arrangements in one or more of three ways. First, section 
1903(m)(2)(A)(xi) of the Act requires that MCOs and MCO contracts 
comply with all applicable requirements in the new section 1932 of the 
Act enacted by the BBA. Thus, these requirements apply to an MCO 
whether the MCO is participating in a mandatory managed care enrollment 
program (either under section 1932(a) of the Act or a waiver) or is 
offered as a purely voluntary enrollment option.
    Requirements in section 1932 of the Act also apply as conditions 
for meeting the definition of ``primary care case manager'' (which 
incorporates the definition of ``primary care case management 
contract'' requiring compliance with MCE requirements in section 1932 
of the Act). Meeting this definition is required in order for a non-MCO 
to participate as an enrollment option under a mandatory managed care 
enrollment program under section 1932(a) of the Act. Meeting this 
definition also makes an entity eligible for automatic re-enrollment 
under section 1903(m)(2)(H) of the Act, whether enrollment was 
originally voluntary or mandated. Finally, meeting this definition 
permits an entity to offer ``primary care case management services as a 
State plan service under section

[[Page 52027]]

1905(a)(25) of the Act. Lastly, certain requirements in section 1932 of 
the Act apply only in the context of a mandatory managed care 
enrollment program under section 1932(a) of the Act. The latter 
includes specific requirements on comparative information, as found in 
Sec. 438.10; methods for establishing certain enrollment practices, as 
found in Sec. 438.56; and the default enrollment process, as found in 
Sec. 438.56.
    The terms managed care organization (MCO) and managed care entity 
(MCE) are used in the statute and in this rule to identify where 
different requirements apply. As defined in Sec. 438.2, an MCO is 
either a Federally qualified HMO or any other public or private entity 
that is organized primarily for the purpose of providing health care 
services, makes the services it provides to its Medicaid enrollees as 
accessible (in terms of timeliness, amount, duration, and scope) as 
those services are to other Medicaid recipients within the area served 
by the entity, and meets the solvency standards of Sec. 438.116. Thus, 
in general, HMOs that participate in Medicaid are labeled as MCOs. For 
purposes of this rule, as described in detail under Sec. 438.8, most 
requirements that apply to MCOs also apply to prepaid health plans 
(PHPs).
    The term MCE is defined in Sec. 438.2 as either an MCO with a 
comprehensive risk contract under section 1903(m) of the Act or a 
primary care case manager. As specified in the statute, primary care 
case managers are only subject to the requirements in this proposed 
rule that specifically apply to MCEs except, as described in Sec. 438.8 
when certain primary care case managers meet the definition of a PHP. 
These requirements are specified in individual sections of this 
proposed rule, but include some or all of the requirements pertaining 
to information (Sec. 438.10), choice of MCEs (Sec. 438.52), enrollment 
and disenrollment (Sec. 438.56), marketing activities (Sec. 438.104), 
and emergency and post-stabilization services (Sec. 438.114).
3. Contract Requirements (Sec. 438.6)
    Proposed Sec. 438.6 contains most of the existing managed care 
provisions currently found in part 434, revised to reflect changes made 
by the BBA.
    Proposed Sec. 438.6(a), like the current Sec. 434.20(a), provides 
that State agencies may enter into comprehensive risk contracts only 
with certain specified entities. In addition to entities meeting the 
definition of MCO, certain other entities are listed that either are 
exempt from the requirement in section 1903(m)(1)(A) of the Act that 
comprehensive risk contractors meet the definition of MCO, or are 
exempt altogether from the statutory requirements in section 
1903(m)(2)(A) of the Act, and from the requirements in this proposed 
rule.
    Section 438.6(b) includes the requirement currently in Sec. 434.23, 
that contracts must specify the actuarial basis for capitation payments 
and must provide that capitation payments and any other payments 
provided for in the contract do not exceed the upper payment limits set 
forth in Sec. 447.361.
    Section 438.6(c) includes the enrollment requirements currently in 
Sec. 434.25. We specify that an MCE contract must provide for an open 
enrollment period when the MCE accepts individuals eligible for 
enrollment in the order in which they apply without restriction, unless 
authorized by the Regional Administrator, up to the limits specified in 
the contract. In Sec. 438.6(c)(2), we have added language expressly 
providing for three exceptions to the requirement that enrollment be 
voluntary.
    Section 438.6(d) includes language currently in Sec. 434.20(d) and 
provide that an MCO contract may cover services not provided under the 
State plan to non-enrolled beneficiaries. These additional services may 
be provided without regard to statewideness and comparability 
requirements. If enrollment is voluntary, the additional services may, 
under section 1915(a) of the Act, be provided without regard to 
statewideness and comparability. If enrollment is mandated under 
section 1932(a) of the Act, the statute provides that contracts can be 
carried out without regard to statewideness and comparability 
requirements. If enrollment is mandated under sections 1915(b) or 1115 
of the Act, HCFA waives statewideness and comparability requirements if 
additional services are offered.
    Section 438.6(e) would retain the requirement currently found in 
Sec. 434.20(e)(1), that contracts comply with the general contract 
requirements in Sec. 438.6. Among these requirements is the requirement 
that contracts conform to the procurement rules in 45 CFR part 74.
    Section 438.6(f) contains the current requirement in Sec. 434.38 
that risk contracts must provide the Medicaid agency and the Department 
of Health and Human Services, including HCFA, the right to inspect or 
audit financial records of the MCO or its subcontractors.
    Section 438.6(h) contains the ``advance directive'' requirements 
currently found in Sec. 434.28, which also must be met in order for an 
entity to qualify as an MCO.
    Section 438.6(i) implements the statutory requirement that ``HIOs'' 
which began operating on or after January 1, 1986 and are not otherwise 
exempted by statute, comply with all requirements in section 
1903(m)(2)(A) of the Act if they have a comprehensive risk contract, 
including the requirement that they meet the definition of MCO. This 
provision would replace the current Sec. 434.44.
    Finally, proposed Sec. 438.6(g) would implement the physician 
incentive plan requirements in section 1903(m)(2)(A)(x) of the Act, 
which currently are implemented in paragraphs (2) through (4) of 
Sec. 434.70(a) of the regulations. Section 1903(m)(2)(A)(x) of the Act 
requires that MCOs comply with the physician incentive plan 
requirements in section 1876(i)(8) of the Act, which apply to entities 
with Medicare risk contracts under section 1876 of the Act. Section 
1876(i)(8) of the Act prohibits certain physician incentive payments 
and requires that incentive plans that place physicians at 
``substantial financial risk'' for services they do not provide must 
conduct enrollee surveys, and provide ``adequate and appropriate'' 
stop-loss protection. Section 1876(i)(8) of the Act is implemented in 
Sec. 417.479, which defines ``substantial financial risk'' and 
``adequate and appropriate'' stop-loss protection. The existing 
Medicaid physician incentive regulations in Sec. 434.70(a)(2) through 
(4) incorporate the requirements in Sec. 417.479.
    Under section 1876(k)(1)(B) of the Act (enacted by the BBA), 
Medicare risk HMO contracts under section 1876 of the Act may not be 
renewed after January 1, 1999, and organizations with such contracts 
must enter into M+C contracts under the new Part C of Title XVIII if 
they wish to continue to contract with Medicare. The physician 
incentive rules in part 417 of the regulations that implement section 
1876(i)(8) of the Act will no longer have any applicability, and will 
eventually be removed from the Code of Federal Regulations.
    Section 1852(j)(4) of the Act, which applies to M+C organizations, 
contains the same substantive requirements governing physician 
incentive plans as section 1876(i)(8) of the Act. We have implemented 
section 1852(j)(4) of the Act as part of the new M+C regulations in 
part 422, published as an interim final rule on June 26, 1998 (63 FR 
34967). While the substantive requirements and standards in section 
1852(j)(4) of the Act are identical to

[[Page 52028]]

those in section 1876(i)(8) of the Act, the regulations in part 422 
implementing section 1852(j)(4) of the Act differ from those in part 
417 implementing section 1876(i)(8) of the Act in one significant 
respect. Because the data in question are now available from other 
sources, we deleted a reporting requirement involving capitation 
arrangements. (See 63 FR 35002.) Because the regulations in part 417 
will no longer apply in 1999, we did not revise the regulations in part 
417 to eliminate this reporting requirement.
    Even though the Medicaid statute continues to cite to section 
1876(i)(8) of the Act, proposed Sec. 438.6(g) incorporates new 
regulations in part 422 that implement the same substantive 
requirements, but as set forth in section 1852(j)(4) of the Act.
    Section 438.6(j) specifies additional rules that apply to contracts 
with primary care case managers. These rules relate to the provision of 
care and services within reasonable and adequate hours of operation; 
specification for arrangements or referral to other physicians or 
practitioners; prohibitions on discrimination in enrollment, 
disenrollment, or re-enrollment; and provisions on enrollee rights to 
disenroll.
4. Provisions That Apply to PHPs. (Sec. 438.8)
    As discussed above in section II.B., PHPs are entities with 
Medicaid prepaid managed care contracts that are not subject to the 
statutory requirements in section 1903(m) of the Act, either because 
they do not have comprehensive risk contracts, or because they are 
exempted by statute from these requirements. PHPs are, however, subject 
to regulatory requirements which were promulgated by us under our 
authority at 1902(a)(4) of the Act to provide for methods of 
administration determined to be necessary for proper and efficient 
operation of State Medicaid programs. Under these previous regulations, 
in part 434, PHPs are subject to many of the same requirements that 
have been applied to HMOs.
    The most significant HMO requirements that were not applied (or 
applied in some way) to PHPs under existing regulations were the 
statutory enrollment composition requirements in Sec. 434.26, which 
require that no more than 75 percent of enrollees be eligible for 
Medicare or Medicaid and the right to disenroll without cause, which is 
in Sec. 434.27(b). While PHPs were subject to an enrollment composition 
requirement, it could be waived by the State agency under 
Sec. 434.26(b)(4) for ``good cause'' and this was done routinely. Also, 
since PHP enrollees were not subject to the right to disenroll without 
cause (see Sec. 434.27(b) that implements section 1903(m)(2)(A)(vi) of 
the Act, which cannot be waived under section 1915(b) of the Act), 
State agencies were able to mandate enrollment in a single PHP, or 
provide for limits on the right to disenroll from a PHP, under a 
section 1915(b) freedom-of-choice waiver program.
    In addition to the above requirements, PHPs were also exempted from 
the advance directive requirements in Sec. 434.28, and the physician 
incentive plan requirements in Sec. 434.70(a)(2) through (4), and were 
not subject to the sanctions provided for in Sec. 434.67. Thus, while 
entities that the Congress chose to exempt from statutory requirements 
in section 1903(m) of the Act were subject to regulatory requirements, 
they were exempted from most requirements in section 1903(m) of the 
Act.
    The BBA, and the legislative history of the Medicaid managed care 
provisions in the BBA, are silent on the question of how PHPs are to be 
treated. The BBA did not make any changes to the definition of a 
comprehensive risk contract that is subject to the requirements in 
section 1903(m) of the Act, or to statutory provisions exempting 
certain comprehensive risk contractors from section 1903(m) 
requirements. The BBA did not change the fact that managed care 
entities regulated as PHPs are subject only to whatever regulatory 
requirements we may wish to retain or establish.
    We considered retaining a ``two tier'' regulatory scheme, under 
which PHPs would be subject to a lesser level of requirements than 
MCOs. Under this approach, which is similar to that taken in the 
current regulations, PHPs that had statutory exemptions from MCO 
requirements would receive the benefit of such exemptions to the extent 
they were not subject to the more vigorous MCO requirements under 
section 1903(m) of the Act. We determined, however, that the new BBA 
requirements contain important beneficiary protections that should be 
extended broadly, to most PHPs. Applying these BBA requirements to the 
few organizations exempted by statute, however, would virtually deprive 
them entirely of the benefit of the exemption the Congress intended. 
For this reason, as noted above, we have revised the definition of PHP 
to exclude these statutorily exempt entities, and include only entities 
that do not have comprehensive risk contracts. Based on this revised 
definition of PHPs, all entities with statutory exemptions from section 
1903(m) of the Act would be treated the same as exempted HIOs are now 
treated under current law.
    In the case of the overwhelming majority of PHPs, however, that are 
not addressed by the Congress, we propose to use our authority in 
section 1902(a)(4) of the Act to provide for ``proper and efficient'' 
methods of administration to give enrollees in these PHPs the benefits 
of most of the new BBA requirements applied to MCOs. Section 438.8 
identifies those provisions of the MCO regulations that apply to PHPs 
and PHP contracts. Under Sec. 438.8, PHPs would be subject to most of 
the requirements in Sec. 438.6, with the exception of the advance 
directive requirements in Sec. 438.6(h) and the physician incentive 
plan requirements in Sec. 438.6(g).
    PHPs would also be required to follow the information requirements 
in Sec. 438.10 that apply to MCOs, the provider discrimination 
prohibition in Sec. 438.12, the enrollment and disenrollment 
requirements under Sec. 438.56(e) through (h), the conflict of interest 
safeguards in Sec. 438.58, the beneficiary protections in subpart C of 
part 438, and the grievance and appeal requirements in subpart F of 
part 438, except for Sec. 438.424(b) since PHPs are not subject to 
section 1903(m)(2)(A) of the Act, which pertains to disallowances for a 
failure to meet section 1903(m)(2)(A) requirements. (See discussion 
below.)
    In the case of quality requirements in subpart E of part 438, PHPs 
would have to comply with all MCO requirements that apply to services 
provided by the PHP.
    Under Sec. 438.8(e), the State agency must require, at a minimum, 
through its contract, that the PHP meet all of the requirements that 
MCOs must meet relating to minimum performance levels and performance 
improvement levels that apply to services furnished by the PHP. The 
nature of some PHPs may not allow them to report on performance 
measures in all of the clinical and non-clinical areas as MCOs can. 
Also, some PHS may not be able to undertake performance projects in the 
same clinical areas as MCOs can address. The State agency must evaluate 
the applicability of the MCO performance measures and improvement 
project areas when establishing the PHP's contractual obligations for 
its quality assessment and performance improvement program.
    We invite comments particularly as to which MCO requirements we 
propose to

[[Page 52029]]

apply to PHPs, and which ones we do not.
    We note that while the Congress did not address PHPs in the BBA, it 
did provide a definition of ``primary care case manager'' that some 
PHPs could meet. Section 1905(t)(2) of the Act defined a primary care 
case manager as including ``a physician group practice or an entity 
employing or having other arrangements with physicians.'' This 
definition does not preclude payment on a capitation basis.
    Based on historical experience, we would expect that in most cases, 
services furnished to a beneficiary enrolled with a primary care case 
manager would be reimbursed on a fee-for-service basis to the extent 
that a primary care case manager is paid on a capitation basis for less 
than a comprehensive array or set of services. The primary care case 
manager would also meet the definition of a PHP and be subject to the 
requirements in Sec. 438.8. In such a case, the primary care case 
manager would be both a PHP and an MCE. To the extent that the MCO 
rules that apply to PHPs are stricter than the MCE rules, which 
ordinarily would apply to a primary care case manager, the primary care 
case manager would have to follow the MCO rules in such a case, by 
virtue of its status as a PHP.
    While we are proposing to apply MCO requirements to PHPs, State 
agencies may apply for Federal waiver authority, either under sections 
1915(b) or 1115 of the Act, to seek relief from some of the provisions. 
For example, a State agency may request 1915(b) waiver authority for a 
behavioral health managed care program in which enrollees are mandated 
to use a single behavioral health PHP. In this instance, the Secretary 
has the discretionary authority to grant waivers of freedom of choice, 
under section 1902(a)(23) of the Act, and the beneficiary the right to 
disenroll (which for PHPs is authorized under section 1902(a)(4) of the 
Act, and therefore, can be waived) to enable the State agency to 
establish or continue such a program.
5. Information Requirements (Sec. 438.10)
    Previously, in Medicaid managed care waiver programs, we have 
required, as a condition for freedom of choice waivers, that 
beneficiaries be fully informed of the choices available when enrolling 
with an MCE. Section 1932(a)(5) of the Act, enacted in section 
4701(a)(5) of the BBA, describes the kind of information that must be 
made available to Medicaid enrollees and potential enrollees. It also 
requires that this information, and all enrollment notices and 
instructional materials related to enrollment in MCEs, be in a format 
that can be easily understood by the individuals to whom it is 
directed. We propose to implement these provisions in Sec. 438.10. 
Section 438.10(a) through (h) apply to any use of managed care (State 
option, waiver, or voluntary) and Sec. 438.10(i) applies only to State 
option.
    As a general rule, each State agency, MCE, and enrollment broker 
must meet the requirements of Sec. 438.10 that pertain to language and 
format requirements (as specified in Sec. 438.10(b) and (c)). However, 
a distinction is made within the regulation as to which information 
needs to be provided by the MCO, MCE, primary care case manager, and 
State agency. Further, a distinction is made between which information 
needs to be provided routinely and which information needs to be 
provided only upon request.
    In Sec. 438.10(b) we establish requirements for the languages in 
which information must be made available. We are proposing to require 
that State agencies establish a methodology for determining the 
prevalent languages spoken by populations in a geographic area and 
include provisions in their MCE contracts to ensure that materials are 
available in those specified languages. For example, State agencies 
could develop methodologies for estimating the composition of the 
Medicaid population by cultural groups that speak languages other than 
English, that is, cultural groups that represent at least 5 percent of 
the Medicaid population. Enrollees and potential enrollees must be 
informed about how to obtain this information. Specific methodologies, 
such as those based upon a consideration of geographic composition, 
population density, or enrolled population are not imposed by this 
regulation, as the most appropriate approach to fulfilling this 
requirement may vary from State to State. However, we are proposing 
that the State agency, enrollment broker, and MCE be required to have 
translation services available for each enrollee and potential enrollee 
who has limited English proficiency, and that potential enrollees be 
informed about how to obtain these services.
    In Sec. 438.10(c)(1), we propose to implement the requirement in 
section 1932(a)(5)(A) of the Act that all enrollment notices and 
informational and instructional materials relating to enrollment in 
MCEs be provided in a manner and form that are easily understood by 
Medicaid enrollees and potential enrollees. This requirement applies to 
all State agencies, enrollment brokers, and MCEs, and is taken directly 
from section 1932(a)(5)(A) of the Act. Generally, materials should be 
understandable to enrollees at a fourth-fifth grade reading level, or 
at another level established by the State agency that adequately 
reflects the potential population to be enrolled. Materials should use 
an easily readable typeface (such as 14 point), frequent headings, and 
should provide short, simple explanations of key concepts. Technical or 
legal language should be avoided whenever possible. Use of focus groups 
and cognitive testing may be beneficial in determining the 
appropriateness of the information. In addition, in Sec. 438.10(c)(2) 
we propose that enrollment notices as well as informational and 
instructional materials relating to enrollment in MCEs take into 
account the specific needs of enrollees and potential enrollees. This 
would include furnishing information in alternative formats for the 
visually impaired (through other medias such as, large print, Braille, 
or audio tapes) and for individuals with limited reading proficiency 
(through video or audio tapes).
    In Sec. 438.10(d), we propose that the MCO, or the State agency, if 
the State agency prohibits the MCO from providing it, must furnish this 
information to each enrollee within a reasonable time after notice of 
enrollment. If the State agency prohibits the MCO from furnishing this 
information, we propose to require that the State agency furnish the 
information within a reasonable time after notice of enrollment. 
Further, we propose that the MCO furnish this information to potential 
enrollees upon request, when not prohibited by the State agency through 
restrictions on marketing or some other means. In this instance, the 
State agency, or the subcontractor of the State agency, must provide 
the information. Annually thereafter the MCO must notify enrollees of 
their right to request and obtain the information from the MCO. We have 
proposed this requirement because we do not believe that enrollees can 
effectively access their benefits if they are not furnished adequate 
information concerning such fundamental elements as enrollees' rights 
and responsibilities. Further, it is our belief that it is not 
sufficient for MCOs to merely make this information available at 
designated locations. Therefore, in keeping with the Congress' intent 
to provide adequate information to potential enrollees and actual 
enrollees, according to the Secretary under section 1902(a)(iv) of the 
Act to establish requirements necessary to ensure * * * proper and 
efficient operation * * *, we propose to require

[[Page 52030]]

MCOs to provide this information. In addition, as is the case in most 
mandatory managed care systems currently in operation, we propose to 
require that this information be provided by the MCOs at the time of 
enrollment, rather than making this information available upon request, 
as written in the statute.
    In Sec. 438.10(e) we set forth the type of information which, under 
section 1932(a)(5)(B) of the Act, MCOs must provide to enrollees and 
potential enrollees in their service area, upon request. As discussed 
below, we propose to require that this information be provided to all 
new MCO enrollees regardless of whether they request this information.
    Consistent with section 1932(a)(5)(B) of the Act, proposed 
Sec. 438.10(e) would provide that the information that must be 
furnished to enrollees and potential enrollees include at least the 
following:
     Benefits offered, and the amount, duration, and scope of 
benefits and services available under the contract. Sufficient detail 
should be furnished to ensure that beneficiaries receive the services 
to which they are entitled, such as pharmaceuticals, mental health, and 
substance abuse services.
     Procedures for obtaining services, including authorization 
requirements. These procedures should include the procedures for 
obtaining pharmaceuticals and mental health and substance abuse 
services, as well as the procedure for obtaining out-of-area coverage.
     Names and locations of current network providers, 
including identification of those not accepting new patients. At a 
minimum, information on the provider networks should include 
information on primary care physicians, specialists, and hospitals. We 
also suggest that information be provided regarding ancillary care 
providers on which enrollees with special health care needs may be 
dependent for care. If this information is not included, information 
must be provided to potential enrollees explaining how they can obtain 
this supplemental information. Enrollees making a decision about 
whether to enroll in a particular MCO may rely on the provider listing 
in making their selection, and may assume that they will be able to 
obtain covered services from any of the providers listed. Therefore, if 
a provider is not accepting new Medicaid enrollees, this must be 
clearly indicated, as this provider may not be a choice for new 
enrollees.
     Any restriction on the enrollee's freedom of choice among 
network providers. It is essential that the MCO's informational 
materials emphasize any limitations on enrollees' provider selections. 
If the MCO contracts with formal subnetworks, or the MCO's arrangement 
with primary care providers allow for the establishment of informal 
subnetworks, the MCO's informational materials must clearly indicate 
which providers are available under each subnetwork. The materials must 
also explain the procedures under which an enrollee may request 
referral to an affiliated provider not included in the subnetwork.
     The extent to which an enrollee may obtain services from 
out-of-network providers. For example, enrollees should be notified of 
their right to obtain family planning services from any Medicaid-
participating provider (unless otherwise restricted).
     Provisions for after-hours and emergency coverage.
     Policies on referrals for specialty care and other 
services not furnished by the enrollee's primary care provider.
     Cost sharing, if any.
     Enrollee rights as described in Secs. 438.56 and 438.320 
and enrollee responsibilities. Information on responsibilities should 
include, but is not limited to responsibilities such as providing 
information needed for treatment, compliance with the MCO's procedures 
for obtaining services, and becoming involved in specific health care 
decisions.
     Information on complaint, grievance, and fair hearing 
rights described in Sec. 438.414(b) and if the State agency chooses to 
furnish appeal rights to providers, information on these appeal rights. 
We note that while section 1932(a)(5)(A)(ii) of the Act provides for 
furnishing information on ``procedures available to * * * a health care 
provider to challenge or appeal'' an MCO decision, there is no Federal 
Medicaid requirement that such procedures be provided for by MCOs. To 
the contrary, as discussed below, the requirement in section 1932(b)(4) 
of the Act that MCOs have grievance procedures refers to rights 
extended to an enrollee ``or a provider on behalf of an enrollee.''
    While State agencies must develop grievance and appeal processes 
for enrollees in accordance with subpart F of part 438, this 
requirement is not meant to imply that State agencies must establish 
grievance and appeal processes for individual health care providers 
beyond the fair hearing process. However, if such processes exist, 
information on the processes must be made available to enrollees and 
potential enrollees in accordance with the requirements of this 
section.
    As noted above, section 1932(a)(5) of the Act requires that MCOs 
provide the above information to enrollees and potential enrollees 
``upon request.'' We believe that in the case of beneficiaries who have 
actually enrolled in the MCO, the above information is essential to an 
enrollee's ability to access necessary care and exercise his or her 
rights under the law. Therefore, under our authority in section 
1902(a)(4) of the Act to provide for necessary and proper methods of 
administration, we propose in Sec. 438.10(d) that an MCO be required to 
provide the above information to each enrollee within a reasonable time 
after it receives from the State agency or the enrollment broker, 
notice of the individual's enrollment. This proposed regulatory 
requirement is consistent with the standard practice of managed care 
organizations, State law requirements in many States, and requirements 
that apply under the Medicare program. We invite comment on this 
requirement.
    As required under section 1932(a)(5) of the Act, proposed 
Sec. 438.10(d) would also require an MCO to provide information to 
potential enrollees upon request, when not prohibited by the State 
agency through restrictions on marketing or some other means (in which 
case the State agency or subcontractor of the State agency must provide 
the information). Annually thereafter, the MCO must notify enrollees of 
their right to request and obtain this information from the MCO.
    Proposed Sec. 438.10(f), would provide that an MCO is required to 
provide enrollees and potential enrollees, when not prohibited by the 
State agency through restrictions on marketing or some other means; in 
which case the State agency, or subcontractor of the State agency must 
provide the following information:
     Health plans' and health care facilities' licensure, 
certification, and accreditation status; and
     Information on health professionals, including but not 
limited to, education and board certification and recertification.
    Unlike the information elements in Sec. 438.10(e) under which the 
MCO must provide the information to enrollees, in Sec. 438.10(f) we 
propose that the information be furnished to enrollees and potential 
enrollees only upon request. We are making this distinction because it 
is our belief that while some beneficiaries may be interested in 
receiving these elements of information, and must be able to obtain 
them, they are not elements of information that every beneficiary 
typically uses in selecting a provider. By making the

[[Page 52031]]

information available by request, interested beneficiaries can obtain 
the information, and MCOs are not required to furnish information that 
will not be used.
    In Sec. 438.10(g), in accordance with section 1932(a)(5)(D) of the 
Act, we are proposing to require that a State agency, before or during 
enrollment, inform enrollees of any benefits to which they may be 
entitled under the Medicaid program, but which are not made available 
to them through the MCE. For example, enrollees should be informed 
about how to access mental health coverage if it is not a service 
covered by the MCE or the MCE provides only limited coverage. This 
information must be provided directly by the State agency or through 
the MCE. The notice must provide information on where and how enrollees 
may access benefits such as mental health coverage not available 
through the MCE. In addition, this notice must include any cost-sharing 
requirements imposed as well as information on how transportation 
services not covered by the MCE will be furnished.
    At Sec. 438.10(h), consistent with section 1932(a)(5)(b) of the 
Act, we propose to require that primary case managers furnish, upon 
request, information regarding grievance and appeal processes available 
to enrollees, including the procedures for obtaining services during 
the appeals process. While not a requirement for primary care case 
managers, we suggest that State agencies provide potential enrollees 
and enrollees of primary care case managers with any additional 
information, such as on their rights and responsibilities, that would 
better enable them to receive quality health care and participate in 
the decision-making process.
    In Sec. 438.10(i) we propose to implement section 1932(a)(5)(C) of 
the Act to require that comparative information be provided by State 
agencies that implement mandatory managed care programs under the 
authority in section 1932(a)(1)(A) of the Act. This information must be 
provided directly by the State agency or through the MCE at least 
annually, as well as upon request. The information must be presented in 
a comparative chart-like form that facilitates comparison among MCEs 
and must be available in the prevalent languages spoken by populations 
in the geographic area. It should include the following information for 
each MCE: (1) the service area of the MCE; (2) the benefits covered; 
(3) any cost-sharing imposed by the MCE; and (4) to the extent 
available, quality and performance indicators, including, but not 
limited to, disenrollment rates, as defined by the State agency and 
consumer satisfaction. State agencies should specify the meaning of 
``disenrollment rates'' and the voluntary disenrollment from one plan 
to another plan.
6. Provider Discrimination (Sec. 438.12)
    At Sec. 438.12, we are proposing requirements consistent with 
section 1932(b)(7) of the Act. Those requirements state that an MCO 
must not discriminate with respect to participation, reimbursement, or 
indemnification as to any provider who is acting within the scope of 
the provider's license or certification under applicable State law, 
solely on the basis of such license or certification. The requirements 
further state that the regulation does not prohibit an organization 
from including providers only to the extent necessary to meet the needs 
of the MCO's enrollees, from establishing different payment rates for 
different specialties, or from establishing measures designed to 
maintain quality and control costs consistent with the responsibilities 
of the MCO.
    Section 438.12 should not be construed as an ``any willing 
provider'' provision. We believe that the Congress intended in section 
1932(b)(7) of the Act only to ensure that MCOs do not adopt arbitrary 
policies concerning non-physician providers who, in the past, may have 
been discriminated against because they do not hold the same licenses 
and certifications as practicing physicians. Any such discriminatory 
actions may have provided beneficiaries with fewer choices and may have 
reduced beneficiaries' overall access to quality health care. 
Accordingly, MCOs should implement policies with respect to provider 
participation, reimbursement, and indemnification that are not 
arbitrary, but rather relate to quality factors such as outcome 
measures and satisfaction surveys, and other legitimate business 
concerns.
    We also provide in Sec. 438.12 that MCOs must contract with all 
health care professionals in the manner provided in Sec. 438.314 
(discussed in section 4 below).

B. State Responsibilities (Subpart B)

1. State Plan and Contract Requirements: General Rule (Sec. 438.50)
    In this section, we are proposing language to implement section 
1932(a) of the Act, which permits State agencies to enroll their 
Medicaid beneficiaries in managed care entities on a mandatory basis 
without a waiver under sections 1915(b) or 1115 of the Act. Under 
section 1932(a)(1)(A) of the Act and Sec. 438.50 of the proposed 
regulations, a State agency no longer needs to request, obtain, and 
seek periodic renewal of HCFA waivers to restrict freedom of choice for 
most Medicaid beneficiaries. Rather, a State agency may amend its 
Medicaid plan to require these Medicaid beneficiaries to enroll in 
managed care entities, without being out of compliance with the freedom 
of choice provisions.
    We are requiring State agencies to submit a Medicaid State plan 
amendment (SPA) to implement the managed care provisions under section 
1932(a) of the Act and the implementing regulations at Sec. 438.50. As 
specified in the current regulations at Sec. 430.16, we must make a 
decision to approve or disapprove a State agency's request within 90 
days of receipt of the SPA, or we may request additional information 
from the State agency. If we ask for additional information, we must 
make a decision to approve or disapprove a State's SPA within 90 days 
of receipt of the State agency's response to the additional information 
request. As with other SPAs, the effective date provisions specified in 
the current regulations at Secs. 430.20 and 447.256 apply to SPAs 
submitted to implement a section 1932(a) of the Act request. Thus, 
section 1932(a) SPAs thus may be effective as early as the first day of 
the quarter in which a State's SPA is submitted to HCFA.
    Under proposed Sec. 438.56(b), the following populations are 
excluded from mandatory managed care enrollment under this State plan 
option:
     Dual Medicare-Medicaid eligibles;
     Native Americans who are members of Federally-recognized 
tribes except when the MCE is either the Indian Health Service or an 
Indian Health program operated by a tribe or tribal organization under 
a contract, grant, cooperative agreement, or compact with The Indian 
Health Service.
     Children (under 19 years of age) who are:

--Eligible for Supplemental Security Income benefits under Title XVI of 
the Act;
--Described in section 1902(e)(3) of the Act;
--In foster care or other out-of-home placement;
--Receiving foster care or adoption assistance; or
--Receiving services through a family-centered, community-based, 
coordinated care system receiving grant funds under section 
501(a)(1)(D) of the Act.


[[Page 52032]]


    While State agencies are prohibited from enrolling the above groups 
under the State plan option, a State agency may use a section 1915(b) 
waiver or section 1115 demonstration authority to mandate enrollment 
for these individuals in a managed care system. A State agency would be 
required to demonstrate how the individuals' special needs and 
circumstances would be met under the managed care arrangements. There 
is a growing body of State experience and best practices regarding 
enrollment of these groups. We will use this knowledge when evaluating 
whether a particular State's waiver request does demonstrate that their 
program will adequately address the needs and complexities of these 
groups that set them apart from the groups that can be mandatorily 
enrolled without a waiver.
    Under Sec. 438.50(b), State agencies wishing to utilize the 
authority in Sec. 438.50 would be required to provide assurances of 
State compliance with all applicable requirements, and under paragraph 
(c), assurances that contracts will comply with all applicable 
requirements.
2. Choice of Managed Care Entities (Sec. 438.52)
    Subject to the exceptions specified below, under section 1932(a)(3) 
of the Act, a State agency that requires Medicaid beneficiaries to 
enroll in an MCO must offer to its beneficiaries a choice of at least 
two managed care entities (MCEs). This is consistent with the 
longstanding requirement under section 1915(b) waivers that 
beneficiaries have at least two options. This requirement derived from 
the fact that the right to disenroll provided in section 
1903(m)(2)(A)(vi) of the Act could not be waived under section 1915(b) 
of the Act. Thus, in the case of a comprehensive risk contract subject 
to section 1903(m) of the Act (formerly HMO contracts, now MCO 
contracts), a beneficiary has always had the right to disenroll to 
another option. Section 1932(a)(3) of the Act reflects this existing 
mandatory managed care policy. MCEs are MCOs under section 
1903(m)(1)(A) of the Act or primary care case managers under section 
1905(t) of the Act. Therefore, a State agency could comply with this 
provision by offering a choice of two practitioners for a primary care 
case management system as long as each practitioner is a separate 
primary care provider.
    Section 1932(a)(3) of the Act provides two exceptions to the 
general choice of coverage requirement in section 1932(a)(3)(A) of the 
Act. First, under section 1932(a)(3)(B) of the Act, in rural areas, a 
State agency may restrict choice of coverage to a single managed care 
entity if certain conditions are met. In those situations, the State 
agency must allow the beneficiary to choose from at least two 
physicians or case managers (to the extent that at least two physicians 
or case managers are available to furnish care and services in the 
area), and the State agency must allow the beneficiary to obtain 
assistance from any other provider outside the network in appropriate 
circumstances, as established by the State agency under HCFA 
regulations. Second, in the case of certain HIOs (specifically, pre-
1986 HIOs or the county-operated HIOs in California that are exempt 
from section 1903(m) of the Act), the choice requirement in section 
1932(a)(3)(A) of the Act is deemed to be met if a choice of at least 
two providers within the entity is provided.
    In defining the term ``rural,'' for purposes of the rural area 
exception in section 1932(a)(3)(B) of the Act, we are permitting State 
agencies the flexibility to either choose between two existing Medicare 
definitions of rural areas found in parts 412 and 491 of this chapter, 
or to obtain our approval of a definition developed by the State 
agency. We are proposing to prohibit a State agency from designating 
the entire State as a rural area.
    While we are proposing to allow State agencies a choice of three 
options for defining rural areas, we are specifically requesting public 
comments on whether it would be more appropriate to apply a single 
definition for rural areas, and which definition would be the most 
appropriate one. In addition, we are soliciting comments on whether an 
alternative definition to the two existing Medicare definitions of 
rural areas found in Parts 412 and 491 of this chapter would be more 
appropriate, and if so, what the definition should be. A single 
definition could result in a more consistent approach of a rural area 
definition for purposes of this exception.
    If a State agency elects to implement this rural exception, the BBA 
requires us to promulgate regulations under which State agencies can 
establish the ``appropriate circumstances'' under which an individual 
will be permitted to obtain care from any provider. In 
Sec. 438.52(c)(2), we propose the following as appropriate 
circumstances under which a State agency must permit beneficiaries to 
seek out-of-plan treatment: (1) when a service or type of provider is 
not available within the MCE network; (2) when a provider is not part 
of the MCE network, but has an existing relationship with the 
beneficiary; or (3) when the only plan or provider available to the 
beneficiary does not, because of moral or religious objections, furnish 
the service the enrollee seeks. We also propose that State agencies 
have the discretion to determine additional circumstances that warrant 
out-of-network treatment. The State agency must ensure that enrollees 
are informed of the appropriate circumstances for out-of-plan 
treatment. We invite comments and additional suggestions in this area.
3. Enrollment and Disenrollment: Requirements and Limitations. 
(Sec. 438.56)
    Section 1932(a)(4) of the Act contains new requirements that apply 
to the enrollment of beneficiaries in MCEs under a mandatory enrollment 
program under section 1932(a)(1)(A) of the Act and new disenrollment 
rights that apply to all MCEs, whether enrollment is voluntary or 
mandated under section 1932(a)(1)(A) of the Act or a 1915(b) waiver.
    The State agency must provide assurances that in implementing a 
mandatory enrollment program under section 1932(a)(1)(A) of the Act the 
following Medicaid beneficiaries are not required to enroll:
    (1) Beneficiaries who are eligible for Medicare;
    (2) Indians who are members of Federally recognized tribes, except 
when the MCE is The Indian Health Service or an Indian health program 
operated by a tribe or a tribal organization under a contract, grant, 
cooperative agreement, or compact with the Indian health service.
    (3) Children under 19 years of age who are eligible for SSI under 
Title XVI of the Act; under section 1902(e)(3) of the Act; in foster 
care or other out-of-home placement, receiving foster care or adoption 
assistance; or receiving services through a family-centered, community-
based, coordinated care system that receives grant funds under section 
501(a)(1)(D) of title J, and is defined by the State agency in terms of 
either program participation or special health care needs.
    Under section 1932(a)(4)(A) of the Act, enrolled beneficiaries may 
terminate or change their enrollment for cause at any time, unless the 
beneficiary is enrolled in a single MCO or a primary care case 
management system in a rural area as described above in Sec. 438.52. In 
this situation, the beneficiary may not disenroll from the single plan 
but may change providers within the plan or obtain assistance from any 
other provider outside the network in appropriate circumstances as 
defined in

[[Page 52033]]

Sec. 438.52(c)(2). Beneficiaries must also be permitted to disenroll 
without cause with a particular MCE within the first 90 days of the 
initial enrollment period of up to 12 months, and annually thereafter. 
In addition to applying to all enrollees under a mandatory enrollment 
program under section 1932(a)(1)(A) of the Act, this disenrollment 
provision is incorporated in the definition of primary care case 
management contract in section 1905(t)(3) of the Act, and in a revised 
version of section 1903(m)(2)(A)(vi) of the Act, and thus applies to 
all primary care case management contracts and comprehensive risk 
contracts subject to section 1903(m) of the Act. This right to 
disenroll without cause during the first 90 days of enrollment, with a 
particular MCE and at least annually thereafter, replaces the pre-BBA 
version of section 1903(m)(2)(A)(vi)of the Act, which provided 
enrollees with the right to disenroll without cause at any time, or in 
the case of Federally qualified HMOs and certain other entities, at 
least every 6 months.
    Under the pre-BBA version of section 1903(m)(2)(A)(vi) of the Act, 
a 12-month lock-in was possible only under a section 1115 
demonstration, since section 1115(a)(2) authority was required in order 
to exempt an HMO from the requirement in that version of section 
1903(m)(2)(A)(vi) of the Act permitting that an enrollee disenroll 
without cause at any time, or every six months.
    In addition to extending the maximum enrollment period from 6 
months to 12 months and allowing for a 90-day, without-cause 
disenrollment period, section 1932(a)(4) of the Act:
     Applies this lengthened enrollment to all managed care 
entities (MCEs), rather than a specific type of HMO;
     Requires that recipients be notified of their ability to 
disenroll or change plans during an enrollment period that occurs at 
least every 12 months, and at least 60 days before the start of each 
enrollment period; and
     Eliminates all previous statutory provisions on enrollment 
and termination of enrollment.
    These provisions apply to enrollment and disenrollment in all types 
of MCEs in all Medicaid managed care programs, with the exception of a 
temporary exemption for the duration of section 1115 or 1915(b) waiver 
periods already approved before the BBA was enacted. Once these current 
waiver periods expire, these provisions will apply unless HCFA grants 
an exemption from them under section 1115 demonstration authority. 
Also, section 4757 of the BBA permits an extension for up to 3 years 
for section 1115 waivers approved or in effect as of August 5, 1997. 
These waiver extensions must be approved under the same terms and 
conditions that applied before the extension. Therefore, any exemptions 
from the BBA requirements to which these programs are entitled may 
continue during the period of the extended waiver authority.
    Section 1932(a)(4)(D)(I) of the Act, also contains the following 
requirements for the enrollment process when State agencies use the 
State plan amendment authority in section 1932(a)(1) of the Act to 
implement managed care on a mandatory basis:

--Individuals already enrolled with an MCE must be given priority to 
continue that enrollment if the MCE does not have the capacity to 
enroll all individuals seeking enrollment under the program. Thus, 
State agencies are required to establish a method for establishing 
enrollment priorities for managed care entities if they do not have 
sufficient capacity to enroll new individuals, and to give priority to 
the continued enrollment of individuals already enrolled with the 
entity.

    State agencies must establish a default enrollment process under 
which individuals who do not elect an MCE during their enrollment 
period are assigned to one that meets the requirements of section 
1903(m) or 1905(t) of the Act. Under this default assignment process, 
individuals who do not select a plan must be enrolled by the State 
agency into an entity that takes into consideration the maintenance of 
existing provider-individual relationships or relationships with 
providers that have traditionally served Medicaid beneficiaries. If 
this cannot be accomplished, the State agency must equitably distribute 
the individuals among available qualified MCEs.
    As mentioned above, these requirements are limited to programs 
established under the State plan amendment authority for mandatory 
managed care enrollment.
    We note that the language in section 1932(a)(4)(A)(ii) of the Act 
indicates that the 90-day period to disenroll without cause is to begin 
on the date the individual ``receives notice of such enrollment* * *'' 
However, we recognize that a literal application of this starting date 
could make this provision extremely difficult for State agencies to 
administer, and therefore provide in Sec. 438.56(e)(1)(ii)(A) that the 
general rule is that the 90 days will begin when enrollment is 
effective. We provide, however, that if notice to the recipient is 
delayed, the 90-day period may be extended to compensate for that 
delay.
    We provide that the 90-day period for disenrollment without cause 
applies only when an individual first enrolls with a particular MCE. 
The language in section 1932(a)(4) of the Act regarding the 90-day 
period for disenrollment without cause expressly provides for a 90-day 
period that begins with enrollment with ``the'' MCE in which the 
beneficiary is enrolled. Thus, beneficiaries are entitled to a 90-day 
``without cause'' period for disenrollment any time they enroll in a 
new MCE. Section 1932(a)(4) of the Act provides for a notice of 
termination rights under which an enrollee must be informed of his or 
her ability to terminate or change enrollment at least 60 days before 
the start of each enrollment period. This 60-day period gives 
individuals the opportunity to change MCEs effective with the start of 
their initial enrollment period with a particular MCE. If they choose 
to remain in the same plan, they have had their opportunity for 
disenrollment without cause and declined it. However, enrollees who 
change plans, would have an opportunity to try out the new MCE and 
determine whether they wish to remain enrolled through the enrollment 
period. This interpretation is consistent with the statutory language, 
which refers to a 90-day period beginning with the date of enrollment 
with ``the entity,'' and is also consistent with what we believe to be 
the intent of this provision. We believe that this provision was 
designed to provide a beneficiary with a period of time to ``try out'' 
an MCE and see whether it is right for him or her. A beneficiary who 
has already had such a 90-day period with a particular MCE does not 
need another one in order to try out that MCE. However, further 
restricting the application of the 90-day without cause period would 
mark a departure from statutory language.
    Section of the Act 1932(a)(4) of the Act permits individuals to 
disenroll at any time without cause during the initial 90 days of 
enrollment with an MCE, and during enrollment periods of at last every 
12 months, thereafter. This is problematic when only one MCE option 
exists, such as under the rural area and HIO exceptions provided under 
sections 1932(a)(3)(B) and (C) of the Act. We believe that in 
authorizing mandatory enrollment in a single entity under these 
exceptions, while imposing as a condition the right to choose among 
individual providers within the entity, Congress was providing for an 
implicit exception to the general rule under section 1932(a)(4) of the 
Act that an

[[Page 52034]]

enrollee must be able to disenroll from an MCE. Under these exceptions 
we are proposing in Sec. 438.56(e)(2) that the requirements in section 
1932(a)(4)(A) of the Act be deemed satisfied by providing that 
beneficiaries can disenroll to a different primary care physician or 
case manager. Thus, individuals may disenroll from their current 
primary care provider, but must continue as an enrollee in the managed 
care entity. This would make it unnecessary for a State agency to 
operate a parallel FFS system for those individuals who disenroll. We 
note that this ``exception'' to the ordinary operation of the 
requirement in section 1932(a)(4) of the Act would also be incorporated 
in section 1903(m)(2)(A)(vi) of the Act, which cannot be waived under a 
section 1915(b) waiver program. Thus, under our proposed rule, a State 
agency could offer a single MCE in a rural area under a section 1915(b) 
waiver, as long as the requirements in Sec. 438.52(c) are satisfied. 
(The issue of section 1903(m)(2)(A)(vi) of the Act does not arise for 
the HIOs addressed in Sec. 438.52(d), since they are exempt from 
section 1903(m) requirements.)
    In accordance with section 1932(a)(4)(B) of the Act, we provide in 
proposed Sec. 438.56(g) for the enrollee's opportunity to disenroll or 
change enrollment at least 60 days before the enrollment opportunity. 
Section 1932(a)(4), of the Act requires State agencies to permit 
disenrollment without cause at least every 12 months after the 
individuals's enrollment with an MCO. State agencies may fulfill this 
requirement by having an annual open season for all MCO enrollees or 
establishing an open enrollment opportunity for each individual based 
on the individual's date of enrollment.
    This provision also proposes that for recipients enrolled under the 
State plan option as established through section 1932(a)(1) of the Act, 
the State agency must establish a method whereby individuals already 
enrolled with an MCE must be given priority to continue that enrollment 
where the MCE does not have the capacity to enroll all individuals 
seeking enrollment under the program. In accordance with section 1932 
(a)(4)(D) of the Act, we propose Sec. 438.56(d)(2). This provision 
stipulates that in applying the default assignment provision under 
section 1932(a)(1) programs, State agencies are required to establish 
an enrollment process that takes into consideration existing provider 
and individual relationships and traditional Medicaid providers, and if 
these are not possible, utilize an assignment process that equitably 
distributes enrollees among qualified, available MCEs.
    Except when State agencies have a fee-for-service experience or 
prior MCO enrollment data regarding an individual, it may be difficult 
to establish a provider and individual relationship for default 
assignment purposes. We recommend that State agencies ask potential 
enrollees in this situation for the names of providers from whom they 
receive services and whether they would wish to continue this 
relationship. When the beneficiary identifies a provider who is 
participating and has additional capacity, this information should be 
used in determining the individual's assignment. In this instance, the 
State agency makes the assignment to any MCO in which that provider 
participates.
    When the State agency cannot get a response, the beneficiary has no 
preference, or the named provider does not participate, consideration 
must be given to ``traditional providers''. The definition in section 
1932(a)(4) of the Act specifically describes providers who have 
``traditionally served beneficiaries under this Title.'' As such, we 
believe the definition of a traditional provider should be defined as a 
provider who has been the main source of care for any recipient during 
the last year and has experience and expertise in dealing with the 
Medicaid population.
    Thus, we propose under Sec. 438.56(d)(3) that existing provider-
individual relationships be defined as the provider who was the main 
source of care for the recipient in the last year. This can be 
established through State records of previous MCE enrollment or FFS 
experience, or through contact with the beneficiary. Under 
Sec. 438.56(d)(4) we would define ``traditional providers'' to be any 
provider who has been the main source of care for a beneficiary within 
the last year, and has expertise and experience in dealing with the 
Medicaid population. If the State agency has no recent claims history, 
cannot get a response from the beneficiary, or the named provider does 
not participate, the State agency must give consideration to 
traditional providers as defined above. If no traditional providers are 
available, remaining individuals are to be equitably distributed among 
qualified MCEs with adequate capacity.
    Under Sec. 438.56(d), we propose that with respect to the lock-in 
and termination of enrollment provisions, default assignment be 
considered to be the ``election'' of a plan. The lock-in provision 
previously contained in section 1903(m)(2)(A)(vi) of the Act contains 
the same language: ``individuals who have elected to enroll with the 
plan. . . .'' This language also is in the new BBA requirement on 
disenrollment. The provision has always been applied to individuals who 
were default-assigned as well as to those who actually elected to 
enroll in their plans. As such, we believe that this practice may be 
continued.
    Sections 438.56(f) and 438.56(g) of the Act set forth agency 
procedures including the notice requirements of grievance and appeal 
rights, and the requirement that a request for disenrollment for cause 
be submitted in writing to the State agency (or to the MCE if the State 
agency permits MCEs to process disenrollments). When a State agency 
permits an MCE to process disenrollment requests, we would require the 
beneficiary to submit the disenrollment request to the MCE, and require 
the MCE to make a copy for the State agency.
    In Sec. 438.56(f)(2)(i), we propose that the MCE may approve the 
request for disenrollment if the State agency permits MCEs to process 
disenrollments for cause. In addition, the MCE must notify the enrollee 
and State agency in writing that the disenrollment request was approved 
and indicate the effective date of the disenrollment consistent with 
paragraph (f)(4) of this section, which requires that disenrollment is 
effective no later than the first day of the second month following the 
month in which the enrollee made the request for disenrollment. In 
Sec. 438.56(f)(2)(iii), we propose that if the MCE, for whatever 
reason, does not take action to approve the enrollee's request for 
disenrollment, for which it must notify the State agency within a 
reasonable timeframe as determined by the State, the State agency will 
make a good cause determination based on reasons cited in the 
enrollee's request and information provided by the MCE at the State 
agency's request.
    Section 438.56(h) incorporates Public Law 101-508 section 4732(c), 
effective November 5, 1990, as well as the provision set forth in 
section 4702(b)(1) of the BBA, to allow State agencies to provide in 
their State plans and contracts with MCEs for the automatic 
reenrollment of recipients who become disenrolled from the MCE solely 
by virtue of becoming temporarily (four months or less) ineligible for 
Medicaid. We note that the provisions in Sec. 438.56(e) through (h) 
apply to PHPs.
4. Conflict of Interest Safeguards (Sec. 438.58)
    State agencies can not enter into contracts with any MCO, unless 
the

[[Page 52035]]

State agency has in effect conflict-of-interest safeguards with respect 
to its officers and employees, and local officers and employees who 
have responsibilities relating to contracts with such MCOs or the new 
default enrollment process. These safeguards must be at least as 
effective as the Federal safeguards provided under section 27 of the 
Office of Federal Procurement Policy Act (41 USC 423). This provision 
applies to contracts entered into or renewed by October 1, 1997 and 
signed by both parties.
    This proposed rule is necessary to conform our regulations to 
section 1932(d)(3) of the Act, which requires that State agencies have 
conflict-of-interest safeguards ``at least as effective'' as Federal 
procurement safeguards. The Federal Procurement Policy Act specifies 
prohibitions for former and current employees from entering into any 
type of communications with individuals or third parties to unduly 
influence their decisions. These provisions include the following:
     Prohibited conduct by competing contractors.
     Prohibited conduct by procurement officials.
     Refusal to engage in discussion with competing contractor.
     Disclosure to unauthorized persons.
     Certification and enforcement matters.

This proposed rule will ensure that there is no undue influence or 
preference given to an MCO because a State employee has an interest in 
that MCO. It will force State agencies to have stringent safeguards 
over individuals for the proper and efficient administration of a State 
Plan.
    Before section 1932(d)(3) of the Act was added by section 4207 of 
the BBA, section 1902(a)(4)(C) of the Act provided that Medicaid State 
and local officers or employees, former officers or employees, and 
partners of former officers or employees were prohibited from 
committing any act that is prohibited by Section 207 or 208 of title 18 
of the United States Code. Section 207 or 208 of title 18, prohibits 
former and current employees from entering into communications to 
influence on behalf of any other persons.
5. Limit on Payment to Other Providers (Sec. 438.60)
    We propose to redesignate Sec. 434.57 as Sec. 438.60, with 
appropriate changes in terminology.
6. Continued Service to Recipients (Sec. 438.62)
    We propose to redesignate Sec. 434.59 as Sec. 438.62 with 
appropriate changes in terminology.
7. Computation of Capitation Payments (Sec. 438.64)
    We propose to redesignate Sec. 434.61 as Sec. 438.64 with 
appropriate changes in terminology.
8. Monitoring Procedures (Sec. 438.66)
    We propose to redesignate Sec. 434.63 as Sec. 438.66 with non-
substantive revisions and appropriate changes in terminology.

C. Subpart C--Enrollee Protections

1. Benefits (Sec. 438.100)
    This section requires that contracts with MCOs must specify the 
services that the organization is required to furnish to Medicaid 
enrollees. If services covered under the State plan are not covered 
under the contract, the State agency must make arrangements to furnish 
these services to the Medicaid enrollee and provide written 
instructions on how to obtain the services.
2. Enrollee-Provider Communications (Sec. 438.102)
    Under current law, Medicaid beneficiaries are entitled to receive 
from their health care providers, the full range of medical advice and 
counseling that is appropriate for their condition. The BBA expands 
upon this basic right by precluding an MCO from establishing 
restrictions that interfere with enrollee-practitioner communications. 
Under the provision, a covered health care professional (we use the 
term ``practitioner'' interchangeably with the statutory definition of 
``health care professional'') who is acting within his or her scope of 
practice, must be permitted to freely advise a patient about his or her 
health status and discuss appropriate medical care or treatment for 
that condition or disease regardless of whether the care or treatment 
is covered under the contract with the MCO.
    While the new law precludes MCOs from interfering with enrollee-
practitioner communications, it does not require MCOs to provide, 
reimburse for, or provide coverage of counseling or referral services 
for specific services, if the MCO objects to the service on moral or 
religious grounds. Please note, however, that the State agency remains 
responsible for assuring access to all covered services. In these 
cases, the MCO must inform beneficiaries in writing of its policies 
before and during enrollment. If the MCO changes its policies with 
regard to a specific counseling or referral service, the organization 
must provide written notification to enrollees within 90 days of the 
change.
    This provision is consistent with a similar provision on anti-gag 
rule provisions contained in the M+C regulation. In addition, this 
provision is consistent with the CBRR provision regarding participation 
in treatment decisions whereby all treatment options should be 
discussed between a provider and his or her patient.
3. Marketing Activities (Sec. 438.104)
    We currently require under Sec. 434.36 that each MCO have in its 
contract the methodology for assuring that marketing plans, procedures, 
and materials are accurate and do not mislead, confuse, or defraud 
either recipients or the Medicaid agency. Section 1932(d)(2) of the Act 
established by Section 4707(a) of the BBA further strengthens consumer 
protections and prohibits fraud and abuse by restricting marketing 
activities by managed care entities. Section 1932(d)(2) of the Act 
requires that marketing materials be distributed to the entire service 
area covered under contract and that marketing materials not be 
distributed without the prior approval of the State agency. Marketing 
materials may not contain false or materially misleading information. 
We propose to implement these BBA provisions and prohibit certain other 
marketing practices under Sec. 438.104.
    For the purposes of this regulation, we propose in Sec. 438.104(a) 
to define marketing materials as materials produced in any medium, by 
or on behalf of an MCE, used to communicate with individuals who are 
not its enrollees and which can reasonably be interpreted as intended 
to influence the individuals to enroll or reenroll in that particular 
MCE.
    a. Required Marketing Activities. In Sec. 438.104(b)(2)(ii) we 
propose to reflect the requirement in section 1932(d)(2)(B) of the Act 
that MCEs must distribute marketing materials to the entire service 
area in which they have contracts under sections 1903(m) or 1903(t)(3) 
of the Act.
    b. Prohibited Marketing Activities. In Sec. 438.104(b)(2) we 
propose to reflect the provision in section 1932(d)(2)(A)(i) of the Act 
that provides that prior approval from the State agency must be 
obtained before an MCE or any agent or independent contractor of the 
MCE distributes any marketing materials within any State. According to 
the last sentence in section 1932(d)(2)(A)(i) of the Act this prior 
approval requirement

[[Page 52036]]

was to take effect on a date specified by the Secretary in consultation 
with the State agency. Following such consultation, this requirement 
became effective on July 1, 1998. For purposes of this requirement, we 
define marketing materials in Sec. 438.104(a) as discussed above.
    In addition, we propose in Sec. 438.104(b) to implement the 
provision in section 1932(d)(2)(A)(i)(II) of the Act on the 
distribution by MCEs, or any agents, of marketing materials that 
contain false or materially misleading information by requiring that 
MCE contracts specify the methods by which compliance with this 
requirement is assured. Examples of misleading marketing information 
would be an assertion that the beneficiary must enroll with the MCE to 
get Medicaid benefits, or that the MCE is recommended or endorsed by 
HCFA.
    In Sec. 438.104(b)(2)(iv), we propose to reflect the prohibition in 
section 1932(d)(2) of the Act on the MCE or any agent attempting to 
influence enrollment with the MCE in conjunction with the sale of any 
other insurance.
    For example, the entity or independent contractor of such entity 
may not assert that a recipient will lose Medicaid benefits if he or 
she does not enroll in the entity's plan. Further, the entity or 
independent contractor may not claim that it is recommended or endorsed 
by us.
    In Sec. 438.104(b)(2)(iv), we propose to reflect the prohibition in 
section 1932(d)(2) of the Act on the MCE or any agent attempting to 
influence enrollment with the MCE in conjunction with the sale of any 
other insurance. We interpret this to mean that managed care entities 
may not entice a potential enrollee to join the MCE by offering the 
sale of any other type of insurance as a bonus for enrollment. However 
we invite comment on this provision since no legislative history is 
available to help determine if this interpretation is accurate. The 
conditions that we have prescribed to ensure accurate information for 
an informed beneficiary are set forth in Sec. 438.10 (discussed in 
section 1 above), which is referenced in Sec. 438.10.
    In Sec. 438.104(b)(2)(iii) we propose to reflect the requirement in 
section 1932(d)(2)(D) of the Act that MCEs comply with the information 
requirements set forth in Sec. 438.10 to ensure that each potential 
enrollee receives accurate oral and information in order that the 
potential enrollee can make an informed decision whether or not to 
enroll.
    In Sec. 438.104(b)(2)(v) we propose to reflect the prohibition in 
section 1932(d)(2)(E) of the Act barring an MCE, directly or 
indirectly, from conducting door-to-door, telephonic, or other ``cold 
call'' marketing of enrollment. MCEs and their employees are prohibited 
from conducting these marketing practices either by themselves 
(directly) or by using an agent, affiliated provider, or contractor 
(indirectly). This provision does not prohibit MCEs from engaging in 
other State approved activities, such as marketing at health fairs, 
procuring billboards, bus signs, or other broadcast advertising 
materials, and contacting in person, potential enrollees who request 
further information about the entity. However, it is the prerogative of 
the State agency to further limit marketing practices beyond those 
prohibited or required by federal law. Cold call marketing is defined 
in proposed Sec. 438.104(a) as any unsolicited personal contact with a 
potential enrollee by an employee, affiliated provider or contractor of 
the entity for the purpose of influencing enrollment with such entity. 
This would include such activities as a physician or other member of 
the medical staff or salesperson or other managed care entity, 
employee, or independent contractor approaching a beneficiary in order 
to influence the potential enrollees decision to enroll with a 
particular plan.
    c. Consultation in State agency approval of marketing materials. In 
Sec. 438.104(c) we propose to reflect the requirement in section 
1932(d)(2)(A)(ii) of the Act that State agencies provide for 
consultation with a Medical Care Advisory Committee (MCAC) in the 
process of reviewing and approving marketing materials. Currently, MCAC 
is listed in the regulations at Sec. 431.12. The current MCAC must 
include Board-certified physicians and other representatives of the 
health professions who are familiar with the medical needs of low-
income population groups and with the resources available and required 
for their care; members of consumers' groups that include Medicaid 
recipients and consumer organizations such as labor unions, 
cooperatives, consumer sponsored prepaid group practice plans, and 
others; and the Director of the Public Welfare Department or the Public 
Health Department, whichever does not head the Medicaid agency. State 
agencies do not have to use the current MCAC but can establish a new 
MCAC for consultation in reviewing and approving marketing material. If 
a new MCAC is established, it must be composed of the identical 
membership described above and in Sec. 431.12.
4. Liability for Payment (Sec. 438.106)
    In Sec. 438.106 we propose to reflect the requirement in section 
1932(b)(6) of the Act (enacted in section 4704(a) of the BBA), to 
require that MCOs must protect Medicaid beneficiaries from being held 
responsible for payment liabilities incurred by the MCO or by a health 
care provider with a contractual, referral, or other arrangement with 
the MCO. For example, if the MCO were to become bankrupt, the Medicaid 
enrollee would not have to assume responsibility for costs that the MCO 
was responsible for covering, nor any of the debts of the providers 
affiliated with the MCO. In addition, if the MCO fails to receive 
payment from the State agency, or if a provider fails to receive 
payment from the State agency or the MCO, the Medicaid enrollee cannot 
be held responsible for these payments. The Medicaid enrollee cannot be 
held responsible for payments to a provider in excess of the amount 
that he or she would have owed if the MCO had directly provided the 
service.
    We are requesting public guidance on the part of this provision 
that refers to beneficiary liability for payments to a provider ``in 
excess of the amount he or she would have owed.'' Other than nominal 
cost sharing, Medicaid law at section 1916 of the Act specifically 
prohibits States or plans from imposing additional cost sharing on 
Medicaid beneficiaries. We do not believe Medicaid beneficiaries would 
``owe'' an MCO any payment amounts beyond nominal costsharing.
5. Cost Sharing (Sec. 438.108)
    This section would reflect amendments made by section 4708(b) of 
the BBA, which amended sections 1916(a)(2)(D) and 1916(b)(2)(D) of the 
Act. As a result of these changes, the prohibition on cost-sharing for 
services furnished by MCOs has been eliminated. Copayments for services 
provided by MCOs, thus, may now be imposed in the same manner as 
copayments are applied under fee-for-service.
    Accordingly, State agencies should use their fee-for-service 
payment rates to serve as the basis for determining copayments that can 
be assigned for managed care services. State agencies would be allowed 
to impose copayment requirements to the same extent that they are 
allowed to impose copayment requirements on Medicaid beneficiaries not 
enrolled in MCOs. For example, State agencies would have the option of 
establishing a standard copayment amount for managed care services that 
is determined by applying the

[[Page 52037]]

maximum copayment amounts specified at Sec. 447.54 as applied to the 
State agency's fee-for-service payment for that service.
    In addition, any beneficiary groups excluded by law from having to 
pay copayments under fee-for-service would continue to be excluded from 
any copayment responsibility with respect to managed care services. 
These beneficiary groups include children, pregnant women, and 
institutionalized beneficiaries. Also prohibited are copayments for 
emergency services and family planning services.
6. Assurances of Adequate Capacity and Services (Sec. 438.110)
    Section 1932(b)(5) of the Act, added by section 4704(a) of the BBA, 
requires MCOs to provide to the State agency and the Secretary with 
adequate assurances, in a time and manner to be determined by the 
Secretary, that each organization, with respect to its service area, 
has the capacity to serve the expected enrollment in such service area. 
Section 1932(b)(5) of the Act also specifies that these assurances must 
demonstrate that each MCO offers an appropriate range of services and a 
sufficient number, mix, and geographic distribution of providers of 
services.
    Current regulations at Sec. 434.6(a)(2) and (5) require that all 
contracts, whether with health maintenance organizations, (now called 
MCOs), or PHPs, identify the population covered by the contract and 
allow for the State agency and HHS to evaluate through inspection or 
other means, the quality, appropriateness and timeliness of services 
performed under such contract. Under Sec. 434.50(b), a State agency is 
required to obtain proof, from each contractor, of the contractor's 
ability to provide the services under the contract efficiently, 
effectively, and economically. In addition, under Sec. 434.52, a State 
agency is required to obtain proof that each contractor furnishes the 
health services required by enrolled recipients as promptly as is 
appropriate, and that the services meet the agency's quality standards.
    In Sec. 438.110, we propose to add additional requirements that 
implement the provisions in section 1932(b)(5) of the Act, requiring 
MCOs to provide adequate assurances of their capacity and services. We 
propose to interpret ``adequate assurances'' referenced in section 
1932(b)(5) of the Act to require documentation of the adequacy of 
capacity and services in the service area, rather than simply a 
``certification'' to this effect.
    In Sec. 438.110(a), we propose a general requirement that each MCO 
submit documentation to the State agency and to us, demonstrating that 
it has the capacity to serve the expected enrollment in its service 
area. The nature and purpose of the documentation is further described 
in Sec. 438.110(b). In that paragraph, we provide that the 
documentation must address three requirements. These are: (1) that the 
MCO offers an appropriate range of services, including access to 
preventive services, primary care services, and specialty services for 
the anticipated number of enrollees in the service area; (2) that the 
MCO maintains a network of providers that is sufficient in number, mix, 
and geographic distribution; and (3) that the MCO meets the 
availability of services provisions in Sec. 438.306 of subpart E. While 
section 1932(a)(5)(A) of the Act refers only to ``preventive and 
primary care services'', we believe that access to specialty services 
is also critical. We accordingly have added specialty services in 
proposed Sec. 438.110(b)(1), in accordance with our authority under 
section 1902(a)(4) of the Act.
    Information that may be provided by an MCO to comply with the above 
requirements includes, but is not limited to, documentation that 
describes the expected enrollment by geographic location; a list of all 
of the primary, preventive and specialty care services to be provided 
by the MCO; the names, types, and geographic location of providers and 
specialists who will furnish the contracted services; the hours of 
operation for each MCO facility and provider site; the timeliness 
standards being observed by the MCO; a description of the MCO's plan 
for identifying and furnishing care to pregnant women; a description of 
the MCO's plan for identifying and assessing beneficiaries with serious 
or complex medical conditions; and the MCO's plan for assuring 
culturally competent services. These examples are not intended to be an 
exhaustive list or mandatory requirements. Rather, the State agency 
should tailor its own documentation requirements to assure itself that 
the MCO has demonstrated adequate capacity and services, and thereby 
has met the availability of services provisions outlined under proposed 
Sec. 438.306, discussed in section 4 below.
    In Sec. 438.110(c), we propose that the MCO submit the 
documentation described in Sec. 438.110(b) to the State agency no less 
than every 2 years, but also upon entering or renewing a contract with 
the State agency, and at any time when the State agency has determined 
that there has been a significant change in the MCO's delivery network 
or enrollee population. We emphasize with this requirement that the MCO 
must minimally submit the information described in Sec. 438.110(b) to 
the State agency at least every two years, even if the contract is in 
effect for a longer period. In addition, under this requirement, the 
State agency should have sufficient flexibility to determine whether or 
not the MCO has maintained adequate capacity in the event that there 
has been a significant change in the organization's delivery network or 
enrollee population.
    In Sec. 438.110(d), we propose that, following the State agency's 
review and any changes made to the documentation as a result of that 
review, the MCO submit to HCFA the same documentation it sent to the 
State agency. This provision is in accordance with BBA statutory 
language, which specifically requires that assurances be provided to 
the State agency and to HCFA. It is our expectation that the 
documentation submitted will be in an electronic format, when possible, 
and will include a summary of the contents of the documentation and an 
explanation of how each individual piece of the documentation relates 
to the availability of services provisions in Sec. 438.306 of subpart 
E.
    Our intent in proposing these provisions is not to supersede the 
State agency as the decision maker of whether or not the MCO has 
demonstrated adequate capacity and services. Rather, we propose in 
paragraph Sec. 438.110(d) that MCOs seek certification from the State 
agency before the organization submits documentation to us. This 
certification can be in a format decided upon by the State agency. 
However, the content should specify whether the MCO has demonstrated 
that it has sufficient capacity and services in accordance with the 
requirements of this section and Sec. 438.306 of subpart E.
7. Emergency and Post-Stabilization Services. (Sec. 438.114)
    Section 4704(a) of the BBA added section 1932(b)(2) to the Act to 
assure that Medicaid managed care beneficiaries have the right to 
immediately obtain emergency care and services and the right to post-
stabilization services following an emergency condition under certain 
circumstances. Each contract with an MCO and primary care case manager 
must require the organization to provide for coverage of emergency 
services and post-stabilization services as described below. In section 
1932(b)(2)(A)(i) of the Act, while Congress required primary care case 
managers and MCOs to provide coverage of emergency services,

[[Page 52038]]

it did not define the word ``coverage'' even though these health care 
models generally do not cover emergency services in the same manner. In 
proposed Sec. 438.114 we interpret the obligation in section 
1932(b)(2)(A)(i) of the Act to provide for coverage of emergency 
services to mean that an MCO that pays for hospital services generally, 
must pay for the cost of emergency services obtained by Medicaid 
enrollees. We interpret coverage in the primary care case management 
context to mean that the primary care case managers must allow direct 
access to emergency services without prior authorization. We apply 
different meanings to the word ``coverage'' because while primary care 
case managers are individuals paid on a fee-for-service basis, they 
receive a State payment to manage an enrollee's care. While primary 
care case managers, unlike MCOs, would not likely be involved in a 
payment dispute involving emergency services, they could be involved in 
an authorization dispute over whether a self referral to an emergency 
room is authorized without prior approval of the primary care case 
manager. Accordingly, we propose to provide in Sec. 438.114(d)(2) that 
enrollees of primary care case managers are entitled to the same 
emergency services coverage without prior authorization that is 
available to MCO enrollees under section 1932(b)(2) of the Act.
    The BBA further stipulates that emergency services must be covered 
without regard to prior authorization or the emergency care provider's 
contractual relationship with the organization. These provisions 
collectively enable a Medicaid enrollee to immediately obtain emergency 
services at the nearest provider when and where the need arises.
    Section 1932(b)(2)(B) of the Act defines emergency services as 
covered inpatient or outpatient services that are furnished by a 
provider qualified to furnish such services under Medicaid that are 
needed to evaluate or stabilize an emergency medical condition. 
Emergency medical condition is in turn defined in section 1932(b)(2)(C) 
of the Act as a medical condition manifesting itself by acute symptoms 
of sufficient severity (including severe pain) that a prudent 
layperson, who possesses an average knowledge of health and medicine, 
could reasonably expect the absence of immediate medical attention to 
result in placing the health of the individual (or with respect to a 
pregnant woman, the health of the woman or her unborn child) in serious 
jeopardy, serious impairment to body functions, or serious dysfunction 
of any bodily organ or part. While this standard encompasses clinical 
emergencies, it also clearly requires MCOs to base coverage decisions 
for emergency services on the severity of the symptoms at the time of 
presentation and to cover examinations when the presenting symptoms are 
of sufficient severity to constitute an emergency medical condition in 
the judgment of a prudent layperson. The above definitions are set 
forth in proposed Sec. 438.114(a).
    Section 1932(b)(2)(A)(ii) of the Act also provides MCE enrollees 
with the right to coverage of post-stabilization'' services after they 
have been ``stabilized'' (that is, they no longer have an emergency 
medical condition) following an admission for an emergency medical 
condition. Specifically, the services that must be covered are those 
that must be covered under Medicare rules implementing section 
1852(d)(2) of the Act, ``in the same manner'' as such rules ``apply to 
M+C plans offered under Part C of title XVIII.'' Under the last 
sentence in section 1932(b)(2)(A) of the Act, this requirement was 
effective 30 days after the Medicare rules were established, which was 
August 26, 1998. The M+C post-stabilization requirements referenced by 
section 1932(b)(2)(A)(ii) of the Act are set forth in proposed 
Secs. 438.114(a) and 438.114(c)(2), which define ``post-stabilization 
services'' and require that MCEs (including primary care case managers) 
with risk contracts that cover post-stabilization services must pay for 
such post-stabilization services. Specifically, Sec. 438.114(c)(2) 
requires that such MCEs must pay for post-stabilization services that 
are pre-approved by the MCE, or that have not been pre-approved because 
the MCE did not respond to a request for approval within 1 hour of a 
request by a provider, or could not be contacted for approval. Under 
Sec. 438.114(c)(3), the MCE must continue to pay for post-stabilization 
services until other arrangements for care are made and the provider of 
post-stabilization services is notified While such an MCE is required 
to pay for post-stabilization services, in proposed Sec. 438.114(c)(4) 
and (c)(5) we provided that an enrollee of a primary care case manager 
is entitled to obtain post-stabilization services under the same terms 
as an MCO enrollee, when they are approved by the primary care case 
manager, or when the primary care case manager cannot be reached or 
fails to respond to a request for authorization within one hour. Where 
post-stabilization services are not covered by the MCE risk contract, 
the State agency must pay for post-stabilization services that were 
requested and either approved by the MCE or not approved, due to 
untimely or absent response.
    ``Post-stabilization care'' means medically necessary, non-
emergency services needed to ensure that the enrollee remains 
stabilized from the time that the treating hospital requests 
authorization from the MCE until (1) the enrollee is discharged; (2) an 
MCE physician arrives and assumes responsibility for the enrollee's 
care; or (3) the treating physician and MCE agree to another 
arrangement. Because an untimely response to a request for approval 
would unduly delay the delivery of the post-stabilization care 
services, thereby potentially compromising their effectiveness, we have 
established a 1-hour timeframe in the regulation as an enrollee 
protection. Because a completely accurate assessment of an enrollee's 
need for post-stabilization care services cannot be made until the 
enrollee is stabilized, we expect that the provider of the post-
stabilization care services will not request the MCO's approval of the 
services until after the enrollee is stabilized, at which time enough 
details about the enrollee's condition should be known to allow the 
organization to make an informed decision on whether to approve the 
care within one hour.
    Sections 438.114(c)(2) and 438.114(d)(1) require that MCEs (or the 
State agency, under Sec. 438.114(c)(4)) pay for emergency and post-
stabilization services without prior authorization (other than the pre-
approval of post-stabilization services no later than within one hour 
of a request for approval).
    Proposed Sec. 438.114(d)(1) provides that an MCO must pay for 
emergency services regardless of whether the entity that furnishes the 
services has a contract with the MCO. Proposed Sec. 438.114(d)(2) 
provides that if a primary care case management contract is a risk 
contract that covers such services, a primary care case management 
system must allow enrollees to obtain emergency services outside of the 
primary care case management system.
    Proposed Sec. 438.114(e) further clarifies financial 
responsibility. In Sec. 438.114, MCOs may not deny payments if, on the 
basis of symptoms identified by the enrollee, he or she appeared to 
have an emergency medical condition, but turned out not to be a 
condition, in which the absence of immediate medical care would result 
in serious jeopardy to the health of the individual or, in the case of 
a pregnant woman, the health of her unborn child, serious impairment of 
bodily function, or serious dysfunction of any bodily organ

[[Page 52039]]

or part. Likewise, the MCO or primary care case manager cannot deny 
payment if the enrollee obtained services based on instructions of a 
practitioner or other representative of the MCO. Proposed 
Sec. 438.114(e)(2) also provides that the MCO is not responsible for 
services obtained outside the MCO unless the services are emergency 
services or post-stabilization services covered under 
Sec. 438.114(c)(2).
    Proposed Sec. 438.114(f) provides that the attending physician or 
practitioner actually treating the enrollee determines when the 
enrollee is sufficiently stabilized for transfer or discharge, and that 
this determination is binding on the MCO for coverage purposes.
    The above emergency provisions are consistent with most of the 
emergency services provisions in the M+C regulations. These regulations 
deviate from Medicare in two ways. First, the Medicare statute has 
specific provisions for non-emergency, but urgently needed services, 
while the Medicaid statute does not contain any similar references. 
Second, the primary care case management model is a delivery system 
unique to Medicaid; and there is no Medicare counterpart to the special 
rules described above that apply to primary care case manager 
enrollees. Also, it should be noted that the emergency provisions in 
Sec. 438.114 relate directly to, and are consistent with, the CBRR 
provision regarding access to emergency services. See discussion in 
section I above. The CBRR requires health plans to educate their 
members about the availability, location, and appropriate use of 
emergency services. It also requires plans to cover emergency screening 
and stabilization services both in and out of network without prior 
authorization consistent with the prudent layperson standard. The 
Medicaid regulations in Sec. 438.306 (network adequacy), Sec. 438.310 
(benefits information) as well as Sec. 438.114 address the CBRR issues.
8. Solvency Standards (Sec. 438.116)
    Section 4706 of the BBA amended section 1903(m)(1) of the Act by 
providing additional requirements for the solvency standards that an 
MCO must meet. Previously, MCOs had to make adequate provision against 
the risk of insolvency to the satisfaction of the State agency and 
provide that enrolled Medicaid beneficiaries were not held liable for 
the debts of the MCO in the case of insolvency. Now, under the BBA, 
unless they meet one of the exceptions noted below, MCOs must either 
meet the same solvency standards that the State agency establishes for 
its private HMOs or be licensed or certified by the State agency as a 
risk bearing entity. By meeting these standards, these MCOs are 
considered to have met the general solvency standards. However, this 
provision does not apply to MCOs that do not provide inpatient and 
physician services, are public entities, have solvency guaranteed by 
the State agency, or are federally qualified health centers (FQHCs) or 
are controlled by an FQHC that meets the solvency standards already 
established for such centers by the State agency. For further 
clarification, the term ``control'' (with respect to an MCO being 
controlled by an FQHC) means the possession, whether direct or 
indirect, of the power to direct or cause the direction of the 
management and policies of the MCO through membership, board 
representation, or an ownership interest equal to or greater than 50.1 
percent. These MCOs must still meet the general requirement that MCOs 
have to make adequate provision against the risk of insolvency to the 
satisfaction of the State agency and provide that Medicaid 
beneficiaries enrolled were not held liable for the debts of the MCO in 
the case of its insolvency.
    Under section 4710(b)(4) of the BBA, the new solvency requirements 
are applicable for MCO contracts entered into or renewed (that is, 
signed by both parties) October 1, 1998 or later. In addition, the 
requirements do not apply to fully capitated MCOs under contract as of 
the date of enactment of the BBA until 3 years after the date of 
enactment of the BBA, which is August 5, 2000. Proposed 
Sec. 438.116(c)(6) would reflect these effective dates.

D. Quality Assessment and Performance Improvement (Subpart E)

1. Background
    Prior to 1997, Medicaid law and regulations specified certain 
quality assurance requirements for HMOs subject to section 1903(m) of 
the Act. Section 434.34 required HMOs to have an internal quality 
assurance plan that met limited requirements. Section 434.53 required 
State agencies to conduct periodic medical audits of HMOs to ensure 
that each organization furnished quality and accessible health care to 
all Medicaid enrollees. Section 1902(a)(30)(C) of the Act further 
required State agencies to conduct, on an annual basis, an independent, 
external review of the quality of services furnished under each State 
agency contract with an HMO. Other requirements that were related to 
the quality of services included grievance procedures for beneficiaries 
enrolled in HMOs (Sec. 434.32), emergency medical services 
(Sec. 434.30), enrollee choice of health professional (Sec. 434.29), 
other State monitoring procedures (Sec. 434.63), and use of sanctions 
for HMO failure to provide medically necessary services resulting in an 
adverse effect on the enrollee (Sec. 434.67).
    Before enactment of the BBA, Medicaid law also included several 
proxy measures or indirect assurances relating to quality. The law 
required State agencies to contract with HMOs that met specific 
enrollment composition requirements (that is, at least 25 percent of a 
health plan's enrollment was to consist of persons not covered by 
Medicare or Medicaid) and required State agencies to establish solvency 
standards for HMOs serving Medicaid beneficiaries.
    Additional general provisions governing State Medicaid programs 
required State agencies to ensure that access and quality of services 
provided under managed care were comparable to those provided under the 
fee-for-service program. However, prior to the enactment of the BBA, 
neither the statute nor the regulations specified the specific methods 
or standards to support these assurances.
    HCFA and State agencies developed tools and interpretive guidance 
to provide more specific and standardized methods for quality assurance 
and improvement. As described above in the Overview of Medicaid Managed 
Care section, we developed ``A Health Care Quality Improvement System 
for Medicaid Managed Care--A Guide for States,'' as the product of the 
Quality Assurance Reform Initiative (QARI). Other technical assistance 
tools and guidance were developed subsequently.
    In 1996, HCFA undertook the Quality Improvement System for Managed 
Care (QISMC) initiative to accomplish several goals: (1) to update the 
1993 QARI guidelines; (2) to develop coordinated Medicare and Medicaid 
quality standards that would reduce duplicative or conflicting efforts; 
(3) to make the most efficient and effective use of recent developments 
in the art and science of quality measurement, while allowing 
sufficient flexibility to incorporate developments in this rapidly 
evolving discipline; and (4) to assist the Federal government and State 
agencies in becoming more effective ``value-based'' purchasers of 
health care for vulnerable populations. In developing QISMC, we worked 
with representatives from, and with tools developed by, health plans, 
State agencies, advocacy organizations, and experts in quality 
measurement and improvement such as the National Committee for Quality 
Assurance, the

[[Page 52040]]

Foundation for Accountability (FACCT) and the Joint Commission on the 
Accreditation of Healthcare Organizations. With the assistance of the 
experts and their products, we identified the approaches, tools and 
techniques that we believe would most effectively measure and improve 
health care quality in managed care both today and in the years to 
come. From the perspective of the Medicaid program, in developing 
QISMC, we have endeavored to balance the need to establish a high 
minimum threshold for entities interested in contracting with States 
agencies, with the desire to ensure that MCOs continually improve the 
quality of the care they provide.
    QISMC standards articulate a vision for how managed care will be 
provided that is consistent with the standards sought by other forward 
looking purchasers in the private and public sectors. An initial draft 
of QISMC was released for public input in January 1998, with further 
input sought through May 1998. An Interim QISMC document will be 
released this fall.
    The quality assurance provisions of the BBA espouse the same 
philosophy and goals for performance improvement as are reflected in 
QISMC. Accordingly, in implementing the BBA provision, we have drawn 
extensively upon the knowledge and expert guidance that informed the 
design of QISMC. These proposed regulations set forth actions that we 
view as necessary on the part of State agencies to fulfill the 
provisions of the BBA. The forthcoming QISMC ``interim'' document is 
comprised of standards, which will be consistent with the regulatory 
requirements on the State agencies in this proposed rule and on the 
health plans in the interim final rule for the M+C program, and 
additional implementation and monitoring guidelines. Should the 
standards in either of these regulations change as they are finalized, 
QISMC will similarly change as it moves from ``interim'' to ``final'' 
State agencies have the authority to develop their own approaches, 
which we will review and evaluate. While HCFA will not require State 
agencies to use the QISMC guidelines, we will consider MCO strategies 
that are based on QISMC to be in compliance with these proposed 
regulations that relate to the internal MCO quality activities. We 
believe that State agencies that use QISMC will be more effective 
business partners by using standards consistent with those of the 
Medicare program, and will be able to assure Medicaid beneficiaries and 
their advocates, and others, that the State agency is moving 
effectively to promote high quality care.
    It is in this context that we interpret and propose to implement 
the BBA provisions governing quality and beneficiary protections in 
Medicaid managed care. This preamble provides a general introduction to 
the following proposed regulations to implement section 1932(c)(1), 
which describes requirements for States' quality assessment and 
improvement strategies as applied to contracts with Medicaid managed 
care organizations (MCOs).
2. Overview of State Strategies
    Under section 1932(c)(1) of the Act, as added by section 4705(a) of 
the BBA, each State agency that elects to furnish services to Medicaid 
beneficiaries through an MCO must develop and implement a quality 
assessment and performance improvement strategy to ensure that 
beneficiaries have access to and receive quality health care and other 
services related to quality. This requirement applies whether the 
arrangement is mandatory or voluntary. Prior to the BBA, the Medicaid 
statute included a number of disjointed, incremental provisions 
addressing quality. Additionally, some of these provisions were 
duplicative (for example, the regulatory requirement at Sec. 434.53 for 
periodic audits of managed care plans by State agencies and the 
requirement that HMOs receive an external review of quality from an 
agent of the State found in section 1902(a)(30)(C) of the Act). In 
addition, regulatory provisions had failed to allow for improvements in 
the technology of measuring and improving quality (for example, use of 
performance measures and consumer surveys). As a consequence, it was 
unclear how the various statutory and regulatory requirements were to 
fit together to effectively and efficiently ensure (and where 
appropriate improve) quality. This uncertainty potentially placed 
Medicaid beneficiaries at risk for not having the strongest possible 
oversight of their health care.
    Limits to available resources in both the public and private 
sectors for quality of care measurement and improvement also increase 
the importance of the efficient and effective use of quality oversight 
tools through well-considered, coordinated strategies. Since it is not 
possible for any quality oversight system to measure every episode of 
care furnished to any particular patient or all patients (consumers), 
it is very important for the quality oversight tools employed by any 
health care delivery system to be utilized in a way that maximizes 
their efficiency and effectiveness. For the first time, Medicaid law, 
in section 1932(c)(1)(A) of the Act, requires that each State Medicaid 
program design and implement an overarching quality assessment and 
performance improvement strategy designed to address the effectiveness 
of its managed care program. Under section 1932(c)(1)(B) of the Act, 
this strategy must be ``consistent with standards'' that we establish 
in regulations. Subpart E of part 438 contains the HCFA standards 
established pursuant to section 1932(c)(1)(B) of the Act. We believe 
that the quality assessment and performance improvement strategy 
developed by each State agency should be used as a tool to ensure that 
contracts with MCOs are effective in delivering quality health care 
services. Through the use of its quality strategy, each State agency 
has a mechanism to use in planning for the effective and efficient use 
of the multiple tools for quality assessment and improvement that are 
being produced in the public and private sectors. Each State agency 
must also ensure that the State strategy it develops is comprehensive 
in nature and provides for the coordinated, efficient delivery of 
quality health care. Therefore, it is each State agency's 
responsibility to continually review its quality strategy, and to work 
collaboratively with its MCOs and other stakeholders in order to ensure 
that it is functioning effectively and is meeting the goal of the State 
agency.
    Under our proposed regulations, discussed in greater detail below, 
each State strategy would at a minimum be required to include various 
program standards, including access, structure and operations, and 
quality measurement and improvement standards for managed care 
organizations. Each State strategy would be required to ensure, through 
its access standards, that MCOs have a health care delivery system in 
place that can provide enrollees with available and appropriate 
services, including additional or supplemental services not provided 
directly by the MCO. We are also proposing that standards must be 
developed to ensure that the MCO's delivery network ensures access to 
covered services, as in Sec. 438.306. Such standards would be required 
to assess whether the MCO has a sufficient volume of providers to 
ensure adequate access to services, whether the MCO provides adequate 
access to medically appropriate speciality care, and that services are 
provided in a timely and culturally competent manner. In addition, as 
discussed above, each State agency is required by statute to ensure 
that beneficiaries are given a choice of

[[Page 52041]]

managed care entities, with limited exceptions as discussed in 
Sec. 438.52.
    As part of the access standards we are proposing, each State agency 
would be required to ensure that all covered services are available and 
accessible to enrollees. Through its contracts with MCOs, State 
agencies must ensure that MCOs meet standards relating to continuity of 
care and coordination of services as specified in proposed 
Sec. 438.308, discussed below. The contracts would also be required to 
include descriptions of the benefits that an MCO would provide, as well 
as the processes for prior authorization, grievances, and appeals 
(proposed Sec. 438.310).
    Each State strategy would also be required to include standards 
related to aspects of how a managed care organization is structured and 
operated that directly relate to quality of care; for example, each MCO 
would be required to implement a documented process for selection and 
retention of affiliated providers, as specified in proposed 
Sec. 438.314. These standards would also address aspects of a State 
agency's contract with an MCO that must be in place to ensure that 
beneficiaries receive quality health care, and that beneficiaries are 
afforded certain protections with respect to the care and services they 
receive. Therefore, the State strategy would have to include standards 
for the information that will be provided to enrollees and others 
regarding all available MCOs (as specified in proposed Sec. 438.318), 
written policies with respect to an enrollee's rights within the MCO 
(as specified in proposed Sec. 438.320), standards relating to the 
enrollment and disenrollment processes for enrollees in MCOs (in 
accordance with proposed Sec. 438.326), confidentiality of enrollee 
health information within MCOs (as specified in proposed Sec. 438.324), 
and adherence to established grievance systems, established as 
specified in the proposed subpart F of this part. Finally, each State 
agency would be required to ensure that each MCO, as specified in 
proposed Sec. 438.330 oversees and is accountable for any functions or 
responsibilities that the MCO delegates to any subcontractor.
    In addition to access, structure, and operational standards, each 
State strategy would be required to include measurement and improvement 
standards to ensure that each MCO undertakes and reviews a quality 
assessment and performance improvement program and maintains a health 
information system capable of achieving the objectives of this subpart.
    Section 1932(c)(1)(A)(iii) of the Act requires that the State 
agency's quality assessment and improvement strategy include procedures 
for monitoring and evaluating the quality and appropriateness of care 
and services to enrollees that reflect the full spectrum of populations 
enrolled under an MCO's contract. This subpart of the proposed rule 
proposes minimum procedures that the State agency would be required to 
use when monitoring and evaluating each MCO.
    The annual, external independent review of each MCO required by 
section 1932(c)(2) of the Act, as created by section 4705 of the BBA, 
will also serve as an essential component of the State agency's plan 
for monitoring and evaluating each MCO. The provisions in section 
1932(c)(2), however, will be implemented in separate rulemaking in the 
near future. In the interim, before this separate rulemaking is 
finalized, State agencies must continue to provide for an annual, 
external independent review of the quality of care provided by each 
MCO, as required by section 1902(a)(30)(C) of the Act.
    Essential to the successful implementation of the State strategy is 
a system capable of collecting and analyzing all necessary data. 
Therefore, the State agency would be required under this proposed rule 
to establish a data system sufficient to support its strategy.
3. Review of State Agency Strategies
    After each State agency has developed its quality strategy, it 
would be required under this proposed rule to review the entire 
strategy to ensure the effectiveness of the overall State level program 
at achieving its desired results. It is important for the State agency 
to review each component of the strategy as well as the entire strategy 
to ensure that quality care is being delivered to beneficiaries and 
that performance improvement is occurring. Under this proposed rule, it 
would be the State agency's responsibility to specify the goals and 
desired results for its quality strategy and to ensure that these goals 
and desired results are being met. The reviews of the State strategy 
would be conducted on a regular and periodic basis as determined by 
each State agency to be appropriate, but no less frequently than every 
3 years. The frequency should be determined by the State agency with 
input from enrollees and their advocates, managed care organizations, 
and other stakeholders with respect to the State's progress towards 
meeting its desired outcomes.
    Enforcement of the requirements of the State strategy will be at 
least as important as the development and review of the strategy. As 
State agencies develop their enforcement strategies, HCFA encourages 
them to recognize that technical assistance to plans may be necessary 
to help them meet performance goals. HCFA encourages State agencies to 
provide such technical assistance and to be flexible as they work with 
plans of different types to meet the standards. Therefore, the 
regulation does allow for the imposition of sanctions. As specified in 
proposed subpart I of this part, State agencies are required under the 
BBA to establish a process for imposing intermediate sanctions against 
MCOs. There are different types of intermediate sanctions outlined in 
subpart I. We encourage State agencies to use these intermediate 
sanctions or to develop their own. In addition, State agencies have the 
authority under section 1932(e)(4) of the Act (implemented in proposed 
Sec. 438.718) to terminate an MCO's contract, if the MCO no longer 
meets the applicable requirements of sections 1903(m), 1905(t)(3) or 
1932 of the Act. Therefore, termination of an MCO's contract could 
occur if the MCO no longer meets the specifications of the State 
strategy, as specified in this subpart. Finally, section 
1903(m)(2)(A)(xi) of the Act required that MCOs comply with applicable 
requirements in section 1932 of the Act, as a condition for Federal 
matching in the MCO's contract, as discussed below. See discussion of 
Sec. 438.306, below. A failure by an MCO to comply with State 
requirements established pursuant to the proposed regulations in 
subpart E could also result in a disallowance of Federal matching in 
the MCO's contract.

Proposed Provisions of Subpart E

4. Scope (Sec. 438.300)
    This section sets forth the scope of subpart E.
5. State Responsibilities (Sec. 438.302)
    This section sets forth the State responsibilities in implementing 
its quality strategy. Specifically, proposed Sec. 438.302 would require 
that each State agencies that contracts with an MCO have a strategy for 
assessing and improving the quality of managed care services provided 
by the MCO, ensure compliance with standards established by the State 
agency, consistent with subpart E, and conduct regular, periodic 
reviews to evaluate the effectiveness of its strategy, as the State 
agency determines appropriate, but at least every 3 years. We selected 
3 years as the maximum interval for review and evaluation of State 
strategies, because

[[Page 52042]]

the field of quality is evolving at a fast pace, and State agencies, 
working with input from advocates, managed care organizations, quality 
experts and others, need to reevaluate their strategies in light of new 
developments and changing priorities.
6. Elements of State Quality Strategy (Sec. 438.304)
    This proposed section sets forth the minimum elements of a State 
quality strategy, including (1) contract provisions that incorporate 
the standards specified in subpart E; (2) Procedures for assessing the 
quality and appropriateness of care and services furnished to all 
Medicaid enrollees under the contract, including, but not limited to, 
continuous monitoring and evaluation of MCO compliance with the 
standards; (3) arranging for annual, external independent reviews of 
quality outcomes, and timeliness of, and access to, services covered 
under each MCO contract; (4) appropriate use of intermediate sanctions; 
(5) an information system sufficient to support initial and ongoing 
operation and review of the State's quality strategy; and (6) 
standards, at least as stringent as those required under proposed 
Secs. 438.306 through 438.342. With regard to external independent 
review, we will shortly promulgate proposed regulations addressing the 
External Quality Review Organizations, as required by the BBA.
    In developing a strategy, we would expect that State agencies will 
work with beneficiaries and their advocates, quality experts, managed 
care organizations, and other stakeholders to develop performance goals 
that are clear, fair, and achievable.

Access Standards

7. Availability of Services (Sec. 438.306)
    a. Scope. Section 1932(c)(1)(A)(i) of the Act, as added by section 
4704 of the BBA, requires State agencies that contract with MCOs under 
section 1903(m) of the Act to develop a quality assessment and 
improvement strategy that includes standards for access to care so that 
all covered services are available within reasonable timeframes and in 
a manner that ensures continuity of care, adequate primary care, and 
specialized services capacity.
    b. Choice. As part of the State quality assessment and improvement 
strategy, if a State agency limits freedom of choice, the State agency 
must comply with the requirements of Sec. 438.52, discussed in section 
II.D.2. above, which specifies the choices that the State agency must 
make available.
    c. Access to Services not Covered Under Contract. Under proposed 
Sec. 438.306(c), if an MCO contract does not cover all services under 
the State plan, the State agency must arrange for those services to be 
made available from other sources and instruct all enrollees on where 
and how to obtain them, including how transportation is provided.
    d. Delivery Network. Current regulations at Sec. 434.6(a) require 
that contracts include provisions that define a sound and complete 
procurement, identify the population covered under the contract, and 
specify the amount, duration, and scope of medical services to be 
provided. They also provide that the State agency and HHS may evaluate 
through inspection or other means, the quality, appropriateness, and 
timeliness of services performed under the contract. In Sec. 434.50(b) 
of those same regulations, a Medicaid agency must obtain proof from 
each contractor of its ability to provide services under the contract 
efficiently, effectively, and economically. Section 434.52 further 
requires the State agency to obtain proof that each contractor 
furnishes the health services required by enrolled recipients as 
promptly as is appropriate, and that the services meet the State 
agency's quality standards.
    In Sec. 438.306(d), we propose new requirements, pursuant to 
section 1932(c)(1)(B) of the Act and in accordance with the 
requirements in section 1932(c)(1)(A)(i) of the Act, to ensure that all 
covered services under a contract are available and accessible to 
enrollees. These requirements are imposed on State agencies, which in 
turn must enforce these requirements on MCOs.
    In Sec. 438.306(d)(1), we propose that the State agency require all 
MCOs to maintain and monitor a network of appropriate providers that is 
supported by written arrangements and is sufficient to provide adequate 
access to covered services. This requirement is more detailed than the 
M+C regulation. This specificity was included to ensure that State 
agencies and MCOs fully consider all components when determining 
adequate access. In this context, adequate access generally means that 
all contracted services, other than out-of-area emergency care 
services, are available within the MCO's network (which generally 
consist of employees and facilities of the MCO, and providers who have 
entered into written agreements to serve the MCO enrollees).
    In proposing this requirement, we recognize that there are some 
circumstances that would justify contracts with providers outside of 
the approved service area. As an example, a comprehensive MCO operating 
solely in a non-metropolitan area may make a particular service, which 
is not a primary care or an emergency care service, available outside 
the area if it is unable to contract with a sufficient number of 
speciality providers within the area. As another example, an MCO may 
contract with a provider outside of its service area if, for reasons of 
geography, it would be easier for some of its enrollees to reach that 
provider than it would be for them to reach a comparable provider 
located within the service area.
    Because the enrollees' specific needs, the types of providers used 
by an MCO to meet those needs, and other factors, such as availability 
of public transportation, will vary for each MCO, we are not proposing 
a single set of fixed guidelines for all populations and circumstances, 
such as prescribed primary physician/enrollee ratios. Rather, we 
propose that the State agency set its own standards for MCOs serving 
specific areas and populations within its State, and that the State 
agency ensure that those Statewide standards are met by all MCOs with 
which it contracts. However, standards or ranges of standards that are 
currently used are referenced in subsequent paragraphs as examples that 
State agencies may consider. The proposed rule anticipates that State 
agencies will take responsibility for ensuring that MCOs assess the 
needs of the populations they enroll and provide or arrange a network 
that will meet those needs. The State agency's review should focus on 
the MCO's service planning and on the organization's basic assumptions 
for determining that its network is ready to serve Medicaid enrollees 
in a given area.
    We propose in Sec. 438.306(d)(1)(i) and (d)(1)(ii) that the State 
agency's assessment ensure that the MCO's network reflects the 
anticipated enrollment in the MCO, with particular attention to 
children and pregnant women, and the expected utilization of services. 
This includes the aggregate number of providers needed, and their 
distribution among different specialities; keeping in mind that numbers 
and types will vary according to the MCO's projected population in 
terms of age, disability, and prevalence of certain conditions. 
Expected utilization may also be affected by practice patterns within 
an MCO, such as the rate of referrals for specific services.
    Under Sec. 438.306(d)(1)(iii), and (d)(1)(iv), the State agency's 
assessment must ensure that each MCO take into

[[Page 52043]]

consideration the numbers and types of providers needed to furnish 
contracted services and the number of providers who are not accepting 
new patients. The numbers of providers needed to meet an expected level 
of demand for service may be based on national norms (such as typical 
patient/physician ratios) or on the MCO's past experience. For example, 
population-to-primary provider ratios in the range of 1500:1 to 2500:1 
have been used to represent adequate staffing levels both in federal 
health programs such as the Department of Health and Human Services' 
Health Resources and Services Administration, and individual States.
    If more than one type of provider is qualified to furnish a 
particular item or service, the State agency should ensure that the 
MCO's standards define the types of providers to be used, and ensure 
that those standards are consistent with State laws requiring such 
organizations, when applicable, to make specific types of providers 
available. Simple counts of providers, or even providers reportedly 
accepting new patients, are insufficient to establish capacity. Rather, 
the assessment of capacity necessarily should consider the volume of 
services being furnished to patients other than the MCO's enrollees.
    In terms of assessing geographic access, we propose in 
Sec. 438.306(d)(1)(v) that the State agency ensure the MCO's network is 
structured in a way that considers the geographic location of providers 
and enrollees, including such factors as distance, travel time, and the 
means of transportation normally used by enrollees. In addition, we 
propose with this requirement that State agencies and MCOs take into 
consideration the physical access of facilities for enrollees with 
disabilities. A provider network should be structured in a manner so 
that an enrollee residing in the service area should not have to travel 
an unreasonable distance, beyond what is customary under a Medicaid 
fee-for-service arrangement, to obtain a covered service. This standard 
is required under section 1903(m)(1)(A) of the Act and the definition 
of MCO in proposed Sec. 438.2. In areas where Medicaid enrollees rely 
heavily on public transportation, the State agency should ensure that 
the MCO's network is structured so that providers are accessible 
through these means within the same timeframes as enrollees who have 
their own means of transportation (unless the MCO ensures access 
through alternative means, such as home visits). Additionally, State 
agencies and MCOs should consider whether or not facilities are 
physically accessible when reviewing the MCO's delivery network. 
Enrollees with disabilities should have an appropriate choice of 
accessible providers.
    In proposing Sec. 438.306(d)(1)(v), we recognize that standards 
vary across States with respect to geographic access. Some State 
agencies contracting with MCOs have established maximum travel and 
distance times that include a 30 minute travel time standard. (This 
standard is used currently by the Health Resources and Services 
Administration in defining rational primary care service areas.) Other 
State agencies have established alternative standards such as a 10 to 
30 mile travel distance, depending on the local terrain. Both are 
examples of geographic access standards that would comply with this 
provision. For instance, a State agencies could require that all 
primary care services and commonly-used speciality and referral 
services be available within 30 minutes driving time or bus time from 
any point in the service area, with possible exceptions for certain 
rural areas or other low-population/low-density areas where residents 
customarily travel greater distances to obtain specialty and referral 
services.
    In Sec. 438.306(d)(2), we are proposing that the State agency be 
required to ensure that MCOs allow women direct access to a women's 
health specialist within the MCO's network for women's routine and 
preventive services. We have determined that this is necessary in order 
to provide ``access * * * in a manner that ensures * * * adequate * * * 
specialized services'' as required under section 1932(c)(1)(A)(i) of 
the Act. This requirement is proposed in addition to requirements under 
Sec. 438.308 that the MCO maintain a primary care provider for each 
enrollee. It allows a woman to directly access a women's health 
specialist within the MCO's network without the need for prior 
authorization from her primary care provider. In this context, a 
women's health care specialist may include a gynecologist, a certified 
nurse midwife, or another qualified health care professional. Our 
primary intent in proposing this requirement under the authority of 
section 1932(c)(1)(B) of the Act, and in accordance with the above 
requirements in 1932(c)(1)(A)(i)of the Act, is to provide women with 
what we believe to be necessary access to an appropriate provider for 
women's routine and preventive services. This is also consistent with 
beneficiary rights recommended in the CBRR, as discussed in section I. 
above.
    In Sec. 438.306(d)(3), we are proposing that the State agency 
ensure the MCO, if seeking an expansion of its service area, 
demonstrate that it has sufficient numbers and types of providers to 
meet the anticipated additional volume and type of services the added 
enrollee population may require. Similar to Sec. 438.306(d)(1)(i) 
through (d)(1)(v), the State agency should ensure that each MCO, in 
demonstrating the sufficiency of the numbers and types of providers 
available, take into consideration the anticipated enrollment, the 
expected utilization of services, the numbers and types of network 
providers who are not accepting new patients, and the geographic 
location of providers and enrollees.
    In Sec. 438.306(d)(4), we are proposing that the State agency 
ensure each MCO demonstrates that its providers are credentialed as 
described in Sec. 438.314. We propose this paragraph to apply to all 
providers, including subcontracted providers. Thus, as an example, if 
an MCO's provider subcontracts allow such providers to enter into sub-
subcontracts with other providers for services to Medicaid enrollees, 
either the MCO or its subcontractor should determine that each sub-
subcontractor is appropriately qualified and is not excluded in any way 
from participation in the Medicaid or Medicare programs.
    In Sec. 438.306(d)(5), we are proposing that, when medically 
appropriate, the State agency ensure that each MCO make services 
available and accessible 24 hours a day, 7 days a week. This applies, 
at a minimum, (1) to emergency services and post-stabilization 
services, and (2) to non-emergency services that are required 
immediately because of an unforeseen illness.
    In Sec. 438.306(d)(6), we are proposing that the State agency 
require MCOs to ensure that provider hours of operation are convenient 
to enrollees and do not discriminate against Medicaid enrollees. 
Because of varying enrollee needs, the types of providers used by an 
MCO to meet those needs, and other factors specific to each MCO, we are 
not proposing a single set of fixed guidelines for hours of operation. 
Rather, the State agency should ensure that the MCO assess the needs of 
the population it proposes to enroll and require that the MCO's network 
have hours of operation that meet those needs. In addition, the State 
agency should ensure that the MCO's provider network does not have 
different hours of operation for the organization's Medicaid enrollees 
than those offered for other non-Medicaid patients. A Medicaid enrollee 
should have the same opportunity to be seen by the provider as non-
Medicaid patients.

[[Page 52044]]

Provision of Services

    In Sec. 438.306(e), we are proposing requirements, consistent with 
section 1932(c)(1)(A)(I) of the Act, to require State agencies to 
ensure that all MCOs comply with the requirements of this section, 
governing the provision of services.
    In Sec. 438.306(e)(1)(i), we are proposing that the State agency 
require each MCO to meet, and require its providers to meet, State-
established standards, required under proposed Sec. 438.304(f) as part 
of the State's quality strategy, for timely access to care and member 
services, taking into account the urgency of need for services. Under 
this requirement, the State agency should ensure that the MCO establish 
timeliness standards for appointments. Such standards should include 
criteria for the classification of requests for services by level of 
urgency and should take into consideration in-office waiting times for 
each type of service, the immediacy of member needs, and common waiting 
times for comparable services in the community. An example of 
timeliness standards for primary care services (and which is reflective 
of many existing managed care contracts) includes: urgent but non-
emergent care provided within 24 hours; non-urgent but symptomatic care 
in need of attention provided within 1 week; and routine and preventive 
care provided within 20 days.
    In Sec. 438.306(e)(1)(ii) and (e)(1)(iii), we are proposing that 
the State agency require the MCO to establish mechanisms to ensure 
compliance, and monitor continuously for compliance. Examples of tools 
for monitoring might include a member survey; analysis of member 
complaints and grievances; provider self-reports of appointment and in-
office waiting times that are supplemented with random calls or audits; 
and for the MCO's own services, test calls and ongoing monitoring of 
telephone abandonment rates (the percentage of callers who terminate a 
call before reaching an MCO representative.) The MCO's work in this 
area should evaluate access and availability for all services the 
organization is responsible for providing under its contract. Thus, as 
an example, the State agency should ensure that an MCO does not base 
its monitoring solely on general surveys of its enrolled population 
that do not yield information on availability of specialty or other 
services, or that do not provide a sufficient sample of enrollees 
requiring such services.
    We also propose in Sec. 438.306(e)(1)(iv) that the State agency 
ensure that each MCO take corrective action if there is a failure to 
comply. With this requirement, the State agency should ensure that the 
MCO not only initiates a corrective action plan, but also includes a 
process for assessing the effectiveness of the corrective action. For 
example, if a problem of minimum compliance arises that applies to an 
entire service type or specialty, a potential corrective action might 
be that the MCO proposes to expand its facilities or provider network. 
If the problem involves a specific provider, the MCO might instead 
propose, as part of its corrective action, that it close off the 
provider to new enrollees or, in the alternative, monitor the provider. 
We emphasize here that the MCO should not aim toward merely complying 
with the State agency's minimum standards but rather promote its own 
continuous quality improvement above and beyond those minimum 
standards.
    Incorporated in all four provisions of Sec. 438.306(e)(1) is the 
affirmative requirement that MCOs make affiliated providers aware of 
the timeliness standards and have in place mechanisms for complying. As 
an example, for primary care providers, an MCO could obtain 
documentation of backup arrangements for vacations and other absences, 
and ensure that backup providers are familiarized with MCO's 
procedures, such as approval requirements for referral services. As 
another example, an MCO could have in place standards for 
responsiveness of member services' telephone lines that include, but 
are not limited to, standards specifying minimum average waiting times 
to reach a non-recorded voice and standards that take into account the 
likelihood that such members may not have access to touch-tone systems 
and may be using telephones outside their residences.
    In Sec. 438.306(e)(2), we are proposing that the MCO must provide 
an initial assessment of each enrollee's health: (1) within 90 days of 
the effective date of enrollment for each enrollee, and (2) within some 
shorter period of time, specified by the State agency, for pregnant 
women and enrollees with complex and serious medical conditions. The 
intent of Sec. 438.306(e)(2)(i) is to ensure that all enrollees, and 
not just pregnant women or individuals with complex and serious medical 
conditions, receive a baseline health risk assessment. A variety of 
assessment tools may be used to meet this requirement; however, a 
baseline health risk assessment must be completed for each enrollee 
within 90 days from his or her effective date of enrollment. In 
addition, for pregnant women and individuals with complex or serious 
medical conditions, the MCO must complete a baseline assessment in a 
shorter period of time than 90 days, as specified by the State agency, 
to ensure that these vulnerable population groups receive timely and 
appropriate care.
    In Sec. 438.306(e)(3), we propose that the State agency ensure that 
MCOs have procedures in place that have been approved by the State 
agency, so that the MCO: (1) timely identifies and furnishes care to 
pregnant women; (2) timely identifies individuals with complex and 
serious medical conditions, assesses the conditions identified and 
identifies appropriate medical procedures to address and monitor them; 
and (3) implements treatment plans that: are appropriate for the 
conditions identified and assessed in Sec. 438.306(e)(3)(ii), are for a 
specified time period, specify an adequate number of direct access 
visits to specialists as required by the plan, and are updated 
periodically by the physician responsible for overall coordination of 
the enrollee's health.
    ``Enrollees with complex and serious medical conditions'' generally 
refers to enrollees with serious or multiple medical conditions, 
whether they be physical-health, mental-health, or substance-abuse-
related in nature. Health risk assessment tools should be utilized by 
the MCO at the time of enrollment to identify pregnant women and 
individuals with complex or serious medical conditions and to ensure 
that all enrollees are provided with continuous and seamless health 
care. We emphasize that treatment plans for individuals with complex 
and serious medical conditions must be time-specific and be updated 
periodically by the physician responsible for the enrollee's overall 
health care.
    Our intent, in proposing Sec. 438.306(e)(3)(ii), and (e)(3)(iii) is 
to ensure that, under BBA authority, Medicaid enrollees with complex 
and serious medical conditions have the ability to directly access 
specialists within the network for an adequate number of visits under a 
plan of treatment. This is explicitly intended to encompass the right 
to access specialists as set forth in the CBRR. Examples include, but 
are not limited to, a female patient under an approved treatment plan 
with metastatic breast cancer who is referred to a specialist within 
the network for a course of chemotherapy; a multiple sclerosis patient 
under an approved treatment plan with a sacral decubitus who is 
referred to a specialist within the network for surgical debridement 
and wound care; or a

[[Page 52045]]

situationally depressed patient under an approved treatment plan who is 
referred to a specialist within the network for a course of 
psychotherapy.
    In Sec. 438.306(e)(4), we are proposing that the State agency 
ensure that each MCO provide services in a culturally competent manner, 
including at least satisfying the language requirements in 
Sec. 438.10(b). This requirement is proposed here because of our 
recognition that more than half of Medicaid program beneficiaries are 
members of a racial or ethnic minority group. We know that managed care 
organizations and advocates have made great strides in developing 
culturally competent approaches and would expect a State agency to work 
with them and others in setting its standards. Accordingly, State 
agencies should ensure that MCOs identify significant sub-populations 
within their enrolled population that may experience special barriers 
in accessing health services such as the homeless or enrollees who are 
part of a culture with norms and practices that may affect their 
interaction with the mainstream health care system. State agencies 
should ensure that MCOs make continued efforts to improve accessibility 
of both clinical and member services for these specific groups.
    Cultural competency requires awareness of the culture of the 
population being served. Therefore, in order to ensure services are 
provided in a culturally competent manner, State agencies should 
require MCOs to give racial and ethnic minority concerns full attention 
beginning with their first contact with an enrollee, continuing 
throughout the care process, and extending afterwards when care is 
evaluated. Translation services must be made available when language 
barriers exist, including the use of sign interpreters for persons with 
hearing impairments and the use of braille for persons with impaired 
vision. Further, for each racial or ethnic minority group, the MCO's 
network should include an adequate number of providers, commensurate 
with the population enrolled, who are aware of the values, beliefs, 
traditions, customs, and parenting styles of the community. This 
awareness includes, but is not limited to, a provider being cognizant, 
among other things, of the importance of non-verbal communication, the 
recognition of specific dietary customs unique to certain populations, 
and the existence of folk medications or healing rituals that may be 
used by an enrollee. In addition, cultural competence requires network 
providers to have knowledge of medical risks enhanced in, or peculiar 
to, the racial, ethnic, and socioeconomic factors of the populations 
being served. Accordingly, MCOs should have accurate epidemiological 
data from which to form appropriate education, screening, and treatment 
programs.
8. Continuity of Care (Sec. 438.308)
    Current regulations at part 434, Contracts, do not contain specific 
requirements governing continuity of care. Rather, Sec. 434.52 requires 
that the State agency obtain assurances from each contractor that it 
furnishes the health services required by an enrolled recipient as 
promptly as is appropriate; and that the services meet the agency's 
quality standards.
    In accordance with section 1932(c)(1)(A)(i) of the Act we are 
proposing requirements in Sec. 438.308 to ensure that a State agency 
requires MCOs to maintain continuity of care for its enrollees. For 
MCOs, Sec. 438.308(a) requires that MCOs have in place and adhere to 
written policies that provide each enrollee with an ongoing source of 
primary care appropriate to the enrollee's needs, and a health care 
practitioner who is formally designated as primarily responsible for 
coordinating the enrollee's overall health care. It also requires MCOs 
to specify in their policies whether coordination is provided by the 
enrollee's primary care provider or a different practitioner.
    Traditionally, many health maintenance organizations and similar 
entities have used a gatekeeper model, under which the enrollee's usual 
source of primary care serves as the entry point for all other medical 
care services (often a distinct entry point was established for mental 
health and substance abuse services). While this model is still quite 
common, some MCOs have systems under which a health care professional 
other than the enrollee's usual source of primary care, such as a case 
manager, coordinates services. Whether or not the MCO uses a gatekeeper 
model, a single health care professional, or a team of health care 
professionals, a designated person or team of persons must have primary 
responsibility for evaluating the enrollee's needs, recommending and 
arranging the services required by the enrollee, and facilitating 
communication and information exchange among the different providers 
treating the enrollee. If this person or team is not the enrollee's 
primary care provider, the State agency should ensure that the MCO make 
every effort to promote a relationship between the enrollee and the 
primary care provider, since an ongoing relationship with the usual 
source of primary care plays an important role in promoting continuity 
and quality of care.
    In meeting the requirements of Sec. 438.308(a)(1), the MCO may 
establish different mechanisms for different types of enrollees. Care 
of most enrollees might be coordinated by the primary care provider, 
while a case manager may coordinate care of enrollees with complex 
needs, chronic illnesses, or functional disabilities. Additionally, an 
MCO may provide for separate coordination of physical health services 
and of mental health and substance abuse services. In these instances, 
the State agency should ensure that the MCO has procedures to ensure 
the exchange of necessary information between physical health providers 
and mental health and substance abuse providers (for example, with 
respect to prescribed medications).
    In proposing Sec. 438.308(a)(2), we acknowledge the fact that, 
although primary care is ordinarily furnished by general practitioners, 
family practitioners, pediatricians, and internists, an MCO may 
determine that it is appropriate for some enrollees to obtain routine 
care from a specialist. This may be particularly true with enrollees 
with complex or serious medical conditions.
    In Sec. 438.308(b), we are proposing that the State agency ensure 
that MCOs coordinate services both internally, and with services 
available from community organizations and other social programs. As an 
example, an MCO that provides services to enrollees with mental 
illness, substance abuse problems, developmental disabilities, 
functional disabilities, or complex problems involving multiple medical 
and social needs (for example, HIV/AIDS, homelessness) should have a 
program or policies for ensuring coordination among medical, mental 
health, and substance abuse services, and available social services or 
other community supports. These programs or policies should include 
procedures that specify when and under what conditions a primary 
medical care, mental health, or substance abuse provider would refer an 
enrollee for a multi-disciplinary assessment and development of a plan 
for coordination of medical and social services. Further, the policies 
should specify the types of enrollees who are candidates for this 
program, as well as the types of providers or disciplines to be 
included in the assessment team.
    With respect to mental health and substance abuse services, the 
State agency should ensure that the MCO has general procedures to 
ensure the exchange of information among primary acute care and mental 
health and

[[Page 52046]]

substance abuse providers. As an example, the MCO could implement 
training programs for primary care providers to familiarize them with 
common mental health and substance abuse problems, and additionally, 
programs to ensure that primary care providers can identify enrollees 
in need of referral for these services. The expectation under 
Sec. 438.308(b) is that the MCO will identify conditions that are 
prevalent in its population and for which continuity and effectiveness 
of care would be improved through targeted programs.
    In Sec. 438.308(c), we are proposing that the State agency ensure 
that MCOs and providers have information necessary for effective and 
continuous patient care and quality improvement, including procedures 
to ensure that (1) providers maintain, for Medicaid enrollees, health 
records that meet the requirements established by the MCO, taking into 
account professional standards; and (2) there is an appropriate and 
confidential exchange of information among providers. While 
confidentiality of records is discussed elsewhere (Sec. 438.324), it 
must be underscored that the confidentiality of patient records must be 
of paramount concern.
    In Sec. 438.308(d), to ensure optimum enrollee participation, we 
are proposing that State agencies require MCOs to implement procedures 
to ensure that providers (1) inform enrollees of specific health 
conditions that require follow-up and, if appropriate, provide training 
in self-care; and (2) deal with factors that hinder enrollee compliance 
with prescribed treatments or regimens. In meeting the requirements 
under Sec. 438.308(d)(1), the State agency should, for example, ensure 
that the MCO provides enrollees with information they need to 
participate fully in their own care. This information includes, but is 
not limited to, subjects on self-care, medication management and the 
use of medical equipment, potential complications and when such 
complications should be reported to providers, and scheduling of 
follow-up services. To comply with Sec. 438.308(d)(2), the MCO may, for 
example, ensure that counseling and facilitating services are available 
on referral from providers or staff for enrollees who are unable to, or 
are failing to, cooperate in their own treatment. Such counseling 
services might include identification of social, financial, or other 
barriers that are preventing enrollees from following guidance or 
instructions from providers, with referral to appropriate social 
services as necessary.
9. Coverage and Authorization of Services (Sec. 438.310)
    As part of the access standards, we are proposing requirements to 
ensure that each contract with an MCO describe and identify all 
services offered under the contract and follow written policies and 
procedures for processing requests for services in a manner that 
ensures access to these services. Further, we are proposing 
requirements to ensure that utilization management activities are not 
structured in a manner that is detrimental to enrollees. These 
standards are consistent with section 1932(b)(1) of the Act. To the 
extent appropriate and applicable, these standards are consistent with 
the Medicare + Choice regulations at Sec. 422.112.
    In paragraph Sec. 438.310(a), we are proposing that the State 
agency ensure through its contracts with MCOs that each MCO identifies, 
defines, and specifies all Medicaid benefits that the MCO must furnish. 
This provision is intended to protect enrollees by ensuring there is no 
ambiguity concerning the range of Medicaid-covered services that will 
be available to them under the contract. To achieve this result, the 
description must specify the amount, duration, and scope of services 
that the MCO must offer. Further the contract must specify what 
constitutes medically necessary services to the extent they are 
described in the State plan and provide that the MCO furnishes the 
services in accordance with that provision. While we are not proposing 
a definition of medical necessity because of variances among States 
agencies, the contract terminology should be drafted with sufficient 
precision so that at a minimum the enrollee will be able to receive 
services (either directly through the MCO or the State agency) to the 
same degree as the services covered under the State plan. Further, we 
expect the State agency to use the same definition of medical necessity 
for all its contacts. Any services included in the State plan but not 
required under the contract are the responsibility of the State agency, 
including those services that are inadvertently not covered in the 
contract because of ambiguity in the contract language.
    In Sec. 438.310(b), we propose to require that, in processing 
requests for initial or continuing authorization of services, the MCO 
and its subcontractors follow written policies and procedures that 
reflect current standards of medical practice and that they utilize the 
services of appropriately trained health care personnel to make these 
decisions.
    In Sec. 438.310(b), we are also proposing that the State agency 
ensure through its contracts with MCOs that the MCO, and any 
subcontractor, follows written policies and procedures, reflecting 
current standards of medical practice, for processing requests for 
initial authorization of services or requests for continuation of 
services. While we require that these policies and procedures be in 
compliance with requirements defined by the State agency, and reflect 
current standards of medical practice, at a minimum, they must specify 
the timeframe for responding to such requests for initial and continued 
authorization consistent with Sec. 438.310(d), provide for expedited 
response to requests for authorization of services needed in an urgent 
manner, specify information required for authorization decisions, and 
provide for consultation with requesting providers when appropriate. We 
propose that the State agency set its own timeframes for responding to 
requests for initial and continued authorization consistent with 
Sec. 438.310(d), such that these timeframes are not longer than those 
established in the M+C regulation. We recognize that timeframes may 
differ according to the urgency of the need for the requested services 
and the complexity involved in evaluating the request; however, the 
State agency must be able to demonstrate that its timeframes are 
reasonable. The policies and procedures must specify the information 
that is ordinarily required to process and authorize the request, and 
the circumstances under which additional information may be required. 
The MCO information standards must ensure that the authorization 
process is not unduly burdensome for practitioner, provider staff, or 
enrollees. Information should not be required that is not in fact used 
in the evaluation or recording of the request. In addition, policies 
must provide for consultation with requesting providers when 
appropriate.
    We propose in Sec. 438.310(b)(2) that mechanisms must be in place 
to ensure consistent application of review criteria and compatible 
decisions. The MCO should be required to ensure that all employed or 
contracted reviewers understand coverage policies and review criteria, 
through manuals, training programs, or other means. In addition, the 
MCO should have to periodically assess the consistency of authorization 
decisions. Possible approaches may include review of test cases by 
different utilization management staff or audits of samples of recent 
decisions. In addition, upon request, the organization should furnish

[[Page 52047]]

enrollees (or their representatives) and requesting provider(s) the 
review criteria that is used to reach a decision.
    Under proposed Sec. 438.310(c), the MCO would be required to 
provide the requesting provider and the enrollee written notice, in 
accordance with Sec. 438.404 of any decisions to deny, limit, or 
discontinue authorization of services. Appropriate information 
regarding rights to file a grievance or request a State fair hearing 
must also be included with this notice as described in subpart F of 
this part. Further, information must be included regarding how 
continuing care can be received during an appeal process. In setting 
the timeframe for providing this notification, the State agency should 
ensure that the timeframe could not jeopardize an enrollee's health. 
The manner in which this notice is provided is also not prescribed in 
this rule; however, it must occur in a manner that ensures that the 
State agency can document when the requesting provider receives the 
information and whether enrollees are able to comprehend what is 
stated.
    We propose in Sec. 438.310(d) that the timeframes established by 
State agencies under Sec. 438.310(c) for response to requests for 
initial and continued services may be no longer than the following two 
provisions. First, for a case not requiring expedited review, the 
decision must be rendered as expeditiously as the enrollees health 
condition requires but no longer than 14 calendar days after the 
request for services, or up to 14 additional days if the enrollee 
requests the extension or the MCO justifies (upon request, to the State 
agency) that it needs additional information, and why the delay is in 
the interest of the enrollee. Second, in the case where applying the 
timeframe for a standard review could seriously jeopardize the life or 
health of the enrollee, or the enrollee's ability to regain maximum 
function, resolution of the request for service must occur as 
expeditiously as the enrollee's health condition requires but no later 
than 72 hours of receipt for the request or up to 14 additional days if 
the enrollee requests the extension or the MCO justifies to the State 
agency (upon request) the need for additional information, and the 
delay is in the interest of the enrollee.
    In proposed Sec. 438.310(e) we provide that, consistent with 
Secs. 438.6(g) and 422.208 of this chapter, compensation to the 
organization or persons that conduct utilization management activities 
is not structured so as to provide incentives for the denial, 
limitation, or discontinuation of medically necessary services for any 
individual.

Structure and Operation Standards

10. Establishment of Provider Networks (Sec. 438.314)
    We are proposing that State agencies ensure that MCOs have written 
policies and procedures for the selection and retention of 
practitioners. These policies include items such as criteria for 
credentialing and re-credentialing of practitioners appropriate to the 
nature of the services to be furnished to enrollees.
    In general, credentialing is a process for the review of 
qualifications and other relevant information pertaining to a 
practitioner who seeks employment from or a contract with an MCO. The 
initial credentialing process often includes steps such as written 
applications and site visits, if appropriate, as well as verification 
from primary sources of licensure, disciplinary status, and eligibility 
for payment under Medicare. Re-credentialing often includes re-
verification of items such as licensure, clinical privileges, 
malpractice coverage, and history of professional liability claims. 
Recredentialing must be in accordance with timeframes set by the State 
agency, but may not occur less frequently than what the State agency 
requires for private HMOs.
    Similar provisions regarding the recredentialing process, provider 
qualifications, and selection are found in the M+C regulation.
    By requiring State agencies to ensure that MCOs document the 
qualifications of their providers, these provisions are consistent with 
the CBRR. In particular, these provisions are consistent with the right 
of consumers to information on health professionals such as education 
and board certification. Further, they are consistent with the right of 
consumers to choose qualified specialists for women's health services 
and for individuals with complex medical conditions.
11. Enrollee Information (Sec. 438.318)
    For an enrollee to access quality health care that meets their 
specific needs, they must first be informed of the choices available to 
them. Therefore, in addition to the information requirements in 
proposed Sec. 438.10, which are predominately elements of information 
that an MCE, MCO, or primary care case manager must provide, in 
Sec. 438.318 we propose what we consider to be the minimum information 
elements that must be provided by the State agency, or its contracted 
representative. In proposed Sec. 438.10(i), we propose information 
requirements that apply only if a State agency provides for mandatory 
MCE enrollment under section 1932(a)(1)(A) of the Act. These are not 
incorporated in Sec. 438.318 as a mandatory part of a State agency's 
quality strategy under section 1932(c)(1) of the Act, because they are 
not necessarily appropriate in a non-mandatory program. Instead, as 
discussed below we are proposing in Sec. 438.318(b) different minimum 
standards for beneficiary information as part of the State agency's 
quality strategy than those in Sec. 438.10(i). Under the standards in 
Sec. 438.318(b), a State agency is not required to provide quality and 
performance indicators for each contracted MCO unless they choose to do 
so. Further, within this section, the methodology for presenting this 
information is left up to the State agency, unlike in Sec. 438.10(i) 
which requires that the information be provided in a comparative, chart 
like format with respect to mandatory managed care programs.
    Through the requirements at Sec. 438.10 and the minimum 
requirements in paragraph Sec. 438.318, we believe that we have 
required that potential enrollees and enrollees receive the basic 
information elements that are essential for the beneficiary to access 
health care and participate in decision making about their provider and 
services received. Further, it is our belief that these requirements 
are not substantially different from current MCE and State practice.
    As a basic rule, we propose to require that the State agency or its 
contracted representative comply with the applicable requirements in 
proposed Sec. 438.10 (a) through (h), which specify information that 
must be provided by the State agency, MCEs, MCOs, and primary care case 
managers, as well as requirements regarding the manner and format for 
providing information.
    In Sec. 438.318(b)(2), we propose that the State agency, or its 
contracted representative provide information on: the benefits covered; 
the cost-sharing imposed by each MCO; the service area of the MCO; 
current provider network including information on who is not accepting 
new patients and any restriction on enrollee's ability to select from 
any affiliated provider; and information on any benefits that the 
enrollee is entitled to receive under the Medicaid program but which is 
not made available to them through the MCO, including how 
transportation services will be provided. Information on the benefits 
covered should include sufficient detail to ensure that the

[[Page 52048]]

beneficiary is aware of any limitation on services as required under 
Sec. 438.310, such as pharmaceuticals, mental health, and substance 
abuse services. If cost-sharing is permitted, the enrollees must be 
informed of this in sufficient detail. Information on the current 
provider network should include, at a minimum, information on primary 
care physicians, specialists, and hospitals. We also suggest that 
information be provided regarding ancillary care providers on which 
enrollees with special health care needs may be dependent for care. If 
this information is not included, information must be provided that 
informs potential enrollees about how they can obtain this supplemental 
information. In addition, enrollees making a decision about whether to 
enroll in a particular MCO may rely on the provider listings in making 
their selection and may assume that they will be able to obtain covered 
services from any of the providers listed. If a provider is not 
accepting new Medicaid enrollees, this must be clearly indicated as 
this provider may not be available to the enrollee for selection. 
Further, it is essential that the MCO's informational materials 
emphasize any limitations on enrollees' provider selections. If the MCO 
contracts with formal subnetworks, or the MCO's arrangement with 
primary care providers allows for the establishment of informal 
subnetworks, the MCO's informational materials must clearly indicate 
which providers are available under each subnetwork. The materials must 
also explain the procedures under which an enrollee may request 
referral to an affiliated provider not included in the subnetwork. In 
addition, we propose to require that information be provided to 
enrollees that informs them of any benefits that the enrollee is 
entitled to receive under the Medicaid program but that are not made 
available to them through the MCO, including any cost sharing 
requirements and how transportation services will be provided.
    In Sec. 438.318(b), we propose to require that the State agency or 
contracted representative provide this information to any potential 
enrollee(s) who requests it and to all potential enrollees when they 
first become eligible for Medicaid, are considering choice of MCOs 
under a voluntary program, or are first required to choose an MCO under 
a mandatory enrollment program. Further, the information must be 
provided within a timeframe that enables them to use the information in 
choosing among available MCOs. When the State agency is determining 
this timeframe, factors such as the default assignment process and 
length of time allotted for a mandatory enrollment period should be 
considered.
12. Enrollee Rights (Sec. 438.320)
    As part of these standards, we are proposing requirements to ensure 
that each contract with an MCO have written polices with respect to 
enrollee rights and that the MCO ensure compliance with Federal and 
State laws affecting the rights of enrollees. Although not limited to 
the following, each enrollee has a right to: receive information 
regarding their health care; have access to health care; be treated 
with respect and consideration for enrollee dignity and privacy; to 
participate in decision-making regarding his or her health care; and to 
receive information on available treatment options or alternative 
courses of care. In addition, we are requiring that each enrollee has a 
right to access his or her medical records in accordance with 
applicable Federal and State laws. We are proposing these standards 
because interpersonal aspects of care are highly important to most 
patients and closely related to quality of care. Enrollees' 
interactions with the organization and its providers can have an 
important bearing on their willingness and ability to understand and 
comply with recommended treatments and hence on outcomes and costs. 
Although not as exhaustive as the CBRR, these rights are consistent 
with the rights expressed in the CBRR.
    As a general rule, we propose to require that the State agency have 
in its contract with MCOs written polices with respect to enrollees' 
rights and that its staff and affiliated providers understand these 
requirements and take them into account when furnishing services to 
enrollees. Further, the MCO must comply with any other Federal and 
State law pertaining to enrollee rights. These requirements extend to 
an individual acting on behalf of someone who is unable to exercise his 
or her rights. The MCO should monitor compliance with these 
requirements through analysis of complaints or grievances, requests to 
change providers, enrollee satisfaction surveys, rapid disenrollment 
surveys, and other sources of enrollee information. Issues in 
compliance should be addressed through education or counseling of the 
staff or providers or other corrective action, and information on 
compliance with the policies should be considered during the 
recredentialing and staff evaluation process.
    Although not limited to those rights stated therein, as a basic 
right each enrollee has a right to receive information in accordance 
with Sec. 438.318 and have access to health care as required in 
Sec. 438.306 through Sec. 438.310. In addition, each enrollee has the 
right to be treated with respect and consideration for enrollee dignity 
and privacy. The MCO must ensure that enrollees' dignity and privacy 
are respected in its own facilities and must address these issues in 
site visits to offices or facilities of affiliated providers. Examples 
of privacy concerns include privacy of examining rooms and measures to 
assure that enrollees are not interviewed about medical, financial, or 
other issues within the hearing range of other patients.
    In addition, the enrollee has the right to participate in decision-
making regarding his or her health care and to receive information on 
available treatment options or alternative courses of care. The MCO's 
policies must promote enrollees' understanding of their conditions or 
problems and facilitate development of treatment goals. While 
participating in treatment planning is important for all enrollees, 
special emphasis should be placed on involvement of enrollees and their 
families in development of plans of care for enrollees with mental 
health or substance abuse problems.
    Enrollees have a right to receive information on available 
treatment options or alternative courses of care. As required in 
Sec. 438.102, contracts with providers may not limit a provider's 
ability to counsel or advise an enrollee of treatment options that may 
be appropriate for the enrollee's condition or disease, whether or not 
the options are covered by the organization unless excluded under the 
terms of Sec. 438.102(c). Enrollees have an affirmative right to a 
clear explanation of their condition, any proposed treatments or 
procedures and any alternatives; the benefits, drawbacks, and 
likelihood of success of each option; and the possible consequences of 
refusal or non-compliance with a recommended course of care. In 
addition, as an enrollee right, we require that each enrollee have 
access to his or her medical records in accordance with applicable 
Federal and State law. The MCO must have procedures through which an 
enrollee can obtain timely access to all medical records and health 
information maintained by the organization, including records 
maintained by subcontracting providers from whom the enrollee has 
received services.
    In Sec. 438.320(c), we require MCOs and their subcontractors to 
comply with Federal and State laws affecting the rights of enrollees. 
Federal laws affecting the rights of enrollees include, but are not 
limited to: Title VI of the

[[Page 52049]]

Civil Rights Act; Section 504 of the Rehabilitation Act of 1973; the 
Age Discrimination Act of 1975; Titles II and III of the Americans with 
Disabilities Act; Section 542 of the Public Health Service Act 
pertaining to nondiscrimination against substance abusers; and Title 
45, Part 46 of the Code of Federal Regulations, pertaining to research 
involving human subjects. While these laws are enforced by agencies 
other than HCFA or State agencies, to the extent feasible and 
appropriate, assessment of compliance should be included in the 
organization's credentialing procedures. For example, site visits to 
individual practitioners' offices should include a general assessment 
of physical accessibility.
13. Confidentiality (Sec. 438.324).
    Current regulations at 42 CFR part 431, subpart F govern the 
safeguarding of beneficiary information at the State agency level. The 
regulations in this subpart specify, among other requirements, the 
types of information to be safeguarded, when such information may be 
released, and how such information is to be distributed.
    In Sec. 438.324, we are proposing that the State agency, consistent 
with the regulations at part 431 subpart F, ensure, through its 
contracts with MCOs, that each MCO establish procedures:
     To develop and promulgate policies in accordance with 
Federal and State law establishing who is authorized to receive such 
information;
     To safeguard the privacy of any information that 
identifies a particular enrollee by ensuring that: information from the 
MCO or copies of records may be released only to authorized 
individuals; unauthorized individuals cannot gain access to or alter 
patient records; and original medical records must be released only in 
accordance with Federal or State law, court orders, or subpoenas;
     To address the confidentiality and privacy for minors, 
subject to applicable Federal and State law;
     To ensure timely access to enrollees who wish to examine 
their records; and
     To abide by all Federal and State laws regarding 
confidentiality and disclosure for mental health records, medical 
records, other health information and any information about an 
enrollee.
    The requirements we are proposing in this section are consistent 
with section 1932(c)(1)(A)(ii) of the Act. The proposed requirements 
are also consistent with the right to confidentiality of health 
information supported by the CBRR.
    In Sec. 438.324(a), we propose that the State agencies ensure that 
MCOs keep records in an accurate and timely manner.
    In Sec. 438.324(b), we are proposing that the State agency 
safeguard the privacy of any information that identifies a particular 
enrollee. It should ensure that each MCO's confidentiality procedures 
apply, not just to medical records, but to any information in the 
possession of the organization or its contractors that could disclose 
medical conditions or the use of specific services, such as claims 
information collected in the course of quality assessment and 
performance improvement, utilization management, or other processes. 
The procedures should address both written materials and information 
created in other formats, such as electronic records, facsimiles, or 
electronic mail.
    As part of the above requirement, we specify that any such 
information from the MCO or copies of records may be released only to 
authorized individuals. Thus the MCO must ensure that unauthorized 
individuals cannot gain access to or alter patient records. Original 
medical records must be released only in accordance with Federal and 
State law, court order, or subpoena. This requirement pertains to the 
release of information to third parties and is not meant to impede the 
exchange of information within the MCO or among its affiliated 
providers and other contractors as necessary to carry out the 
organization's contractual responsibilities. However, the MCO 
procedures should ensure that information on enrollees will be released 
to outside parties only with the consent of the enrollee (or authorized 
representative) except when required by a subpoena or other legal 
requirements (such as the mandatory reporting of certain communicable 
diseases).
    In Sec. 438.324(c), we are proposing that the State agency ensure 
that each MCO procedure address the confidentiality and privacy for 
minors, subject to applicable Federal and State law. These procedures 
should define whether and under what circumstances treatment may be 
furnished to a minor without parental consent and what information will 
be released to a parent upon request. Specific issues to be addressed 
by the procedures should include family planning and mental health and 
substance abuse services, taking into account any State law 
requirements with respect to these issues.
    In Sec. 438.324(d), we are proposing that the State agency ensure 
that each MCO establish and communicate to enrollees procedures under 
which enrollees can obtain access to all records and information about 
themselves. The procedures should include reasonable time limits for 
providing such access, and should include provision for explaining and 
interpreting the records to an enrollee, as well as procedures for 
identification and correction of errors found by enrollees in their own 
records.
    In Sec. 438.324(e), we propose that the State agency ensure that 
the MCO's policies regarding use and disclosure of enrollee information 
comply with all laws governing the confidentiality of the information 
they hold.
14. Enrollment and Disenrollment (Sec. 438.326) and Grievance Systems 
(Sec. 438.328)
    These proposed sections require, consistent with section 
1932(c)(1)(A)(ii) of the Act, that a State agency include as part of 
its quality strategy ensuring compliance with the enrollment 
requirements in proposed Sec. 438.326 and the grievance requirements in 
subpart F.
15. Subcontractual Relationships and Delegation (Sec. 438.330)
    With some exceptions, an MCO may, by written subcontract, delegate 
any activity required under its primary contract with the State agency. 
However, an MCO entering into a contract with the State agency remains 
entirely accountable to the State agency for the performance of any 
delegated function. It is the sole responsibility of the MCO to ensure 
that the delegated function(s) is performed in accordance with 
applicable contractual requirements.
    Subcontracts that delegate (in whole or in part) functions from the 
MCO should clearly indicate what function(s) has been delegated and if 
functions are only partially delegated, which entity retains 
responsibility for each function.
    The MCO should document that it has approved its subcontractors' 
policies and procedures with respect to the delegated function. In 
addition, the MCO should have written procedures for monitoring and 
review of delegated activities. Such monitoring should be conducted by 
MCO staff who are qualified to assess the delegated function(s).
    Finally, these provisions are consistent with the CBRR as they 
relate to consumer choice of provider networks that are adequate to 
serve the needs of consumers. In particular, these provisions ensure 
that State agencies, through their contracts with MCOs, hold plans 
accountable for the availability and adequacy of all covered services.

[[Page 52050]]

Measurement and Improvement Standards

16. Practice Guidelines (Sec. 438.336)
    In order to achieve greater consistency across public and private 
sector quality standards, this section addresses the need for each MCO 
to use practice guidelines as a component of its quality measurement 
and improvement activities. The science of quality measurement (and by 
that, the ability to improve health care quality) is dependent upon 
having a strong base of evidence on what constitutes effective health 
care (that is ``evidenced-based'' practice guidelines). The critical 
importance of the existence and use of practice guidelines in the 
delivery of quality health care services has been widely accepted by 
experts in health care quality measurement and improvement. The 
President's Advisory Commission on Consumer Protection and Quality in 
the Health Care Industry (Commission) underscored the importance of the 
adoption and use of clinical practice guidelines in its report, 
``Quality First: Better Health Care for All Americans.'' This report 
stated that,

The development and dissemination of practice guidelines by the 
Federal government, professional associations and health plans have 
accelerated during the 1990s. The benefits of practice guidelines 
include developing an evidenced-based consensus of the best 
practices for a particular condition, consolidating disparate 
sources of information regarding clinical effectiveness and 
outcomes, and preparing health research into a useable format for 
practitioners.

    The National Committee for Quality Assurance's (NCQA's) standards 
for the accreditation of managed care organizations include as a 
standard, ``The managed care organization is accountable for adopting 
and disseminating practice guidelines for the provision of acute and 
chronic care services that are relevant to its enrolled membership.'' 
NCQA's standards also include more detailed requirements addressing the 
use of clinical practice guidelines; however, we chose not to include 
those details in this proposed rule.
17. Quality Assessment and Performance Improvement Program 
(Sec. 438.340)
    Section 438.340(a) requires that a State agency that contracts with 
an MCO require the MCO to have an ongoing quality assessment and 
performance improvement program for the services it furnishes to its 
enrollees. The quality assessment and performance improvement program 
as outlined in this section of the rule incorporates and expands upon 
the quality assurance activities currently required of MCOs under 
Sec. 434.34, with one exception. Section 434.34(a) requires that an 
HMO's internal quality assurance system be consistent with the 
utilization control requirements of part 456. Because incentives to 
reduce unnecessary services are inherent to a risk capitation system of 
payment, we believe the application of utilization control requirements 
as prescriptive as those of part 456 to MCOs is unwarranted, and we 
will not require compliance with these requirements; rather, we believe 
it is appropriate to hold them to the same general requirements that 
must be met by organizations that contract with Medicare under the M+C 
program. These requirements are: that the MCO, in processing requests 
for initial or continued authorization of services, follow written 
policies and procedures that reflect current standards of medical 
practice; and, that the MCO have in effect mechanisms to detect both 
underutilization and overutilization of services. The former 
requirement is found in Sec. 438.310 (``Coverage and authorization of 
services''), and the latter is found in Sec. 438.340(b).
    Section 438.340(b) specifies the basic elements of an acceptable 
quality assessment and performance improvement program for MCOs. The 
rule takes a two-tiered approach to ensuring quality: First, the MCO 
must achieve minimum performance levels on standardized quality 
measures. Second, the MCO must conduct performance improvement 
projects.
    a. Minimum Performance Levels. Section 438.340(c) elaborates on 
Sec. 438.340(b)(1) by requiring that the MCO measure its performance, 
using standard measures required by the State agency; report its 
performance to the State agency; and achieve any minimum performance 
levels that the State agency establishes on those standard measures.
    The rule permits the standard measures to be specified in uniform 
data collection and reporting instruments required by the State agency. 
As was noted earlier, some State agencies have already begun requiring 
reporting of standardized quality measurement data through instruments 
such as HEDIS. The rule does not specify the particular measures for 
which reporting will be required. The State agency will be expected to 
identify required measures as part of its MCO contract specifications.
    There are two key reasons for making performance measurements and 
minimum performance levels a part of the contracting process. First, it 
will give the State agency the flexibility needed to respond to new 
developments in the state of the art of quality measurement and 
improving performance levels. Second, when necessary, it will allow the 
State to focus on measures that are appropriate for a specific MCO so 
that the measures will reflect the characteristics and needs of the 
MCO's enrolled population and take into account its past performance.
    In establishing minimum performance levels, the State agency should 
ensure that the targets are achievable, meaningful, and equitable. The 
State agency must consider historical plan and fee-for-service Medicaid 
performance data and trends. Other criteria that should guide the 
selection of measures for which minimum performance levels would be 
established, include their significance for the health of the MCO's 
enrolled population and the likelihood that they fairly reflect the 
MCO's performance.
    The State agency must establish the minimum performance levels 
prospectively upon contract initiation and renewal, so that the MCO 
will have the entire contract year in which to take action to meet 
them. By the end of the contract year, the MCO must meet the minimum 
performance levels. Often, the next contract year will already have 
begun by the time the State agency learns whether the MCO has met the 
minimum performance levels established for the previous year. However, 
the rule guarantees the State agency the right to non-renew the MCO's 
contract in the year that the State agency determines that the MCO 
failed to meet the minimum performance levels, even if the failure 
itself was in the prior contract year.
    The strategy of relying on performance measurement and performance 
levels to assess and improve quality is heavily dependent on the 
validity of the data collected and reported by plans. For that reason, 
Sec. 438.342 requires that each MCO, whatever the design of its 
particular information system, ensure the completeness and accuracy of 
the data it compiles for external reporting or for use in its own 
quality improvement efforts. However, the rule does not impose uniform 
requirements for MCOs' data systems; for example, it does not require 
automated patient records.
    b. Performance Improvement Projects. Section 438.340(d) elaborates 
on paragraph Sec. 438.340(b)(2) by requiring that an MCO's performance 
improvement projects focus on specified areas of clinical and non-
clinical services. It also requires the State

[[Page 52051]]

agency to set contractual obligations for the number and distribution 
of these projects among the specified areas. In addition, it authorizes 
the State agency to direct an MCO to undertake specific performance 
improvement projects as the State agency determines appropriate.
    Section 438.340(d)(1) describes the components of performance 
improvement projects. All projects must involve measuring performance, 
implementing system interventions, evaluating the effectiveness of the 
interventions, and planning for sustained or increased improvement.
    Section 438.340(d)(2) requires that projects address the entire 
population to which the performance measure is relevant. After a topic 
has been selected, the MCO must ensure that its measurement and 
improvement efforts are system-wide. Each project must, to the extent 
feasible, reach all enrollees and providers in its network who are 
involved in the aspect of care or services to be studied. This does not 
mean that MCOs must review the performance of each and every provider 
who furnishes the services that are the subject of the project, or that 
it must survey every affected enrollee. Sampling is acceptable so long 
as the MCO ensures that its samples are genuinely random. The MCO could 
do so by showing, for example, that:
     Each relevant provider and enrollee has an equal chance of 
being selected; no provider or enrollee is systematically excluded from 
the sampling;
     Each provider serving a given number of enrollees has the 
same probability of being selected as any other provider serving the 
same number of enrollees; and
     Providers and enrollees who were not included in the 
sample for the baseline measurement have the same chance for being 
selected for the follow-up measurement as providers and enrollees who 
were included in the baseline.
    Section 438.340(d)(3) requires the State agency to establish 
contractual obligations for the number and distribution of projects 
among the specified clinical and non-clinical areas.
    Section 438.340(d)(4) specifies certain focus areas of clinical 
care that must be addressed by the MCO for the full spectrum of 
populations enrolled under the contract. These minimum focus areas 
address: preventive care, care of chronic and acute conditions, high-
volume and high-risk conditions, and continuity and coordination of 
care.
    Section 438.340(d)(5) specifies certain non-clinical focus areas to 
be addressed by performance improvement projects: appeals, grievances, 
and complaints; and, access to and availability of services. Additional 
non-clinical focus areas the State agency may consider requiring 
through contract include: denials of authorization or payment for 
services and cultural competence. Cultural competency means the 
development and provision of systems of care for diverse populations, 
and a demonstrated awareness and integration of: health related beliefs 
and cultural values, disease incidence and prevalence, and appropriate 
management and prevention of disease. The period of time that an MCO 
will be given to undertake projects in all of the required focus areas 
will be established in contract.
    Within each clinical and nonclinical focus area, the State agency 
should give an organization considerable freedom to select its own 
particular topics for measurement and improvement, so that it can 
conduct projects relating to aspects of care and services that are 
significant for its own population. In this way, the State agency can 
achieve a balance between encouraging flexibility and innovation and 
ensuring that every MCO conducts meaningful projects over a broad 
spectrum of care and services. Additional mechanisms to ensure that 
MCOs conduct meaningful projects are established in Sec. 438.340(d)(6). 
The first is the authority for the State agency to require that an 
individual MCO conduct particular performance improvement projects that 
are specific to the MCO. This would be necessary when the MCO 
demonstrates significantly weaker performance in a particular area than 
its counterparts. The second is the option for the State agency to 
require that all of its MCOs participate annually in at least one 
statewide performance improvement project. In such a statewide 
performance improvement project, the State agency would be responsible 
for identifying an aspect of care that is of high priority, and for 
specifying the quality indicators (which will be discussed below) that 
its MCOs must use in assessing the success of their efforts to improve 
their performance in the aspect of care the State agency has 
identified.
    In general, we believe that a clinical or non-clinical topic 
selected for study should affect a substantial portion of the MCO's 
Medicaid enrollees (or a specified subpopulation of enrollees) and have 
a potentially significant impact on enrollee health, functional status, 
or satisfaction. There may be instances in which less frequent 
conditions or services warrant study, as when data show a pattern of 
unexpected adverse outcomes. However, the prevalence of a condition or 
volume of services involved should be sufficient to permit meaningful 
study.
    A project topic may be suggested by patterns of inappropriate 
utilization--for example, frequent use of the emergency room by 
enrollees with a specific diagnosis. However, the project should be 
clearly focused on identifying and correcting deficiencies in care or 
services that might have led to this pattern, such as inadequate access 
to primary care, rather than on utilization and cost issues alone. This 
is not to say that the MCO may not make efforts to address 
overutilization, but only that such efforts might not be considered 
projects for the purpose of assessing compliance with this rule, unless 
the primary objective is to improve health outcomes. Thus, it would be 
acceptable for a project to focus on patterns of overutilization that 
present a clear threat to health or functional status, for example, a 
high risk of iatrogenic problems or other adverse outcomes.
    Because the achievement of demonstrable improvement is a central 
criterion in the evaluation of projects, they should necessarily focus 
on areas in which meaningful improvement can be achieved through system 
interventions by the MCO. It will therefore generally be advisable for 
the MCO to avoid projects that focus on clinical areas in which 
outcomes are largely dictated by factors that are unlikely to be 
influenced by delivery system changes. Most MCOs are likely to give 
priority to areas in which there is significant variation in practice 
and resulting outcomes within the MCO, or in which the MCO's 
performance as a whole falls below acceptable benchmarks or norms.
    It is recognized that the requirement for demonstrable improvement 
creates incentives for MCOs to focus all of their projects on aspects 
of care in which rapid and measurable improvement is possible through 
simple interventions. It is not the intention of this rule to 
discourage MCOs from undertaking more complex projects or innovative 
projects that have a high risk of failure but that offer some 
offsetting potential for making a significant difference in the health 
or functional status of enrollees. MCOs considering such projects 
should avail themselves of the opportunity to work in consultation with 
the State agency to develop long-range goals for projects and set 
agreed-upon criteria for evaluation of the MCO's progress in 
implementing its project.
    Section 438.340(d)(7) requires that the MCO assess its performance 
for each project using one or more quality indicators, and the 
paragraph

[[Page 52052]]

establishes criteria for selecting indicators. The rule requires that 
the quality indicators measure outcomes such as changes in health 
status, functional status, and enrollee satisfaction, or valid proxies 
of these outcomes. We recognize that relatively few standardized 
performance measures actually address outcomes. Even when outcome 
measures are available, their utility as quality indicators for 
projects may be limited because outcomes are substantially affected by 
factors outside the MCO's control. In other instances improvement is 
possible, but the resources and sophistication needed to analyze the 
complex factors involved in the outcome and develop meaningful 
interventions might be beyond the reach of many MCOs.
    Therefore, the rule does not require that quality indicators be 
outcome measures. Process measures are acceptable so long as the MCO 
can show that they are valid proxies, that is, there is strong clinical 
evidence that the process being measured is meaningfully associated 
with outcomes. To the extent possible, this determination should be 
based on published guidelines that support the association and that 
cite evidence from randomized clinical trials, case control studies, or 
cohort studies. An MCO may furnish its own similar evidence of 
association between a process and an outcome so long as this 
association is not actually contradicted by a published guideline. 
Although published evidence is generally required, there may be certain 
areas of practice for which empirical evidence of process or outcome 
linkage is limited. At a minimum, the MCO should be able to demonstrate 
that there is a consensus among relevant practitioners as to the 
importance of a given process. We encourage State agencies to consider 
using HEDIS as a standardized tool for performance reporting.
    While MCOs must consider enrollee satisfaction as an important 
aspect of care, improvement in satisfaction should not be the sole 
demonstrable outcome of a project in any clinical focus area. Some 
improvement in health or functional status should also be measured. 
(Note that this measurement can rely on enrollee surveys that address 
topics in addition to satisfaction. For example, self-reported health 
status may be an acceptable indicator; reduction in school absence 
could be used as an indicator of functional status in children.) For 
projects in the non-clinical areas, use of health or functional status 
indicators is generally preferred, particularly for projects addressing 
access and availability. However, there may be some non-clinical 
projects for which enrollee satisfaction indicators alone are 
sufficient. We would encourage State agencies and plans to use the 
CAHPS instrument when surveying enrollee satisfaction and experiences 
with care.
    Section 438.340(d)(8) requires that the MCO's assessment of its 
performance on the selected indicators be based on systematic, ongoing 
collection, and analysis of valid and reliable data. We expect that 
data will most commonly be derived from administrative data generated 
by the MCO's health information system or from review of medical 
records. (In assessing non-clinical services, other sources such as 
enrollee or provider surveys may be appropriate.) When data are derived 
from the health information system, their reliability is obviously a 
function of the general reliability of the system. By contrast, when 
data are derived from direct review of medical records or other primary 
source documents, steps must be taken to ensure that the data are 
uniformly extracted and recorded. Appropriately qualified personnel 
should be used; this will vary with the nature of the data being 
collected and the degree of professional judgment required. There 
should be clear guidelines or protocols for obtaining and entering the 
data; this is especially important if multiple reviewers are used or if 
data are collected by multiple subcontractors. Inter-reviewer 
reliability should be assured through, for example, repeat reviews of a 
sample of records.
    Section 438.340(d)(9) requires that the MCO's interventions result 
in improvement that is significant and sustained over time. The State 
agency might choose to consider judging improvement to be significant 
when the MCO either (1) achieves a benchmark level of performance that 
is defined in advance by the State agency; or (2) achieves a reduction 
specified by the State agency in the percentage of enrollees who do not 
achieve the outcome defined by the indicator. The State agency might 
choose to consider requiring a 10 percent reduction in adverse 
outcomes. An MCO would meet this requirement if, for example, its child 
immunization rate is 80 percent in the baseline and increases to 82 
percent, because the percentage of children not immunized has dropped 
from 20 percent to 18 percent, a 10 percent reduction. An MCO whose 
baseline rate is 60 percent would have to reach 64 percent--a reduction 
in non-immunized children from 40 percent to 36 percent. (Note that, to 
ensure uniform computation of improvement across indicators, all 
indicators must first be stated in the form of a positive outcome, and 
improvement measured as a reduction in its inverse.)
    We suggest that the State agency require a 10 percent reduction in 
adverse outcomes for several reasons. First, the use of a constant 
percentage reflects the likelihood that change is harder to achieve 
when a MCO's baseline performance is already superior. Thus, the MCO 
with an 80 percent immunization rate is only expected to achieve a 2 
percent improvement, while the MCO with a 60 percent rate must achieve 
a 4 percent improvement. Second, the 10 percent level is consistent 
with results HCFA has observed in successful improvement projects 
sponsored by the agency.
    Note that improvement in an indicator is not necessarily the same 
as improvement in the health or functional status of enrollees. For 
example, the ``health of seniors'' indicator under HEDIS 3.0(c) will 
track, over time, changes in the functional status of elderly 
enrollees. Each enrollee's functional status may remain stable or 
actually decline. However, an MCO would demonstrate improvement on the 
indicator if it slowed the rate of decline, whether or not it actually 
improved enrollees' functional status. The State agency might choose to 
consider judging improvement to be sustained when the MCO demonstrates 
through continued measurement that its performance gains have endured 
for at least one year.
    We recognize that many MCOs still have limited experience in 
conducting well-designed performance improvement projects, and that any 
given project may take some time to produce measurable improvement. 
Therefore, we encourage the State agency to incorporate into the 
contract process a gradual phase-in of the number of focus areas for 
which improvement must be demonstrated. State agencies and plans 
desiring further technical instructions in designing quality 
improvement projects are directed to the NCOA publication, ``Health 
Care Quality Improvement Studies in Managed Care Settings--Design and 
Assessment'' developed under HCFA contract #HCFA-92-1279.
    Section 438.340(d)(10) requires the MCO to report the status and 
results of each project to the State agency as requested.
    c. Program review by the State agency. Section 438.340(e) requires 
that the State agency review, at least annually, the impact and 
effectiveness of the MCO's quality assessment and performance 
improvement program. The review must include the MCO's performance on 
the standard measures on which the MCO is required to report,

[[Page 52053]]

and the results of the MCO's performance improvement projects.
    In addition, Sec. 438.340(e) authorizes the State agency to require 
that the MCO have in effect a process for its own evaluation of the 
impact and effectiveness of its quality assessment and performance 
improvement program. The State agency might choose to direct the MCO to 
consider whether the activities in its work plan are being completed on 
a timely basis or whether commitment of additional resources is 
necessary. The State agency might choose to require that the MCO's 
evaluation include recommendations for needed changes in program 
strategy or administration, and that these recommendations be forwarded 
to and considered by the policy making body of the MCO.
18. Health Information Systems (Sec. 438.342)
    Section 1932(c)(1)(iii) of the Act requires State agencies that 
contract with Medicaid managed care organizations to develop a State 
quality assessment and improvement strategy that includes procedures 
for monitoring and evaluating the quality and appropriateness of care 
and services to enrollees that reflect the full spectrum of populations 
enrolled under the contract and that includes requirements for 
provision of quality assurance data to the State agency by MCOs using 
the data and information set that the Secretary has specified for use 
under Part C of Title XVIII or such alternative data as the Secretary 
approves, in consultation with the State agency.
    In Sec. 438.342, we are proposing that the State agency ensure 
through its contracts with MCOs that each MCO be required to maintain a 
health information system that collects, analyzes, integrates, and 
reports data that can achieve the objectives of this part. We would 
expect the State agency to work with plans, providers, and others in 
developing its requirements and that the requirements will reflect the 
differing capabilities and structures of different kinds of plans. 
Every MCO should be able to collect and integrate data from all 
components of its network, in order to develop a comprehensive picture 
of enrollee needs and utilization. Each MCO should be able to use these 
data in its quality assessment and performance improvement program, as 
well as in other management activities. Under proposed paragraph 
Sec. 438.342(a), we provide that the system should provide information 
on areas including, but not limited to, utilization, grievances, 
disenrollments and solvency.
    In Sec. 438.342(b)(1), we are proposing that the State agency 
ensure through its contracts with MCOs that each MCO be required to 
collect data on enrollee and provider characteristics as specified by 
the State agency, and on plan services furnished to enrollees through 
an encounter data system or such other methods as may be specified by 
the State agency. Although an encounter data system may be the most 
efficient means of meeting the requirements of this standard, the 
organization may use any methods or procedures for data collection, so 
long as it can demonstrate that its system achieves the objectives of 
this standard.
    In Sec. 438.432(b)(2), we are proposing that the State agency 
ensure through its contracts with MCOs that each MCO be required to 
ensure that data received from providers are accurate and complete by 
verifying the accuracy and timeliness of reported data, screening the 
data for completeness, logic, and consistency, and by collecting 
service information in standardized formats to the extent feasible and 
appropriate. Each organization must have an ongoing process for 
ensuring the reliability of the data, whether compiled in its own 
facilities or reported by outside contractors. It must have a system 
for comparing reported data to a sample of medical records to verify 
the accuracy and timeliness of reporting or transmission. It must have 
mechanisms to ensure that reported data contain all data elements 
required by the organization's standards. Standard formats are needed 
to ensure that data elements are reported uniformly by all providers, 
and that reports from multiple sources are comparable and can be 
reliably merged.
    In Sec. 438.342(b)(3), we are proposing that the State agency 
through its contracts with MCOs require that each MCO make available 
all collected data upon request to the State agency and HCFA. The BBA 
includes significant new requirements for State agencies and for plans. 
We are cognizant of the immediate need of State agencies and plans to 
modify and test existing systems to ensure no disruption at the 
millennium and that this additional burden could jeopardize the success 
of those efforts. One area in particular is that some State agencies 
may need to develop or modify systems to meet the requirements in 
subpart E to establish an information system that will support initial 
and ongoing operation and review of the State's quality strategy. 
Similarly, we are aware that plans may be required to develop or modify 
information systems to meet requirements in their States. We encourage 
State agencies to remain cognizant of plans' need to modify and test 
their systems for millennium compliance and the possible and burden 
that this could create. Specifically, we invite comment on the 
following areas.
     What type of system changes do State agencies envision 
necessary for implementation of this proposed rule?
     How long do State agencies envision these system changes 
to take and what is an estimate of the cost associated with such 
changes?
     What other systems are likely to be affected by these 
changes?
     What type of system changes do plans envision necessary in 
implementing the BBA requirements and this proposed rule?
     Will efforts to achieve millennium compliance affect 
plans' ability to make any necessary systems changes?

E. Grievance Systems (Subpart F)

    Section 4704(a) of the BBA added section 1932(b)(4) to the Act to 
require MCOs to establish internal grievance procedures ensuring that 
Medicaid managed care enrollees may challenge denials of coverage of 
medical assistance or payment for medical assistance under managed care 
contracts.
    In this subpart, we propose regulations that lay out the required 
elements of this grievance system: describing what constitutes a notice 
(that is, the first step in the grievance system); how to handle 
complaints and grievances after they are in the system; how to resolve 
grievances; and how to notify enrollees of the resolution. We then 
propose to address grievances that require expedited resolution (that 
is, describing how special situations must be handled). Next, we 
propose to require that MCOs clearly and fully inform enrollees of the 
entire system so that they are aware of it and how to use it. When MCOs 
inform enrollees, materials should be understandable to enrollees at a 
fourth to fifth grade reading level, or at another level established by 
the State agency that adequately reflects the enrollee population. In 
addition, any materials should be in prevalent languages spoken by the 
populations in the geographic area in order to facilitate enrollee 
understanding. Finally, we include proposed requirements relating to 
record keeping, monitoring, and consequences of noncompliance. We 
propose to require effective record keeping (while ensuring 
confidentiality), sensible monitoring of the whole system (to keep it 
working well), and compliance with this subpart.

[[Page 52054]]

    This proposed regulation also would explicitly reflect in 
regulations HCFA's longstanding policy that managed care enrollees are 
entitled to a hearing in the State fair hearing process provided for 
under subpart E of part 431, if they are denied benefits by their MCO. 
These fair hearing regulations have never been amended to reflect the 
fact that a substantial proportion of Medicaid beneficiaries are 
enrolled in managed care. We also make clear that the requirement for 
an internal grievance process does not substitute for a right to a 
State fair hearing. We are specifically requesting comments on the 
interaction of the proposed provisions of subpart F, set forth in this 
proposed rule, which address MCOs' internal grievance systems, and the 
existing regulations regarding the Medicaid State fair hearing process 
(in subpart E of part 431). Several issues were raised during the 
development of this proposed regulation concerning whether the 
timeframes specified in the current fair hearing regulations are 
adequate for managed care, specifically for the timely consideration of 
prior approvals and for grievances that involve access to services. We 
especially invite public comment on the following issues:
     The adequacy of the length of time specified in the 
current fair hearing regulation for review of MCO denials of services, 
particularly in circumstances warranting expedited action;
     The need to classify and differentially process at the 
fair hearing level different types of denials such as pre-service 
denials, service denials involving continuation of benefits, and 
denials of payment for services that have already been received;
     The inclusion an expedited appeals process as well as of a 
medical exigency standard consistent with the M+C regulations in 
Sec. 422.590;
     Addressing grievances arising from primary care case 
manager services (particularly denial of prior approval) in the State 
fair hearing regulation; and
     Automatic referral of some or all kinds of MCO denials to 
the fair hearing process.
    Based on comments we receive on these issues, we may revise the 
fair hearing regulation as it pertains to managed care in the final 
regulation.
    We considered several sources in developing this proposed 
regulation including: Negotiating the New Health System, a nationwide 
study of Medicaid Managed Care Contracts developed by the Center for 
Health Policy Research at the George Washington University Medical 
Center, which reviewed and analyzed 54 separate Medicaid managed care 
contracts; the current 1915(b) and 1115 waiver programs, specifically 
the State experiences of Iowa, Kansas, Kentucky, Minnesota, Missouri, 
Nebraska, North Carolina, Ohio, Pennsylvania, and Tennessee; the 
Quality Improvement System for Managed Care (QISMC); the Consumer Bill 
of Rights; the Medicare+Choice regulations; and comments received at 
public forums from members of the American Public Human Services 
Association (APHSA) and beneficiary advocates.
1. Statutory Basis and Definitions (Sec. 438.400)
    In Sec. 438.400(a), we set forth the statutory basis for the 
regulations in subpart F. In addition to section 1932(b)(4) of the Act, 
which requires MCOs to have an internal grievance system, these 
regulations are also based on section 1902(a)(4) of the Act, which 
authorizes HCFA to provide for necessary and proper methods of 
administration, and section 1902(a)(3) of the Act, which requires that 
Medicaid beneficiaries have the right to a fair hearing when denied 
Medicaid benefits.
    Terms used in the proposed regulations in this subpart are defined 
in Sec. 438.400(b). We acknowledge that terminology used in describing 
grievance and appeal processes differs greatly from State to State and 
program to program. We believe, however, that it is necessary to define 
such terms as ``complaint'' and ``grievance'' that are critical to the 
grievance system to ensure a basic level of consistency in State and 
MCO practice and beneficiary protection.
    In developing definitions for ``compliant'' and ``grievance'', we 
consulted with beneficiary advocacy groups and reviewed definitions and 
concepts used by State agencies, as well as those reflected in the 
CBRR, various model grievance acts and other sources. We were 
interested in reflecting that, from the beneficiary's perspective, many 
disputes that are ultimately appealed arise in the context of broader 
expressions of confusion or dissatisfaction. This approach underlies 
the process and consumer assistance requirements of this subpart.
    We therefore elected to define ``complaint'' as broadly as 
possible, as any oral or written communication, made by or on behalf of 
an enrollee expressing dissatisfaction with any aspect of an MCO's or 
provider's operations, activities or behavior, regardless of whether 
remedial action is sought. We defined ``grievances'' as written 
communications explicitly addressing dissatisfaction with the 
following: the availability, delivery, or quality; payment, treatment, 
or reimbursement of claims for services; or issues unresolved through 
the complaint process. Our proposed definition of grievance is 
consistent with the definition used by the National Association of 
Insurance Commissioners (NAIC) in its 1996 version of the ``Model 
Grievance Act'', which we believe is among the most comprehensive and 
widely-used definitions of the term.
    As discussed further under Sec. 438.402, each MCO must provide for 
a grievance system that consists of a complaint process, a grievance 
process and a link to the fair hearing process. The complaint process 
would address those communications that are not grievances. Examples of 
topics that would likely be addressed as complaints in this process 
would include such issues as waiting times, operating hours, demeanor 
of health care personnel and the adequacy of facilities. We believe 
this use of complaints is consistent with the use of the term in most 
State Medicaid programs. (It should be noted, however, that Medicare 
and Medicaid use different terms for similar concepts. Under the M+C 
reguation (like earlier Medicare HMO regulations), this grievance 
definition most closely resembles Medicare's definition of a 
``reconsideration request.''
    In addition to the terms we defined in the proposed rule, many 
terms are being used in practice; however, we chose not to include them 
in the proposed rule either because we did not consider them part of 
the grievance system or we believed inclusion would cause confusion. 
For example, the term ``inquiry,'' as defined by the State of Missouri, 
means a request from a member to MCO consumer relations departments for 
information that would clarify health plan policy, benefits, 
procedures, or any aspect of health plan function that may be in 
question. Although inquiries are not part of the formal grievance 
system, we believe that MCOs ought to thoroughly explore inquiries in 
order to address misunderstandings as soon as they arise. We are 
interested in learning of State and MCO best practices to address 
issues associated with enrollee inquiries. (For example, we are 
interested in receiving information concerning MCO policies and 
procedures to log and track inquiries and to identify inquiry patterns, 
so as to minimize the possibility of complaints being treated as 
inquiries.)
2. General Requirements (Sec. 438.402)
    The proposed rule would provide for a grievance system consisting 
of multiple avenues of recourse available

[[Page 52055]]

for enrollees in Medicaid managed care to resolve issues arising from 
their membership in an MCO. At a minimum, the grievance system includes 
the enrollee's initial contact with a designated office within the MCO 
(as described in Sec. 438.406) to inquire about the MCO's policies and 
procedures; two tracks for MCO review (the complaint process and 
grievance process); and access to the State fair hearing system. The 
MCO has to allow the enrollee a reasonable time from the date that 
notice of intended action is mailed (at least the 90 days permitted for 
beneficiaries in the fair hearing process at Sec. 431.221) to file a 
grievance. Note that the timeframe may be shorter if the beneficiary 
wishes to continue to receive services while resolution of the 
grievance is pending (see discussion of Sec. 438.420.)
    Under proposed Sec. 438.402(b)(2) and (3), both the complaint and 
grievance processes must be approved by the State agency and the MCO's 
governing body. Proposed Sec. 438.402(b)(3) and (4) would require that 
the MCO's governing body be responsible for effective operation of 
these processes and that it review and resolve the complaints and 
grievances, unless it delegates this responsibility to a grievance 
committee.
    We believe that the grievance process is a more formal stage in the 
overall system than the complaint process because it is also used to 
resolve issues relating to quality of care; and therefore its 
requirements are more extensive than those for the complaint process. 
For example, a complaint may involve an enrollee's dissatisfaction with 
the rudeness of the physician's office staff. On the other hand, a 
grievance could address a restricted number of therapy visits or 
denials of a particular type of specialist referral. The grievance 
process must be available for disputes between the MCO and the enrollee 
concerning the following: denials, reductions, or terminations of 
services; dissatisfaction with providers; appropriateness of services 
furnished; availability of services; the inability to obtain culturally 
and linguistically appropriate care; or disputes concerning 
disenrollment.
    In order to ensure that matters related to the timely acquisition 
of needed services are resolved as expeditiously as the enrollee's 
health requires, under proposed Sec. 438.402(c), the grievance process 
is required to include clearly explained steps, time limits for 
intermediary steps established by the State agency, and, as discussed 
more fully below, resolution of grievances within timeframes consistent 
with those established by Medicare (as described in Secs. 438.406 
through 438.410). In any event, resolution of all issues must be made 
by a certain date that would allow the State agency to proceed with a 
fair hearing, if applicable, and ensure a final decision within 90 days 
of the initial grievance. As noted earlier, we are seeking comment on 
whether and how to extend the requirement for attention to the medical 
exigency of the appeal to the fair hearings process.
    The grievance process under proposed Sec. 438.402(c)(3) would 
require that an in-person hearing be provided at the option of the 
enrollee. In addition, proposed Sec. 438.402(c)(4) would require that 
final grievance decisions wholly or partially adverse to the 
beneficiary must be forwarded to the State agency for review and 
monitoring. We considered but rejected requiring that adverse MCO 
decisions automatically proceed to the fair hearing process. Such a 
policy would have required no further beneficiary involvement to obtain 
a fair hearing and would have further ensured the State agency's 
ability to resolve grievances within 90 days of the initial filing of 
the grievance.
    Automatic filing for a State fair hearing would also have been 
consistent with Medicare's requirement that M+C organizations 
automatically forward to HCFA's external review entity the appeal case 
file of any reconsideration that is not fully favorable to the 
enrollee. We decided to deviate from Medicare on this point because we 
are sensitive to the burden on State fair hearing systems that such a 
requirement would impose. We seek comments on this policy. While we are 
not requiring that grievances automatically proceed to a fair hearing, 
we are setting the timeframes for forwarding the decision and all 
supporting documentation to the State agency under proposed 
Sec. 438.402(c)(4) to be no greater than these in Medicare, that is, 
these must be forwarded as expeditiously as the medical condition of 
the enrollee dictates or within 30 days of the beneficiary's filing a 
standard grievance (or the date of the extension's expiration) or 24 
hours after an expedited decision.
    Finally, proposed Sec. 438.402(c)(5) would reflect our current 
longstanding policy that an MCO's internal grievance process is not a 
substitute for the State fair hearing system. The State system is an 
additional avenue of recourse for Medicaid managed care enrollees. 
Under proposed Sec. 438.402(c)(6), State agencies would be required to 
define a process that either permits individuals to pursue grievances 
simultaneously through State fair hearing and MCO grievance systems, or 
alternatively, to provide that individuals will be entitled to a fair 
hearing only after they have exhausted administrative consideration by 
their MCO. The intent of this proposed regulation is that if the State 
agency requires the beneficiary to use the MCO grievance process prior 
to accessing the State fair hearing system then such an ``exhaustion 
requirement'' would be an attribute of the State design of the 
grievance system as it applies to all MCOs and would not vary for each 
MCO.
    As noted in a policy letter sent to State Medicaid Directors on 
February 20, 1998, providers do not have an independent right under 
Federal law to challenge MCO coverage decisions, but may bring a 
challenge on behalf of an enrollee, with that enrollee's consent. 
However, this proposed regulation would not prohibit a State agency 
from granting providers with such an independent right to challenge MCO 
decisions. For further information, please refer to the State Medicaid 
Director Letter dated February 20, 1998.
3. Notice of Intended Action (Sec. 438.404)
    We are proposing that the notice MCOs would be required to provide 
to enrollees under proposed Sec. 438.404 be the first step in the 
grievance system. It would serve as the enrollee's first formal 
indication that the MCO will take action such as denying payment or 
denying, limiting, reducing, delaying, or terminating a service through 
a service authorization decision. The notice should, therefore, be 
easy-to-read and understand.
    In these proposed regulations, Medicaid is requiring the State 
agency to establish service authorization procedures that, at a 
minimum, comply with Medicare timeframes for organizational 
determinations. Medicare requires M+C Organizations to make 
organizational determinations in a case requiring standard resolution 
as expeditiously as the enrollee's health condition requires but no 
later than 14 calendar days after the request for services, with the 
possibility of an extension of up to 14 additional days if (1) the 
enrollee requests the extension; or (2) the M+C Organization justifies 
(upon request, to the State Medicaid agency) a need for additional 
information, and why the delay is in the interest of the enrollee. 
Medicare also requires M+C organizations to make expedited 
organizational determinations in circumstances that could seriously 
jeopardize the life or health of the enrollee or the enrollee's ability 
to regain maximum function, as expeditiously as the enrollee's health 
condition requires but no later than 72

[[Page 52056]]

hours after the request, with the possibility of an extension of up to 
14 additional days if (1) the enrollee requests the extension or; (2) 
the M+C Organization justifies a need for additional information, and 
why the delay is in the interest of the enrollee. We do not propose 
that MCOs be required to submit written justifications of grievance 
timeframe extensions prior to exercising these extensions.
    Although not mentioned under the definition of service 
authorizations in Sec. 438.310(d), we would like to clarify that 
timeframes for a notice of intended MCO payment denials should, at a 
minimum, follow the standard timeframes outlined in Sec. 438.310(e). We 
chose that timeframe because payment denials will occur after care has 
already been delivered to the member and not involve circumstances 
jeopardizing the life or health of the enrollee or the enrollee's 
ability to regain maximum function.
    The notice would be required to include 10 elements that are listed 
in proposed Sec. 438.404, and would clearly explain how to access the 
grievance system.
    The 10 elements that would be required in a notice under 
Sec. 438.404 are the following:
     The action the MCO intends to take;
     The reasons for the intended action or the delay;
     Any laws and rules that support the action;
     The enrollee's right to file a complaint or grievance with 
the MCO and to request a State fair hearing;
     The circumstances under which expedited grievance review 
is available and how to request it;
     How to file complaints, grievances and State fair hearing 
requests;
     That if the enrollee files a grievance, he or she has a 
right to appear in person before the MCO personnel assigned to resolve 
the grievance;
     The circumstances under which benefits will continue 
pending resolution of the grievance or issuance of a State fair hearing 
decision;
     How to contact the designated office described in 
Sec. 438.406(a); and
     How to obtain copies of the enrollee's records, not 
limited to medical records.
    The reasons for the intended action should be written in plain 
English and clearly identify whether the reason for denial is based on 
medical reasons or insurance coverage.
    It is important to note that, while this section specifies MCO 
requirements for complaint and grievance notices to enrollees, it does 
not diminish or eliminate State requirements for fair hearing notices 
to Medicaid beneficiaries as delineated in part 431, subpart E. Each 
State agency may delegate its responsibilities for fair hearing notices 
to the MCO, and each State agency must determine how State fair hearing 
and MCO complaint and grievance notices are given to beneficiaries. A 
single combined notice may, at the option of the State agency, be used 
for both purposes if such notice meets both the requirements under part 
431, subpart E and in this proposed rule.
    We considered, but rejected, the proposal of some advocates that 
notices should also include an explanation of the availability of free 
legal services. At this time we have not provided for such notification 
in this regulation. We invite comment on this issue.
4. Handling of Complaints and Grievances (Sec. 438.406)
    We propose in Sec. 438.406(a) that each MCO be required to 
establish and maintain a designated office that is adequately staffed 
and that serves as the central point of contact for enrollee issues, 
including complaints. Such an office could be generally available to 
all plan enrollees, but its availability to Medicaid enrollees would 
have to be made clear. This office would function as an initial step in 
the grievance system, where staff can receive inquiries from enrollees 
or their representatives by telephone or in person. Ideally such 
contracts would result in many complaints being resolved satisfactorily 
on an informal basis. Although these consumer relations activities 
operate through verbal communication, MCO staff would be required under 
Sec. 438.406(b) to acknowledge receipt of each complaint or grievance, 
and, as discussed below, under proposed Sec. 438.416, to document the 
communication and maintain adequate records of all communications. As 
discussed below, we propose in Sec. 438.416 that if the MCO does not 
use a separate log for Medicaid recipients, the general log should 
distinguish Medicaid enrollees from other MCO enrollees. This 
information would be required to be available and regularly reported in 
aggregate form to the State agency, as described in Sec. 438.416.
    With regard to grievances, we considered, but did not include, a 
requirement that all grievances be filed first with the State agency, 
as is required by the State of Tennessee. We are concerned that the 
central log-in system used by that State agency would not necessarily 
work well in other States. Associated administrative costs and the need 
for a well-developed infrastructure to support such a system could be 
unduly burdensome for many States. Therefore, we decided not to include 
a similar system in this proposed rule. Furthermore, we believe that 
other parts of this proposed rule will result in many of the same 
benefits promised by advocates of the approach used by Tennessee. For 
example, advocates have noted that a central log-in system would 
enhance the program's ability to use complaint information in quality 
monitoring. We believe the quality strategies that State agencies will 
establish under to part 438, subpart E of this proposed rule will serve 
the same purpose. Beneficiary advocates have suggested that MCOs or 
State agencies should establish ombuds programs to assist beneficiaries 
through the grievance process. After careful consideration, we have 
decided not to include this requirement; however, we support their 
creation and encourage State agencies and MCOs to work together to 
establish such programs, if they believe they are desirable for that 
particular State. We believe that each State agency should establish 
its own approach to how enrollees obtain assistance for the full 
grievance process including the State fair hearing process. In proposed 
Sec. 438.406(c), we would require only that the MCOs provide assistance 
in completing forms or take other steps to obtain resolution of the 
complaint or grievance within the MCO. More general assistance could be 
part of a more comprehensive ombuds program.
    Another important aspect of proposed Sec. 438.406(d) is the 
requirement that the MCO conduct the grievance process using persons 
not involved in any previous level of review or decision making and 
that reviews of denials based on a lack of medical necessity be 
performed by physicians with appropriate clinical expertise. The 
reviewer(s) in each step of the process would have to be impartial. 
Both of these requirements are consistent with those imposed under the 
M+C program. Medicare requires that any reconsideration that relates to 
a determination to deny coverage based on a lack of medical necessity 
must be made only by a physician with an expertise in the field of 
medicine that is appropriate for the services at issue 
(Sec. 422.590(g)(2)).
    Proposed Sec. 438.406(e) provides that all complaints and 
grievances must be resolved within the timeframes specified in 
Sec. 438.408.

[[Page 52057]]

5. Grievance Resolution and Notification (Sec. 438.408)
    In proposed Sec. 438.408(a), we would require that an MCO 
investigate grievances; resolve the grievances within specified 
timeframes; base its decision on the case record, including a hearing; 
and give parties written notice of the decision within specified 
timeframes. As noted above, the timeframes within which grievances must 
be resolved (and notices of the decision must be sent) are based on 
those that apply to Medicare managed care contractors under the new 
Medicare+Choice regulations, as discussed in Sec. 422.590.
    Specifically, in the case of a grievance not requiring expedited 
resolution, the grievance must be resolved, and notice to the enrollee 
must be provided in writing, as expeditiously as the enrollee's health 
condition requires, but no later than 30 days after receipt of the 
beneficiary grievance. The MCO may extend the timeframe by up to 14 
calendar days if the enrollee requests the extension or if the 
organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an 
MCO's decision to deny). As noted above, with respect to authorization 
timeframe extensions (Sec. 438.310), we are not proposing that MCOs be 
required to submit written justification grievance timeframe extensions 
before to exercising those extensions. Instead we propose that 
justifications for extensions would only be required to be submitted to 
the State agency upon request during retrospective reviews.
    In the case of a grievance that is required to be expedited under 
proposed Sec. 438.410 (discussed below), grievances must be resolved, 
and notice provided, as expeditiously as the enrollee's health 
condition requires but no later than 72 hours after receipt of the 
grievance. Again, this timeframe may be extended by up to 14 days for 
the reasons set forth above.
    The decision to require a Medicaid MCO to notify a Medicaid 
enrollee of a complaint or grievance decision that is adverse to the 
enrollee prior to an external hearing is not consistent with Medicare 
policy. In the M+C appeal process, the M+C organization only issues a 
written decision if it is fully favorable to the enrollee (that is, 
constitutes complete reversal of the earlier decision to deny service 
or payment). If the M+C organization does not completely reverse the 
earlier decision, it automatically forwards the appeal case file with a 
written explanation to the external reviewer, which makes the final 
decision.
    To address a recommendation by the CBRR that an independent 
external system be made available to review an adverse decision made by 
the MCO to deny, reduce, or terminate coverage or deny payment for 
services, we have clarified the interaction of the State fair hearing 
process and the MCO grievance system by making conforming changes to 
part 431, subpart E. That subpart now expressly provides for a fair 
hearing under the situations described in part 438, subpart F. 
Specifically, language was added to clarify that members of Medicaid 
MCOs are eligible to appeal adverse decisions through the State fair 
hearing regulations. We believe that this policy ensures MCO enrollees 
the type of independent external review recommended by the CBRR. As 
stated earlier, we are interested in receiving comments about the fair 
hearing process as it applies to managed care.
    We considered requiring MCOs to automatically resolve in the 
enrollee's favor any dispute that it did not resolve within a defined 
timeframe. Beneficiary advocates supported such a requirement; however, 
we believed it was inappropriate for this proposed rule. As with other 
aspects of the grievance process, we invite comments on this issue.
    In Sec. 438.308(b), we specify the content of the notice that would 
have to be provided to enrollees (or, if adverse, forwarded to the 
State agency). This notice would have to include the following 
information:
     The name of the staff person who resolved the grievance;
     The results of the grievance process and the date it was 
completed;
     A summary of the steps taken on behalf of the enrollee to 
resolve the issue;
     A clear explanation of the right to a State fair hearing, 
if the enrollee is dissatisfied with the decision, and how to timely 
file for a fair hearing;
     If a grievance decision is wholly or partly adverse to the 
enrollee, the notice must also explain the circumstances under which--

--Benefits will continue if he or she files the fair hearing request 
timely; and
--The enrollee may be required to pay the cost of any services 
furnished during the pendency of the appeal, if the final decision is 
adverse.
6. Expedited Resolution of Grievances (Sec. 438.410)
    Under proposed Sec. 438.410, MCOs would be required to implement an 
expedited grievance resolution process for issues requiring immediate 
resolution. Some States, such as Tennessee and Minnesota, have 
recognized the need to establish an expedited hearing process for cases 
involving urgently needed care. For example, if the complaint involves 
a dispute about an urgently needed service in Minnesota, the plan uses 
an expedited process appropriate to the particular situation and 
notifies the Commissioner of Health within 2 business days from the 
date the complaint was registered. This practice has reduced the number 
of appeals that become stalled at the MCO level, potentially placing an 
enrollee's health in jeopardy. The CBRR and beneficiary advocates have 
both recommended the adoption of this provision.
    Under proposed Sec. 438.410, beneficiaries would now have a choice 
to request either standard or expedited resolution of their grievances. 
Any oral request made by a beneficiary or a provider must be followed 
up within 24 hours in writing. If the beneficiary or their provider 
believes that taking the time for a standard non-expedited resolution 
could seriously jeopardize the enrollee's life, health, or ability to 
regain maximum function, the beneficiary and provider would be allowed 
to request a more expedited resolution process. If a beneficiary makes 
the request without the support of a physician, the MCO would decide 
whether the standard for expedited review is met. If a physician makes 
the request, or supports a beneficiary request, and attests that the 
standard for expedition is met, the MCO would be required to expedite 
the grievance. If the MCO decides not to expedite a beneficiary's 
request for grievance, the MCO would be required to automatically 
transfer a request to the standard timeframe and make the determination 
within the 30-day timeframe and give the enrollee prompt oral notice of 
the denial and follow up, within 2 working days, with a written letter 
meeting the requirements in Sec. 438.410(f)(2).
    Requiring an expedited grievance resolution process is consistent 
with the requirements that apply under the M+C program. In the case of 
expedited reconsiderations, an M+C organization must issue the 
determination no later than 72 hours after it receives the request for 
expedited reconsideration, with the possibility of up to a 14-day 
extension for certain circumstances (for example, the organization 
justifies a need for additional information and how the delay is in the 
interest of the enrollee). Also, in Medicare, the request

[[Page 52058]]

for an expedited decision may be made by any physician, not just a 
physician participating in the M+C program or the particular M+C plan. 
The Medicaid expedited grievance resolution provision was written using 
the same timeframes and physician criteria as the Medicare expedited 
reconsideration process.
    As has been previously mentioned, in Medicare, if the reconsidered 
decision is not entirely favorable to the enrollee, the decision is 
automatically subject to further review by an independent review entity 
contracted by HCFA. In instances involving expedited requests, the M+C 
organization must forward its decision to the independent entity as 
expeditiously as the enrollee's health condition requires, but not 
later than within 24 hours of its affirmation of the adverse 
organization determination. We have retained this timeframe for 
forwarding documentation from the MCO to the State agencies.
    There is one significant difference between the timeframes used by 
the external review entity for the expedited grievance resolution 
process in the M+C program and the Medicaid managed care program. In 
Medicare, an expedited decision subject to further review by the 
independent entity must be decided within the same timeframes that M+C 
organizations resolve expedited grievances (within 72 hours or the date 
of the extension's expiration). Conversely, in Medicaid, the State fair 
hearing process does not specifically recognize expedited decisions but 
requires resolution within 90 days of the beneficiary request, a much 
longer time period than that required of M+C organizations. We invite 
comment on the question of whether this 90 day timeframe should be 
shortened.
7. Information about the Grievance System (Sec. 438.414)
    Under proposed Sec. 438.10(d)(1)(i) and (e)(10), enrollees would 
receive easy-to-read information about how to access the grievance 
process, including both the MCO complaint and grievance processes and 
the State fair hearings, at the time they enroll. Proposed 
Sec. 438.10(d)(1)(ii) would require that the same information be 
provided to potential enrollees upon request. Under proposed 
Sec. 438.404, information on grievances would also have to be provided 
whenever a service requested by a health care provider, enrollee, or 
enrollee representative is denied or before an ongoing course of 
treatment is reduced or terminated. Under proposed paragraph (a)(3) of 
Sec. 438.414, this information would have to be provided to all 
providers, at the time of subcontracting with the MCO.
    While the MCO would be required to notify all enrollees of the 
grievance process in writing, it may also notify enrollees of the 
grievance process orally (for example, for disabled or illiterate 
people, where necessary). All written and oral information about the 
complaint process must be available in a format that beneficiaries can 
understand. Iowa and Missouri and some other States specify use of 
standard MCO handbook language in their contracts with MCOs. In 
California, enrollees receive descriptions of the process in handbooks 
and annual notices; additionally, whenever a plan denies services 
requested by a health care provider, a notice must be given to the 
enrollee and the enrollee's representative on a standardized form and 
must explain the right to representation and the right to use the 
plan's grievance process before or at the same time the beneficiary is 
pursuing a State fair hearing.
    In proposed Sec. 483.414(b), we specify the content of the 
information on grievances and appeals that would have to be provided. 
Specifically, we propose to require that the following information be 
provided as specified in Sec. 438.10 and Sec. 438.414(a)(3):
    (1) Specification of what constitutes grounds for a complaint, 
grievance, or State fair hearing request;
    (2) An explanation of how to file complaints, grievances and State 
fair hearing requests, and the timeframes for doing so;
    (3) An explanation of the availability of assistance with the 
grievance process and State fair hearings;
    (4) Toll-free numbers for the MCO that the enrollee can use to 
register a complaint or complete a grievance form by telephone (the 
toll-free numbers must have adequate TTY and interpreter capability);
    (5) The specific titles and telephone numbers of the persons in the 
MCO who have responsibility for the proper functioning of the grievance 
process and the authority to require corrective action;
    (6) Assurance that filing a grievance or requesting a State fair 
hearing will not negatively affect or impact the way the MCO and its 
providers, or the State agency treat the enrollee;
    (7) Information on procedures for obtaining care or services during 
the grievance and fair hearing processes as specified in Sec. 438.420.
    In Sec. 483.414(c), we propose that MCOs provide enrollees with 
aggregate or summary information, derived from the information 
collected under Sec. 438.416(e). This information may be publicly 
disclosed by the State agency in consumer information materials; 
however, such disclosure must maintain the confidentiality of 
enrollees.
8. Record Keeping and Reporting Requirements (Sec. 438.416)
    We propose to require under Sec. 438.416(a) and (b) that MCOs 
maintain a log of all complaints and grievances and their resolution, 
and track each grievance through its final resolution. At a minimum, 
the MCO must have a system for monitoring its progress in reviewing and 
resolving each grievance, to ensure that each step is completed within 
the timeframe specified in the MCO's grievance processes. The tracking 
should include a log maintained for all complaints and grievances 
containing sufficient information to identify the grievant, date of 
receipt, nature of the grievance, and the date the grievance is 
resolved.
    Under proposed Sec. 438.416(c), MCOs would be required to record 
any disenrollment, and the reason for the disenrollment, even if it 
occurs before the grievance process is completed. We believe that State 
agencies, as part of their overall monitoring of MCOs, monitor the 
completeness of the reporting of MCO data on disenrollments. Proposed 
Sec. 438.416(d) would require that records of complaints, grievances 
(including their resolution) and disenrollments, for 3 years, in a 
central location accessible to the State agency. If any litigation, 
claim negotiation, audit, or other action involving the documents or 
records has been started before the expiration of the 3-year period, 
the MCO should retain the records until completion of the action and 
resolution of issues that arise from it or until the end of the regular 
3-year period, whichever is later. See also 45 CFR part 92.
    Under proposed Sec. 438.416(e), the MCO must also maintain, 
aggregate and analyze information on the nature of issues raised by 
enrollees and on their resolution, including inquiries, disenrollments, 
complaints, grievances, and fair hearings. Under part 438 subpart E, 
this information must be used to develop activities under the 
organization's Quality Assessment and Performance Improvement (QAPI) 
program, both to improve the issue resolution process itself and to 
make improvements that address other system issues raised in the 
process. Improvement goals and corrective action plans must be 
established as necessary.

[[Page 52059]]

    Our goal in requiring this information is to establish a standard 
of accountability, consistent with the MCO's own activities, that will 
permit the State agency, and if needed HCFA, to assure that enrollee 
disputes are resolved in a fair, complete, and timely manner. We 
recognize that not all Medicaid providers and MCOs are alike, and 
welcome comments on how best to meet our goal without presuming that 
``one size fits all.''
9. Continuation of Benefits Pending Grievance Resolution or State Fair 
Hearing Decision (Sec. 438.420)
    In Sec. 438.420, we are proposing that when the dispute involves 
the termination or reduction of a service currently being provided, the 
MCO must continue the enrollee's benefits until issuance of the final 
grievance decision or State fair hearing decision, if all of the 
following occur: (1) the initial grievance (standard or expedited) or 
the State fair hearing request is filed in a timely manner, (2) the 
enrollee requests continuation of the services, and (3) the services 
were ordered by an authorized MCO physician. Although we allow for 
State agency flexibility in defining timely filing timeframes, this 
continuation of benefits requirement should, at a minimum, meet the 
requirements outlined in the current State fair hearing process at 
Secs. 431.230 and 431.231 (that is, at a minimum, meet the 5- or 10-day 
timeframes). We seek comments on the appropriateness of these 
timeframes for managed care services.
    This provision only applies when the MCO physician initially 
authorized the services (that is, it does not apply to pre-service 
authorization requests that were denied) and when the beneficiary 
requests the services be continued (that is, the mere action of filing 
for a grievance or fair hearing in a timely manner is not sufficient 
for benefits to be continued). The continuation of benefits provision 
will not require a further statement of authorization from the MCO 
physician or affect benefits not originally authorized. We expect that 
the MCO will neither take nor threaten to take any punitive action 
against a physician who requests continuation of benefits or supports 
an enrollee's request for continuation of benefits.
    Beneficiaries who have received continuation of benefits while they 
appeal to the MCO are not obligated to pursue their appeal further 
through the fair hearing process if the plan denies their appeal unless 
they so choose. It is important to note, however, that enrollees who 
lose their appeal at either the plan or fair hearing levels will be 
liable for the costs of all appealed services from the later of the 
effective date of the Notice of Intended Action or the date of the 
timely-filed appeal, through the date of the denial of the appeal.
    As mentioned earlier, we had considered but rejected an option that 
would have required MCOs to automatically forward appeals they reject 
to the State fair hearing process for external review, as is currently 
the case in Medicare. Under this option, continuation of benefits could 
have also automatically occurred with the forwarding of the request. We 
have rejected this as well.
10. Effectuation of Reversed Grievance Resolutions (Sec. 438.421)
    In Sec. 438.421, we are proposing that if the MCO reverses its 
grievance resolution, the MCO must authorize or provide the service 
under dispute as expeditiously as the enrollee's health condition 
requires, but no later than 30 calendar days after the date the MCO 
receives the request for reconsideration. Furthermore, if the MCO's 
grievance resolution is reversed under the State fair hearing process, 
the MCO must authorize or provide the service under dispute as 
expeditiously as the enrollee's health condition requires within 
timeframes established by the State agency, but no less than 60 
calendar days from the date the MCO receives notice reversing the MCO's 
grievance resolution.
11. Monitoring of the Grievance System (Sec. 438.422)
    In Sec. 438.422, we are proposing that the MCO and State agency use 
the complaint and grievance logs and annual grievance summary for 
contract compliance and quality monitoring. The specific contract 
compliance and quality monitoring should, at a minimum, include the MCO 
and State agency reviewing the logs and summary for trends in 
complaints and grievances against a particular provider or in a 
particular service, and the MCO conducting following up reviews, 
reporting results of the reviews to the State agency, and taking 
corrective action when necessary.
    Some State agencies do not currently make full use of complaint and 
grievance data to monitor contracts with MCOs or to improve the 
functioning of Medicaid managed care. State agencies should review the 
types of complaints filed with each MCO to determine whether they point 
to systemic problems and should review MCOs' responses to complaints 
for both adequacy and timeliness.
12. Consequences of Noncompliance (Sec. 438.424)
    Under section 1932(e)of the Act and Sec. 438.718 of the 
regulations, discussed below, a contract with an MCO may be terminated 
if the MCO fails to comply with section 1903(m)(2)(A) or section 1932 
of the Act. Proposed Sec. 438.424(a) provides that the State agency may 
terminate the MCO's contract if it fails to comply with requirements in 
subpart F.
    In addition, under section 1903(m)(2)(A)(xi) of the Act, absent a 
statutory exemption, Federal financial participation (FFP) in 
comprehensive risk contracts is conditioned on compliance with 
applicable requirements in section 1932 of the Act. The regulations in 
this subpart implement the grievance requirements in section 1932(b)(4) 
of the Act. Accordingly, compliance with these requirements is a 
condition for Federal matching, and failure to comply could result in a 
disallowance. In order to emphasize the importance of the grievance and 
appeal requirements in subpart F, proposed Sec. 438.424(b) provides 
that if an MCO fails to comply with the provisions of this subpart, 
HCFA may deny FFP in payments under the contract.

F. Certifications and Program Integrity Protections (Subpart H)

    Section 438.600 of subpart H contains provisions pertaining to plan 
certification of data, information, and material and general contract 
provisions.
    Sections 1902(a)(4) and (19) of the Act, establish methods of 
administration that are necessary for the proper and efficient 
operation of the plan and ensure that care and services will be 
provided in a manner consistent with the best interest of the recipient 
and to preserve the integrity of the Medicaid program. In this proposed 
rule, we are requiring MCOs to certify the accuracy, completeness, and 
truthfulness of any data, including but not limited to, enrollment 
information or encounter data, that may be submitted to determine the 
basis for payment from a State agency. In addition, MCOs must certify 
the accuracy and completeness of information provided in contracts, 
requests for proposals, or other related documents specified by the 
State agency. We are also requiring that any entity seeking to contract 
as an MCO must have certain procedures in place designed to guard 
against fraud and abuse that include provisions for reporting to the 
State agency, HCFA, and the OIG information of violations of

[[Page 52060]]

law by the MCO, subcontractors, or enrollees for a determination as to 
whether criminal, civil, or administrative action may be appropriate.

G. Sanctions (Subpart I)

    Section 1932(e)(1) of the Act requires, as a condition for entering 
into or renewing contracts under section 1903(m) of the Act, that State 
agencies have in place intermediate sanctions that the State agency may 
impose on MCOs if an MCO commits one of six specified offenses 
discussed below (in the case of an offense involving marketing, the 
Congress provides for sanctions against primary care case managers as 
well as MCOs). The Congress also in section 1932(e)(2) of the Act 
provides specific sanction authority under Federal law (civil money 
penalties, the appointment of temporary management, disenrollment 
rights for enrollees, and suspension of enrollment or payment) that 
State agencies can use to fulfill the sanction obligation in section 
1932(e)(1) of the Act. In addition, section 1932(e)(3) of the Act 
requires that specified sanctions (temporary management and enrollee 
disenrollment rights) be imposed on MCOs with chronic violations, and 
section 1932(e)(4) of the Act authorizes State agencies to terminate 
MCE contracts if they fail to meet the requirements in sections 1932, 
1903(m), or 1905(t) of the Act. Finally, certain sanctions (suspension 
of enrollment or of payment for new enrollees) may be imposed on any 
MCE for a failure to comply with requirements in section 1932 of the 
Act generally (or, in the case of an MCO, a failure to comply with 
section 1903(m) of the Act, as discussed below). This new sanction and 
termination authority under section 1932(e) of the Act would be 
implemented in proposed regulations in subpart I.
    The new sanction authority in section 1932(e) of the Act represents 
the first time that the Congress has granted Medicaid sanction 
authority directly to State agencies. Under section 1903(m)(5) of the 
Act, which the Congress has left in place, HCFA is provided with 
authority to impose sanctions when Medicaid-contracting HMOs committed 
essentially the same offenses as those identified in section 1932(e)(1) 
of the Act. In light of the fact that Medicaid is a State-run program, 
HCFA implemented section 1903(m)(5) of the Act in regulations that 
provided for State agencies to monitor for the HMO (now MCO) offenses 
in question, make findings on violations, and propose sanctions that 
would be deemed to be HCFA sanctions if HCFA did not inform the State 
agency that it disagreed with the State agency recommendations, as 
discussed in Sec. 434.67. HCFA also retains the right under Sec. 434.67 
to directly sanction Medicaid MCOs. Because the Congress left the 
sanction authority in section 1903(m)(5) of the Act in place, we are 
proposing to retain the regulation implementing this separate sanction 
authority, with non-substantive revisions, and recodify it as part of 
this sanctions subpart as proposed in Sec. 438.730, ``HCFA Sanctions.''
    In addition to the opportunity State agencies have had to recommend 
that HCFA sanctions be imposed under section 1903(m)(5) of the Act and 
Sec. 434.67 of the regulations, most State agencies already utilize 
some type of sanction authority of their own, even though previously 
there was no Federal requirement that State agencies have sanctions 
established. We consulted extensively with the Medicaid Quality 
Technical Advisory Group (Q-TAG) to receive their input on the proposed 
provisions described in this subpart and to gain a better understanding 
of how State agencies use intermediate sanctions against MCOs.
1. Basis for Imposition of Sanctions (Sec. 438.700)
    Proposed Sec. 438.700(a) sets forth the six MCO offenses that, 
under section 1932(a)(1)(A) of the Act, must make an MCO subject to 
sanction. These offenses are as follows:
     A failure to provide medically necessary items and 
services that are required (under law or contract) to be provided to an 
enrollee;
     The imposition of premiums or charges in excess of those 
permitted under title XIX;
     Any act to discriminate among enrollees on the basis of 
health status or requirements for health care services, including 
expulsion or refusal to reenroll an individual (except as permitted by 
title XIX), or engaging in any practice that would reasonably be 
expected to have the effect of denying or discouraging enrollment with 
the organization by eligible individuals whose Medical condition or 
history indicates a need for substantial future medical services;
     A misrepresentation or falsification of information 
furnished to the following:

--HCFA or the State under title XIX; or
--An enrollee, potential enrollee, or health care provider under title 
XIX; and

     A failure to comply with the physician incentive 
requirements under section 1903(m)(2)(A)(x) of the Act.
    Proposed Sec. 438.700(b) would implement the last sentence in 
section 1932(e)(1)(A) of the Act, which provides that a State agency 
may also sanction a primary care case manager if it determines that it 
distributed (directly or through an agent) marketing material that was 
not approved by the State agency or was misleading in violation of 
section 1932(d)(2)(A)(i)(II) of the Act and proposed Sec. 438.104(b) of 
the regulations.
2. Types of Intermediate Sanctions (Sec. 438.702)
    Proposed Sec. 438.702(a) sets forth the types of intermediate 
sanctions that State agencies may impose under Federal law in 
fulfillment of their obligation under section 1932(e)(1)(A) of the Act 
(in the case of MCOs) or under their authority in section 1932(e)(1)(A) 
of the Act (in the case of MCEs). These sanctions are (1) civil money 
penalties, in amounts specified in Sec. 438.702 (discussed below); (2) 
the appointment of temporary management of the MCO (this sanction may 
not be imposed on a primary care case manager); (3) granting enrollees 
the right to terminate enrollment without cause, and providing notice 
of such right; (4) suspension or default of all enrollment of 
individuals in the MCO or MCE; and (5) suspension of payment for new 
enrollees.
    Proposed Sec. 438.702(b) implements the additional authority in 
sections 1932(e)(2)(D) and (E) if the Act to suspend enrollment, or 
payment for new enrollees in the case of any MCE that violates section 
1903(m) or section 1932 of the Act. Because the requirements in section 
1903(m) of the Act apply only to MCEs that are MCOs, and thus could not 
be ``violated'' by a primary care case manager, we specify in proposed 
Sec. 438.702(b) that only MCOs can be sanctioned for violating section 
1903(m) of the Act.
3. Amounts of Civil Money Penalties (Sec. 438.704)
    In proposed Sec. 438.704, we reflect the civil money penalty 
amounts that, under section 1932(e)(2)(A) of the Act, can be imposed by 
State agencies for specified violations. These specified maximum 
amounts range from $15,000 to $100,000, depending upon the violation. 
In the case of overcharges to enrollees, the penalty is based on double 
the amount of the excess charges.
    We note that the maximum amounts specified in section 1932(e)(2)(A) 
of the

[[Page 52061]]

Act and proposed Sec. 438.704 only apply to the extent the State agency 
is relying upon this Federal law as authority for the sanction it is 
imposing. State agencies remain free to provide for sanctions under 
State law that may be more severe than those authorized under section 
1932(e)(2)(A) of the Act.
4. Special Rules for Temporary Management (Sec. 438.706)
    In proposed Sec. 438.706, we would implement the authority in 
section 1932(e)(2)(B) of the Act to appoint temporary management of an 
MCO in the case of continued egregious behavior or threats to enrollee 
health. In proposed Sec. 438.706(a), we set forth the grounds for such 
a sanction set forth in section 1932(e)(2)(B) of the Act.
    In proposed Sec. 438.708, we implement the requirement in section 
1932(e)(3) of the Act that State agencies impose the temporary 
management sanction in section 1932(e)(2)(B) of the Act, and the 
enrollee right to disenroll without cause under section 1932(e)(2)(C) 
of the Act, when the State agency finds that an HMO has repeatedly 
failed to meet requirements in sections 1903(m) or 1932 of the Act. 
This provision is designed to protect enrollees from organizations that 
have a pattern of providing substandard care or continually putting an 
enrollee's health at risk. After consultation with Q-TAG members, we 
realize that this provision may be particularly burdensome for State 
agencies. By using ``repeatedly fails'' language, the Congress left it 
to HCFA or the State agency to decide how many violations trigger the 
temporary management requirement. Our intent with this provision is to 
maintain as much State flexibility as possible. Therefore, we want to 
be clear that State agencies have the authority to first terminate a 
contract with an MCO that violates contractual provisions before 
resorting to temporary management, as long as the cause for termination 
falls short of the State Plan's threshold (number and severity) of 
violations agreed upon by the Secretary that would cause temporary 
management to take effect. We also do not believe that the Congress 
intended to mandate the imposition of this sanction in the case of 
minor or technical violations, even if these occur repeatedly. We 
accordingly provide in Sec. 438.708 that State agencies are only 
required to impose this sanction in the case of repeated substantial 
violations of sections 1903(m) or 1932 of the Act. The proposed 
regulation allows the State agency to temporarily manage MCOs through 
any administrative means it deems necessary. This means that States may 
utilize resources beyond what those agencies that have Medicaid 
jurisdiction traditionally provide. For example, a State could involve, 
entirely or in part, its Insurance Commission, or even contract with 
private organizations to assist in temporary management.
5. Notice of Sanction; Due Process (Sec. 438.710)
    Under section 1932(e)(5) of the Act, before imposing the sanctions 
under section 1932(e)(2) of the Act (other than the temporary 
appointment of management), the State agency must provide the MCO (or, 
where applicable, primary care case manager) with notice and such other 
due process protections as the State agency may provide except that ``a 
State agency may not provide a pre-termination hearing before imposing 
the sanction'' of appointing temporary management.
    In proposed Sec. 438.710(a), we would require that, except as 
provided in Sec. 438.710(b), before imposing any sanction in this 
subpart, the State agency must give the affected MCE ``timely'' written 
notice that explains the basis and nature of the sanction, and provide 
other due process protections that the State agency may elect to 
provide, which must be explained in the notice of intent to sanction. 
This provision is intended to provide MCEs some level of warning and 
protection against sanctions imposed by State agencies. Under proposed 
Sec. 438.710(a)(1), the State agency must provide ``timely'' notice, 
and this notice must include which intermediate sanction the State 
agency is going to impose and the State agency's reason(s) for 
imposition. The State agency may also provide any other due process, as 
defined by the State agency, as it sees fit. Each State agency will 
have the flexibility to define ``timely.'' Sec. 438.710(b) would 
reflect the statutory prohibition on providing a ``pre-termination 
hearing'' to an MCO prior to imposing the temporary management sanction 
under Sec. 438.706 or Sec. 438.708. We believe the intent of this 
provision is to allow State agencies to take swift, corrective action 
when necessary to protect the health of enrollees.
    6. Termination of an MCE Contract (Sec. 438.718)
    Proposed Sec. 438.718 would implement the authority in section 
1932(e)(4) of the Act to terminate an MCE contract for failing to 
comply with its contract, or requirements under sections 1932, 1903(m) 
(in the case of MCOs), or 1905(t) of the Act (in the case of primary 
care case managers). We note that section 1932(e)(4) of the Act does 
not refer to the requirements of ``this section'' (1932), but to ``this 
part.'' We are interpreting this reference to have been intended to 
refer to requirements in section 1932 of the Act.
    7. Hearing on Contract Termination (Sec. 438.720)
    Proposed Sec. 438.720 would implement the requirement in section 
1932(e)(4)(B) of the Act that an MCE receive a right to a hearing 
before its contract is terminated. In proposed Sec. 438.720(b)(1), we 
require that State agencies provide written notice of an intent to 
terminate within 30 days of deciding to terminate, and that this notice 
provide the reasons for the proposed termination, and the time and 
place of a hearing. Proposed Sec. 438.720(b)(2) provides that the 
hearing must be not less than 30 or more than 60 days after the notice, 
unless the State agency and MCE agree in writing to a different date. 
The purpose of the timeframe requirements is to allow the MCE 
appropriate time to prepare for the hearing. In Sec. 438.720(c), we 
would require that if the proposed termination decision is affirmed 
following the hearing, the State agency must indicate the date the 
termination is effective.
8. Disenrollment During Termination Hearing Process (Sec. 438.722)
    Proposed Sec. 438.722 would implement section 1932(e)(4)(C) of the 
Act, which provides that the State agency may provide individuals 
enrolled with an MCE that is the subject of a termination hearing that 
a decision to terminate the MCE's contract is under appeal, and permit 
such enrollees to disenroll immediately without cause. This authority 
provides an additional tool for a State agency to use during the 
contract termination hearing process.
    9. Notice to HCFA (Sec. 438.724)
    Under proposed Sec. 438.724(a), the State agency would be required 
to give notice to the HCFA Regional Office whenever it imposes or lifts 
a sanction. Proposed Sec. 438.724(b) would require that this notice 
specify the kind of sanction at issue, and the reason for the State 
agency's decision to impose or lift it. This provision was added in 
order that HCFA may be ensured that State agencies and contractors are 
in compliance with the requirements of section 1932(e) of the Act.
10. Sanction by HCFA (Sec. 438.730)
    We propose to redesignate Sec. 434.67 as Sec. 438.730 with non-
substantive revisions and appropriate changes in terminology.

H. Conditions for Federal Financial Participation (Subpart J)

    In subpart J, we propose to include both existing and new 
regulations

[[Page 52062]]

pertaining to State eligibility for Federal financial participation 
(FFP) in payments under managed care contracts. As discussed above, 
absent a statutory exemption from its provisions, section 1903(m)(2)(A) 
of the Act conditions Federal matching in payments under a 
comprehensive risk contract on compliance with the requirements in 
section 1903(m)(2)(A) of the Act. These section 1903(m)(2)(A) of the 
Act requirements include meeting the definition of MCO, payment on an 
actuarially sound basis, prior approval by HCFA of the contract, 
physician incentive requirements, and the new disenrollment rights 
under section 1932(a)(4) of the Act, which are incorporated under 
section 1903(m)(2)(A)(vi) of the Act. Most significantly, section 
1903(m)(2)(A)(xi) of the Act conditions Federal matching in 
comprehensive risk contracts on the contract's and the MCO's compliance 
with applicable requirements in section 1932 of the Act. This includes 
the MCO's role in complying with the State quality strategy established 
under subpart E, the beneficiary protections in subpart C, and the 
grievance requirements in subpart F. Indeed, all of the requirements in 
this part that apply to MCOs implement either section 1903(m) or 
section 1932 of the Act. Thus, Federal matching in MCO contracts is 
conditioned on compliance with these requirements in section 1932.
1. Basic Requirements (Sec. 438.802)
    We provide in proposed Sec. 438.802 that FFP is available in 
expenditures for payments under an MCO contract only for such periods 
during which the contract meets the requirements of part 438 and is in 
effect.
2. Prior Approval (Sec. 438.806)
    Section 4708(a) of the BBA amended section 1903(m)(2)(A)(iii) of 
the Act to require the Secretary's prior approval for all MCO's 
contracts involving expenditures in excess of $1,000,000 for 1998. For 
subsequent years, the threshold amount for MCO contracts will be 
increased by the percentage increase as determined by the consumer 
price index for all urban consumers.
    Before the amendments made by section 4708 (a) of the BBA, section 
1903 (m)(2)(A)(iii) of the Act required that the Secretary must provide 
prior approval for all HMO contracts involving expenditures in excess 
of $100,000. There was no reference in law or regulations made for 
monetary increases of the threshold amount in future years.
    We propose technical and conforming revisions to Sec. 438.808, 
which would contain the rules currently found in Sec. 434.80 
(redesignated as Sec. 438.802).
3. Expenditures for Enrollment Broker Services (Sec. 438.810)
    Proposed Sec. 438.810 would implement section 1903(b)(4) of the 
Act, added by section 4707(b) of the BBA, which provides for 
limitations on FFP in payments to enrollment brokers. Prior to this 
provision, there was no reference or provisions in current law or 
regulations specifically pertaining to enrollment brokers and their 
expenditures. This provision clarifies that States' expenditures for 
enrollment brokers are considered necessary for the proper 
administration of the State Plan, but only if the broker is independent 
of any managed care entity or health care provider that provides 
services in the same State in which the broker is conducting enrollment 
activities. No owner, employee, board member, or person who has a 
contract with the broker may have financial interest in such entity or 
provider, nor may the individual have been debarred by any Federal 
agency or subject to civil penalties under the Act.
    In addition, State agencies would, under our proposed rule, be 
required to submit to HCFA all initial enrollment broker contracts or 
Memoranda of Agreement (MOA) for approval prior to the effective date 
of the contract or MOA. Contracts being renewed with the same 
contractor would not be subject to prior approval. We are proposing to 
impose this requirement under our authority under section 1902(a)(4) of 
the Act to provide for necessary and proper methods of administration. 
We believe that it is important that all parties know in advance 
whether an enrollment broker arrangement meets requirements for FFP. We 
accordingly believe that it is ``necessary and proper'' for the State 
agency to obtain prior approval of broker arrangements. HCFA will 
review contracts or MOAs to ensure that they meet the requirements for 
FFP.
4. Costs under Risk and Nonrisk Contracts (Sec. 438.812)
    Proposed Sec. 438.812 contains the rules on matching rates for 
costs under risk and non-risk contracts currently set forth in 
Secs. 434.74 and 434.75.

I. Amendments and Revisions to Parts 400, 430, 431, 434, 435, 440, and 
447

1. Amendments to Part 400
    We propose to amend Sec. 400.200 to add explanations of the 
acronyms ``HIO,'' ``MCE,'' ``MCO,'' and ``PHP.''
2. Amendments to Part 430
    We propose to add a new Sec. 430.5, containing definitions that 
currently appear in part 434 or elsewhere. We propose to include 
several current definitions unchanged, for example, Federally qualified 
HMO, clinical laboratory, health insuring organization, and risk 
contract. We also propose to revise several definitions. We propose to 
revise the current definition of ``capitation fee'' to refer to 
``capitation payment.'' We believe this more accurately reflects the 
terminology actually used, and eliminates any confusion between 
capitation payments and ``fee'' for service payments that may arise 
from the use of the word ``fee.''
    We propose to revise the current definition of ``risk comprehensive 
contract'' to refer more logically to a ``comprehensive risk 
contract.'' More importantly, we are proposing to revise this 
definition to separately identify each discrete service that is 
incorporated in the statutory definition of a contract subject to the 
requirements in section 1903(m)(2)(A) of the Act. Under section 
1903(m)(2)(A) of the Act, a risk contract is subject to the 
requirements in section 1903(m)(2)(A)of the Act (and is considered a 
``comprehensive risk contract'') if it includes inpatient hospital 
services and any one of several State plan services identified through 
citations to the statutory subsections providing for coverage of the 
services, or any three of the identified services. Confusion was 
created, however, by the fact that in some cases services were 
clustered together in a single subsection. For example, nursing 
facility services, EPSDT services, and family planning services were 
all in one cited subsection. Questions were raised as to whether a 
contract had to include all the services in a cluster in order for the 
services to count as an additional service when inpatient hospital 
services are covered, or as one of three outpatient services that would 
trigger section 1903(m)(2)(A) of the Act when inpatient hospital 
services are not provided. Also, when a cluster included three 
services, questions were raised as to whether covering three services 
in a single cluster counted as a single service, or as three services 
for purposes of the three services rule. The current regulation 
defining comprehensive risk contracts, Sec. 434.21(b), does not do 
anything to resolve these questions, since it contains the same 
``clusters'' of services as the statute. In our proposed revised 
definition of comprehensive risk contract, with the exception of 
``laboratory and x-ray services'' that are

[[Page 52063]]

considered together as a single service, the services referenced in 
section 1903(m)(2)(A) of the Act are all listed separately, and it is 
clear that offering inpatient hospital services and any one of these 
nine services, or any three of these nine services, would trigger the 
definition of ``comprehensive risk contract,'' and (absent a statutory 
exemption) the requirements in section 1903(m)(2)(A) of the Act.
    We propose to revise the definition of ``contractor'' to eliminate 
listed examples, and apply it more broadly to any contractor that meets 
the current introductory clause.
    Finally, we propose to revise the definition of non-risk contract 
to reflect the fact that under such a contract, the contractor is paid 
based on costs to the extent they do not exceed the upper payment limit 
in Sec. 447.362.
3. Revisions to Part 431
    We propose conforming amendments to part 431 to reflect changes in 
terminology and other new provisions enacted in the BBA. As discussed 
in section B.5. above, we also have made conforming changes to the fair 
hearing regulations in part 431, subpart E, to reflect the MCO 
grievance and appeals requirements in part 438 subpart F.
4. Revisions to Part 434
    As discussed above, we propose to revise part 434 to remove 
provisions relating to managed care, which we have moved to part 438 as 
described above.
5. Revisions to Part 435
    a. Technical and Conforming Changes. We propose conforming 
amendments to part 435 to reflect changes in terminology and other new 
provisions enacted in the BBA. As discussed above, in section B.5., we 
also have made conforming changes to the fair hearing regulations in 
subpart E of part 435 to reflect the grievance and appeals provisions 
in subpart F of part 438. In addition, we propose to implement BBA 
changes to the rules on guaranteed eligibility.
    b. Guaranteed Eligibility (Secs. 435.212 and 435.326). Prior to the 
enactment on August 5, 1997 of section 4709 of the BBA, section 
1902(e)(2) of the Act provided that State agencies, at their option, 
could provide for a minimum enrollment period, during which a Medicaid 
individual enrolled in a Federally qualified HMO or one of certain 
other specified entities retains eligibility for Medicaid services the 
HMO provides even if the enrollee otherwise loses Medicaid eligibility. 
Even though this provision was enacted in 1983, since that time only a 
few State agencies have opted to implement this provision. One factor 
we believe that has kept State agencies from making greater use of this 
provision is the requirement that it was limited only to those 
individuals who were enrolled in Federally qualified HMOs and other 
entities that are not prevalent in all States.
    Section 4709 of the BBA expands section 1902(e)(2)(A) of the Act to 
include individuals enrolled in MCOs and primary care case management 
systems. This expansion greatly increases the number of individuals who 
will be potentially eligible for the guaranteed eligibility provision.
    Specifically, section 4709 expands the State agency's option to 
guarantee up to 6 months of eligibility in two ways: (1) it expands the 
types of MCOs whose members may have guaranteed eligibility in that it 
now includes anyone who is enrolled with a Medicaid MCO as defined in 
section 1903(m)(1)(A) of the Act, and (2) it expands the option to 
include those individuals enrolled with a primary care case manager as 
defined in section 1905(t) of the Act. The provision also describes 
that when Medicaid benefits are furnished under the guaranteed 
eligibility provisions, the benefits include only those provided by the 
MCO or by or through the case manager. This provision applies to the 50 
States and the District of Columbia.
    We note that section 1902(e)(2) limits the ``guaranteed'' benefits 
provided for under its authority to benefits provided to the individual 
as an enrollee of the MCO, or by or through the case manager for 
primary care case management enrollees. In the revised Sec. 435.212, we 
refer to services ``furnished to the beneficiary as an MCE enrollee.'' 
With respect to primary care case management arrangements, we have 
interpreted that the guaranteed benefits provided under this provision 
extend to services that do not require case-by-case authorization of 
the case manager, such as emergency services, dental, or OB/GYN 
services received by an enrollee. The scope of the blanket 
authorization can be defined by the State agency. An example of a 
blanket authorization would be one which allows Medicaid beneficiaries 
to access emergency room or dental services without the need to consult 
a case manager.
    6. Revisions to Part 440: Primary Care Case Management Services 
(Sec. 440.168)
    Section 4702 of the BBA adds primary care case management services 
to the list of optional Medicaid services in section 1905(a) of the 
Act. The BBA also added section 1905(t) to the Act. This new subsection 
defines primary care case management services, identifies who may 
provide them, and sets forth requirements for contracts between primary 
care case managers and the State agency. Before to the BBA, State 
agencies were permitted to implement a primary care case management 
system only through a freedom of choice waiver under section 1915(b)(1) 
of the Act or through a section 1115 waiver authority. This provision 
was set forth in order to allow State agencies more flexibility in 
providing quality services to Medicaid beneficiaries through an 
arrangement that has proven to be cost effective for the Medicaid 
program. We are proposing to add Sec. 440.168--Primary Care Case 
Management Services. This new section will define primary care case 
management services and identify who may provide them.
    Primary care case management services means case management related 
services that include the locating, coordinating, and monitoring of 
health care services provided by a primary care case management 
provider under contract with the State agency as set forth in 
Sec. 438.6(j). This includes the authority for a primary care case 
management provider to deny services that are not medically necessary 
to require preauthorization of services.
    A primary care case manager is a physician, physician group 
practice, or an entity employing or having other arrangements with 
physicians to provide primary care case management services under 
contract with the State agency. At the State agency's option, nurse 
practitioners, certified nurse midwives, and physician assistants may 
also qualify as primary care case management providers.
    Primary care for the purpose of this provision includes all health 
care services and laboratory services customarily provided by or 
through a general practitioner, family medicine physician, internal 
medicine physician, obstetrician/gynecologist, or pediatrician in 
accordance with State licensure and certification laws and regulations.
7. Revisions to Part 447
    a. Technical and Conforming Changes. We propose to make technical 
and conforming changes reflecting changes in terminology and other 
revisions made by the BBA.
    b. Timely Claims Payment by Managed Care Organizations 
(Sec. 447.46). The purpose of this new section of the regulations is to 
implement section 4708(c) of the BBA, which added section 1932(f) to 
the Act. Under this provision, contracts, under section

[[Page 52064]]

1903(m) of the Act, with managed care organizations must provide that 
payment to affiliated health care providers for items and services 
covered under the contract must be made on a timely basis, consistent 
with the claims payment procedures described under section 
1902(a)(37)(A) of the Act. To be consistent with section 1902(a)(37)(A) 
of the Act, the Medicaid MCO's contract must ensure that 90 percent of 
claims for payment (for which no further written information or 
substantiation is required in order to make payment) made for services 
covered under the contract and furnished by health care providers are 
paid within 30 days of receipt and that 99 percent of such claims are 
paid within 90 days of receipt. However, the MCO and health care 
providers have the flexibility to establish an alternative payment 
schedule that is mutually agreed upon. If such an alternative payment 
schedule is established, it should also be described in the managed 
care organization's contract, so that providers are ensured payment 
under the procedures agreed to.

IV. Effective Date of the Final Rule

    When this regulation is published as a final rule, we intend to 
make it effective 60 days following publication. Provisions that must 
be implemented through contracts with MCOs, PHPs, HIOs, or enrollment 
brokers will be effective with contracts entered into or revised on or 
after 60 days following the effective date, but no longer than 12 
months from the effective date. Of course, many provisions in this 
proposed rule reflect statutory requirements that are already in 
effect. HCFA has provided State agencies with guidance on implementing 
these provisions through a series of letters to State Medicaid 
Directors. These letters appear on the HCFA Home Page and can be 
accessed at http://www.hcfa.gov. We invite comment on the proposed 
implementation timeframe.

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the ``DATES'' 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that 
we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comments on each of these 
issues for the information collection requirements discussed below.
    The following information collection requirements and associated 
burdens are subject to the PRA.

A. Section 438.10  Information Requirements

1. Section 438.10 (d), (e), and (f)
    a. Requirement. In summary, Sec. 438.10 (d) and (e) state that each 
State agency, MCE, or enrollment broker, as appropriate, must furnish 
information to enrollees and potential enrollees, to meet the 
requirements of this section. The basic information listed in 
Sec. 438.10(e) of this section must be provided as follows:
     To each enrollee, by the MCO, within a reasonable time 
after it receives, from the State agency or the enrollment broker, 
notice of the recipient's enrollment;
     To any potential enrollee that requests it, by the MCO or 
by the State agency, if the State agency prohibits MCOs from providing 
it; and
     On an annual basis thereafter, the MCO must notify 
enrollees of their right to request and obtain this information. The 
information that must be provided includes the following:

--Kinds of benefits and amount, duration, and scope available under the 
contract;
--Procedures for obtaining services, including authorization 
requirements;
--Names and locations of current network providers, including 
identification of those who are not accepting new patients;
--Any restrictions on the enrollee's freedom of choice among network 
providers;
--The extent to which enrollees may obtain services from out-of-network 
providers;
--Provisions for after-hours and emergency coverage;
--Policy on referrals for specialty care and for other services not 
furnished by the enrollee's primary care provider;
--Cost-sharing, if any;
--Enrollee rights and responsibilities, such as Secs. 438.56 and 
438.320; and
--Grievance and appeals processes for the enrollee and health care 
provider, including procedures for obtaining care or services during 
the appeals process.

    In addition, Sec. 438.10(f) requires that information related to 
MCEs and health care facilities, their licensure, certification, and 
accreditation status. Information that includes, but is not limited to, 
education and board certification and recertification of health 
professionals must be furnished, upon request, to each enrollee, by the 
MCE, and to each potential enrollee, by the MCE, or by the State agency 
if the State agency prohibits MCEs from providing it.
    b. Burden. We believe the burden placed on State agencies, MCEs, or 
enrollment brokers as a result of this requirement is the time 
associated with the modifying the content of existing information 
materials, as well as the time associated with distributing the 
materials to enrollees as specified by the regulation. We estimate that 
it will initially take 12 hours for each MCE to modify existing 
information materials to conform with the requirement above. We further 
estimate that there are approximately 568 MCEs, equating to an initial 
modification burden of approximately 6,800 hours. After the initial 
modification, we estimate that it will take MCEs approximately 4 hours 
each to annually update the information materials, equating to an 
annual total burden of approximately 2,300 hours.
    We expect that it will take MCEs or State agencies approximately 5 
minutes per enrollee to mail the initial packet, for an estimated 
19,400,000 total enrollees. The total burden associated with this 
requirement is approximately 1,616,700 hours, approximately 2,800 hours 
per MCE or 33,700 hours per State agency.
    We similarly estimate that it annually will take MCEs or State 
agencies 5 minutes per enrollee to mail

[[Page 52065]]

information materials upon request. We estimate that 10 percent of 
enrollees and potential enrollees will request information annually, 
equating to approximately 2,075,800 enrollees and potential enrollees. 
The annual mailing burden associated with this requirement is estimated 
to be 2,075,800 individuals multiplied by 5 minutes per person, for a 
total burden of approximately 173,000 hours (approximately 300 hours 
per MCE or 3,600 hours per State agency).
    Finally, we estimate that it will annually take MCEs or State 
agencies 5 minutes per enrollee to notify enrollees of their right to 
receive information. Five minutes multiplied by an estimated total 
enrollee population of 19,400,000 individuals equates to an annual 
burden of approximately 1,616,700 hours or approximately 2,800 hours 
per MCE or 33,700 hours per State agency.
2. Section 438.10(g)
    a. Requirement. Section 438.10(g) states that before or during 
enrollment, the State must, directly or through the MCE, provide 
information to Medicaid enrollees on (1) any benefits to which they may 
be entitled under the Medicaid program, but which are not covered under 
the MCE contract, (2) specific instructions on where and how to obtain 
these benefits, including how transportation is provided and, (3) cost 
sharing, if any.
    b. Burden. The burden associated with this requirement is the time 
it would take State agencies to collect and mail this information to 
enrollees. We believe that it will take State agencies approximately 12 
hours each to collect and prepare the information materials associated 
with this requirement, equating to an initial burden of 48 States times 
12 hours, or 576 hours. The additional mailing time associated with 
this requirement is approximately 5 minutes per enrollee, equating to 
an annual mailing burden of 5 minutes multiplied by 19,400,000 
enrollees, or approximately 1,616,700 hours (approximately 33,700 hours 
per State).
3. Section 438.10(h)
    a. Requirement. Section 438.10(h) states that each primary care 
case manager must, upon request, provide information about the 
grievance processes available to enrollees and health care providers, 
including procedures for obtaining services during the appeals process.
    b. Burden. The burden associated with this requirement is the 
amount of time required by primary care case managers to mail the 
required information to enrollees. We believe that it will take the 
estimated 60 primary care case managers approximately 5 minutes per 
enrollee to mail this information. We estimate that there are a total 
of approximately 4,300,000 primary care case manager enrollees, and 
that 10 percent of those enrollees will request this information. This 
equates to an annual burden of 5 minutes multiplied by 430,000 
enrollees, or approximately 35,800 hours (approximately 600 hours per 
primary care case manager).
4. Section 438.10(i)
    a. Requirement. In summary, section 438.10(i) states that if a 
State agency MCO or PHP provides for mandatory MCE enrollment under 
section 1932(a)(1)(A) of the Act, the State agency must provide 
information either directly or through the MCE to potential enrollees 
whenever they request it, and at least once a year in a comparative, 
chart-like format. The information must include the MCE's service area, 
the benefits covered under the contract, any cost sharing imposed by 
the MCE and, to the extent available, quality and performance 
indicators, including but not limited to disenrollment rates and 
enrollee satisfaction.
    b. Burden. We believe that the additional burden on State agencies 
(that is, not yet captured in the above provisions) is the length of 
time associated with creating the comparative chart. We estimate that 
it will take State agencies approximately 4 hours each to create the 
comparative chart. We further estimate that approximately 3 State 
agencies per year will avail themselves of the State Plan Option, for a 
total annual burden of approximately 12 hours.

B. Section 438.56  Enrollment and Disenrollment: Requirements and 
Limitations

1. Section 438.56(f)
    a. Requirement. Section 438.56(f) states that each enrollee must 
submit a written request for disenrollment to the State agency and to 
the MCE.
    b. Burden. We believe that the burden associated with this 
requirement is the length of time it would take enrollees to submit in 
writing a disenrollment request. We estimate that it will take 
approximately 2 minutes per enrollee to generate a disenrollment 
request. We estimate that approximately 5 percent of MCE enrollees will 
request that they be disenrolled from an MCE. This equates to an annual 
burden of approximately 2 minutes multiplied by 1,940,000 affected 
enrollees, or approximately 32,300 hours.
2. Section 438.56(g)
    a. Requirement. Section 438.56(g) requires that in a State where 
that State agency restricts disenrollment under this section, MCEs must 
notify enrollees and potential enrollees of their disenrollment rights 
at least 60 days before the start of each enrollment period and at 
least once a year.
    b. Burden. The following information collection requirements are 
subject to the PRA. However, we believe the burden associated with 
these requirements is captured in the general information requirements 
in Sec. 438.10.

C. Section 438.102  Enrollee-provider Communications

1. Requirement
    Section 438.102(c) states that the general rule in paragraph (b) of 
this section does not require the MCO to cover, furnish, or pay for a 
particular counseling or referral service if the MCO objects to the 
provision of that service on moral or religious grounds; and makes 
written information on these policies available to (1) the State 
agency, with its application for a Medicaid contract, prospective 
enrollees, before and during enrollment, and (2) current enrollees, 
within 90 days after adopting the policy with respect to any particular 
service.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the general information requirements in 
Sec. 438.10.

D. Section 438.110  Assurances of Adequate Capacity and Services

1. Sections 438.110(b) and (c)
    a. Requirement. Sections 438.110(b) and (c) state that each MCO 
must give the State agency and HCFA assurances that it has the capacity 
to serve the expected enrollment in its service area in accordance with 
subpart E of this part. Each MCO must submit documentation to 
demonstrate that it (1) offers an appropriate range of services, in 
accordance with subpart E of this part, including access to preventive 
services, primary care services, and specialty services for the 
anticipated number of enrollees for the service area; (2) maintains a 
network of providers that is sufficient in number, mix, and geographic 
distribution to meet the needs of the anticipated number of enrollees 
in the service area and; (3) meets the availability of services 
requirements in Sec. 438.306 of this part. Each MCO must submit the

[[Page 52066]]

documentation described in Sec. 438.110(b) at least every 2 years, and, 
specifically (1) at the time it enters into or renews a contract with 
the State and (2) at any time the State agency determines there has 
been a significant change in the MCO's delivery network or enrollee 
population.
    b. Burden. While these information collection requirements are 
subject to the Act, we believe that MCOs and PHPs already collect and 
provide this information to State agencies as part of their customary 
and usual business practices. Therefore, in accordance with 5 CFR 
1320.3(b)(2), the burden associated with these information collection 
requirements is exempt because the time, effort, and financial 
resources necessary to comply with these requirements would be incurred 
by persons in the normal course of their activities.
    The only additional burden on MCOs and PHPs is the length of time 
required for MCOs and PHPs to compile this information in the format 
specified by the State agency, and the length of time for the MCOs and 
PHPs to mail the information to the State and HCFA. We estimate that it 
will take each MCO and PHP approximately 20 hours to compile the 
information necessary to meet this requirement, for a total burden of 
20 hours multiplied by 502 MCOs and PHPs, or approximately 10,000 
hours. In addition, we estimate that it will take MCOs and PHPs 
approximately 5 minutes each to mail the materials associated with this 
requirement to States, for an annual burden of approximately 5 minutes 
multiplied by 502 MCOs and PHPs, or approximately 42 hours.
2. Section 438.110(d)
    a. Requirement. Section 438.110(d) states that in addition, after 
the State agency reviews the documentation, and after the MCO makes any 
changes required as a result of that review, the MCO must submit to 
HCFA assurances that include copies of the documentation reviewed by 
the State agency and the State's certification that the MCO has 
complied with the State's requirements for access to services, as set 
forth in the availability of services requirements in Sec. 438.306 of 
this part.
    b. Burden. While these information collection requirements are 
subject to the Act, we believe that State agencies already assess 
whether MCOs or PHPs have adequate capacity and services to serve the 
State's Medicaid population. Therefore, in accordance with 5 CFR 
1320.3(b)(2), the burden associated with these information collection 
requirements is exempt because the time, effort, and financial 
resources necessary to comply with these requirements would be incurred 
by persons in the normal course of their activities.
    We believe that the only additional burden on State agencies is the 
length of time associated with preparing and mailing the certification 
forms that are required as part of this regulation. We estimate that it 
will take State agencies approximately 30 minutes per MCO/PHP to create 
and mail the certification letters. Thus, the annual burden associated 
with this activity is estimated to be 30 minutes multiplied by 502 MCOs 
and PHPs, for a total burden of approximately 251 hours.
    MCOs and PHPs have an additional burden associated with mailing the 
documentation and certification letters to HCFA. We estimate this 
activity to take approximately 5 minutes per MCO and PHP, for a total 
annual burden of 5 minutes multiplied by an estimated number of 502 
MCOs and PHPs, or approximately 42 hours.

E. Section 438.114  Emergency and Post-stabilization Services

1. Requirement
    Section 438.114(b) states that at the time of enrollment and at 
least annually thereafter, each MCO must provide, in clear, accurate, 
and standardized form, information that, at a minimum, describes or 
explains (1) what constitutes an emergency, with reference to the 
definitions in paragraph (a) of this section; (2) the appropriate use 
of emergency services; (3) the process and procedures for obtaining 
emergency services, including use of the 911 telephone system or its 
local equivalent; (4) the locations of emergency settings and other 
locations at which MCO physicians and hospitals provide emergency 
services and post-stabilization care covered under the contract; and 
(5) the fact that prior authorization is not required.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the general information requirements in 
Sec. 438.10.

F. Section 438.318  Enrollee Information

1. Requirement
    Section 438.318(b) states that each State agency or its contracted 
representative must provide the information specified in paragraph 
(b)(2) of this section, for each contracting MCO throughout the State 
to any potential enrollee who requests it, and all potential enrollees, 
when they first become eligible for Medicaid, are considering choice of 
MCOs under a voluntary program, or are first required to choose an MCO 
under a mandatory enrollment program, within a time frame that enables 
them to use the information in choosing among available MCOs.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the general information requirements in 
Sec. 438.10.

G. Section 438.340  Quality Assessment and Performance Improvement 
Program

1. Requirement
    Section 438.340(d)(10) states that each MCO must report the status 
and results of each project to the State as requested.
2. Burden
    We expect that, in any given year, each MCO will complete two 
projects, and will have four others underway. We further expect that 
State agencies will request the status and results of each MCO's 
projects annually. Accordingly, we estimate that it will take an MCO 5 
hours to prepare its report for each project, for an annual total 
burden of 30 hours per MCO. In aggregate, this burden equates to 30 
hours multiplied by an estimated 389 MCOs, or approximately 11,700 
hours. We estimate that the maximum burden on PHPs is also 30 hours per 
PHP, with an aggregate burden of approximately 3,400 hours (5 hours per 
project times a maximum number of 6 projects multiplied by 113 PHPs).

H. Section 438.342  Health Information Systems

1. Requirement
    Section 438.342(b)(3) states that each MCO must make all collected 
data available to the State agency and to HCFA, as required in this 
subpart, or upon request.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe that the burden associated with these 
information collection requirements is exempt from the Act in 
accordance with 5 CFR 1320.3(b)(2) because the time, effort, and 
financial resources necessary to comply with these requirements would

[[Page 52067]]

be incurred by persons in the normal course of their activities.

I. Section 438.402  General Requirements

1. Requirement
    In summary, Sec. 438.402 states that if the MCO makes a standard 
grievance decision that is wholly or partly adverse to the enrollee, 
the MCO must submit the decision and all supporting documentation to 
the State agency as expeditiously as the enrollee's health condition 
requires but no later than 30 calendar days after it receives the 
grievance, for further review in the State's fair hearing system.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the general requirements in Sec. 438.410.

J. Section 438.404  Notice of Intended Action

1. Requirement
    In summary, Sec. 438.404 states that if an MCO intends to deny, 
reduce, or terminate a service or deny payment, or does not furnish a 
service with reasonable promptness, the MCO must give the enrollee 
timely written notice that meets the requirements set forth 
Sec. 438.404(a) through (k).
2. Burden
    We estimate that the burden associated with this requirement is the 
length of time it would take an MCO or PHP to provide written notice of 
an intended action. We estimate that it will take MCOs and PHPs 5 
minutes per action to make this notification. We estimate that 
approximately 5 percent of the approximately 14 million MCO and PHP 
enrollees will receive one notice of intended action per year from 
their MCO or PHP (1395 per MCO/PHP). The notification burden associated 
with this notice is estimated to be 5 minutes per request (115 hours 
per MCO/PHP), for a total burden of approximately 58,000 hours.

K. Section 438.406  Handling of Complaints and Grievances

1. Requirement
    In summary, Sec. 438.406 states that each MCO must acknowledge 
receipt of each complaint and grievance.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the grievance resolution and notification 
requirements in Sec. 438.408.

L. Section 438.408  Grievance Resolution and Notification

1. Requirement
    In summary, Sec. 438.408 states that an MCO receiving an expedited 
grievance must make its decision and notify the affected parties 
(enrollee and the physician as warranted by the patient's medical 
condition or situation) in writing of its decision, whether adverse or 
favorable, as expeditiously as the enrollee's health condition 
requires, but not later than 72 hours after receiving the request. 
Similarly, an MCO receiving a standard grievance must make its decision 
and notify the affected parties (enrollee and the physician) as 
warranted by the patient's medical condition or situation) in writing 
of its decision, whether adverse or favorable, as expeditiously as the 
enrollee's health condition requires but no later than 30 calendar days 
after it receives the grievance. MCO notice of both expedited and 
standard grievance decisions must include the requirements specified in 
Sec. 438.408 (b)(1) through (b)(5).
2. Burden
    We estimate that approximately 1 percent of the approximately 14 
million MCO and PHP enrollees will file a complaint with their MCO or 
PHP (279 per MCO/PHP). The notification burden associated with the 
acknowledgment of each complaint is estimated to be 5 minutes per 
request (23 hours per MCO/PHP) for a total burden of approximately 
11,670 hours. We also estimate that approximately .5 percent of the 
approximately 14 million MCO and PHP enrollees will file a grievance 
with their MCO or PHP (139 per MCO/PHP). The estimated notification 
burden associated with the acknowledgment of each grievance is 
estimated to be 5 minutes per request (12 hours per MCO/PHP), for a 
total burden of approximately 5,800 hours.
    For these cases, we estimate that the burden on the enrollee filing 
a complaint or grievance is approximately 20 minutes per case, for a 
total aggregate burden of 70,000 hours annually. We estimate that the 
burden on the MCO or PHP is approximately 4 hours per case. This time 
includes both the information collection activity and the decision 
making process. The estimated annual burden on MCOs and PHPs equates to 
approximately 1,700 hours per MCO/PHP, or approximately 280,000 hours 
in total. Finally, the estimated notification burden on MCOs and PHPs 
associated with the grievance resolution is 5 minutes per request (12 
hours per MCO/PHP) for an aggregate annual burden of approximately 
5,800 hours.

M. Section 438.410  Expedited Resolution of Grievances

1. Section 438.410(c)
    a. Requirement. Section 438.410(c) states that if the MCO makes an 
expedited grievance decision that is wholly or partly adverse to the 
enrollee, the MCO notifies the State agency of each decision and 
submits records and documentation to support the decision, as 
expeditiously as the enrollee's health condition requires, but no later 
than 24 hours after the expedited decision.
    This section contains the applicable requirements for submitting 
and appealing an MCO's or PHPs's adverse grievance decision through the 
Medicaid State Fair Hearing process. The required procedures generally 
involve a written request from an enrollee, preparation of a brief, 
written explanation and case file by the MCO or PHP organization, and 
notification of the decision by the MCO or PHP.
    b. Burden. We estimate that, annually, approximately 30 percent of 
grievances result in a decision that is adverse to the enrollee, and 
will undergo review through the State Fair Hearing process 
(approximately 42 cases per MCO/PHP). For these cases, we estimate an 
additional burden on the MCO or PHP of approximately 2 hours per case. 
Thus, the estimated total annual burden on MCOs and PHPs associated 
with grievances is 84 hours per MCO/PHP, or an aggregate total burden 
of 42,000 hours (2 hours multiplied by an estimated 21,000 affected 
enrollees).
2. Section 438.410(f)
    a. Requirement. Section 438.410(f) states that if an MCO denies a 
request for expedited grievance, it must automatically transfer the 
request to the standard timeframe process and give the enrollee prompt 
oral notice of the denial and follow up, within 2 working days, with a 
written letter that meets the requirements specified in 
438.410(f)(2)(i) through (f)(2)(iii).
    b. Burden. We estimate that, annually, expedited grievance requests 
will account for fewer than 30 percent of all grievances filed with 
MCOs and PHPs (42 per MCO/PHP). We further estimate that MCOs and PHPs 
will deny less than 2 percent of all requests for expedited grievances 
(1 per MCO/PHP). We estimate that the burden associated with this 
requirement is the length of time it would take an MCO or PHP to 
provide

[[Page 52068]]

oral and written notice of this denial. We estimate that it will take 
MCOs and PHPs 5 minutes per oral notice and 5 minutes per written 
notice to make this notification (that is, a total burden of 10 minutes 
per MCO/PHP) for a total aggregate annual burden of approximately 70 
hours.

N. 438.414  Information about the Grievance System

1. Requirement
    Sections 438.414(a) and (b) state that each MCO must provide 
information about the grievance system, as specified in Sec. 438.10 and 
this subpart to (1) enrollees; (2) potential enrollees (as permitted by 
the State agency); and (3) all providers, at the time of 
subcontracting. The information must explain the grievance system 
through a State-developed or State-approved description and must 
include the information set forth in Sec. 438.414 (b)(1) through 
(b)(6).
    In addition, Sec. 438.414(c) states that upon request, the MCO must 
provide enrollees and potential enrollees with aggregate information, 
derived from the collected information in Sec. 438.416(e), regarding 
the nature of enrollee grievances and their resolution.
2. Burden
    The following information collection requirements are subject to 
the PRA. However, we believe the burden associated with these 
requirements is captured in the general information requirements in 
Sec. 438.10.

O. Section 438.416  Record Keeping and Reporting Requirements

1. Requirement
    Sections 438.416(a), (c), and (d) state that each MCO must maintain 
(1) a log of all complaints and grievances and their resolution; (2) a 
record any disenrollment and the reason for it, even if it occurs 
before the grievance process is completed; and (3) retain the records 
of complaints, grievances (including their resolution) and 
disenrollments for 3 years, in a central location, and make them 
accessible to the State agency.
    In addition, Sec. 438.416(e) states that each MCO must, at least 
once a year, send to the State agency a summary that includes the 
following information: (1) the number and nature of all complaints and 
grievances; (2) the timeframes within which they were resolved, and the 
decisions; (3) a listing of all grievances that have not been resolved 
to the satisfaction of the affected enrollee, (4) the number and nature 
of grievances for which the MCO provided expedited resolution, and the 
decisions; and (5) any trends relating to a particular provider or a 
particular service.
    This section contains the applicable requirements that MCOs and 
PHPs must follow to record and track complaints and grievances. We 
estimate that approximately 1 percent of the approximately 14 million 
MCO and PHP enrollees will file a complaint with their MCO or PHP (279 
complaints per MCO/PHP). The recording and tracking burden associated 
with each complaint is estimated to be 1 minute per request (5 hours 
per MCO/PHP) for a total aggregate burden of 2,300 hours (1 minute 
multiplied by an estimated 140,000 enrollees who would file a 
complaint).
2. Burden
    We estimate that approximately .5 percent of the approximately 14 
million MCO and PHP enrollees will file a grievance with their MCO or 
PHP (139 per MCO/PHP). The recording and tracking burden associated 
with each grievance is estimated to be 1 minute per request (2 hours 
per MCO/PHP) for a total aggregate burden of 1,200 hours (1 minute 
multiplied by an estimated 70,000 enrollees who would file a 
grievance).
    This section also contains the applicable requirements that MCOs 
and PHPs must follow to submit the annual summary of complaints and 
grievances. Every MCO and PHP (approximately 502 organizations) must 
submit an annual report. We estimate that the burden on the MCO or PHP 
for collecting information and preparing this summary will be 
approximately 4 hours per MCO/PHP or approximately 2,000 hours total. 
We estimate that the annual burden on each MCO or PHP for mailing the 
summary will be approximately 5 minutes per MCO/PHP, or approximately 
42 hours in aggregate.

P. Section 438.602  Certification of Data That Determine Payment

1. Requirement
    When payments from State agencies to MCOs are based on data 
submitted by the MCO that includes, but is not limited to, enrollment 
information, encounter data, or other information required by the 
State, the MCO must, concurrent with the submission of the data attest 
to such data's accuracy, completeness, and truthfulness as a condition 
of receiving such payment.
2. Burden
    While the requirement for a MCO to attest to the accuracy of 
enrollment information, encounter data, or other information required 
by the State agency, is subject to the PRA, the burden associated with 
this requirement is captured during the submission of such data. 
Therefore, we are assigning 1 token hour of burden for this 
requirement.

Q. Section 438.608  Certification of Proposals or Contracts

1. Requirement
    MCOs must certify the accuracy, completeness, and truthfulness of 
information provided in contracts, requests for proposals, or other 
related documents specified by the State agency.
2. Burden
    While the requirement for a MCO to certify the accuracy, 
completeness, and truthfulness of information provided in contracts, 
requests for proposals, or other related documents specified by the 
State agency is subject to the PRA, the burden associated with this 
requirement is captured during the submission of such information. 
Therefore, we are assigning one token hour of burden for this 
requirement.

R. Section 438.710  Notice of Sanction; Due Process

1. Requirement
    Section 438.710(a)(1) states that before imposing any of the 
sanctions specified in this subpart, the State must give the affected 
MCE written notice that explains the basis and nature of the sanction.
2. Burden
    Based on current knowledge of State law prior to the Federal 
requirements imposed under BBA, State agencies already impose sanctions 
against MCEs and provide written notice to MCEs explaining the 
violation and sanction to be imposed. Accordingly, because this 
activity constitutes a reasonable and customary business practice on 
the part of State agencies, as defined in 5 CFR 1320.3(b)(2) and 
(b)(3), we estimate that there is no additional burden as a result of 
the requirement in Sec. 438.710(a)(1).

S. Section 438.720  Hearing on Contract Termination

1. Requirement
    Section 438.720(b)(1) states that within 30 days after reaching the 
determination to terminate a MCE the State agency must give the MCE 
written notice of its intent to terminate, the reason for termination, 
and the time and place of the hearing.

[[Page 52069]]

2. Burden
    Based on current knowledge of State law, most State agencies have 
been terminating contracts with MCEs prior to the imposition of the BBA 
requirements. In addition, State agencies that have been terminating 
contracts have also given MCEs written notice of their intent to 
terminate. Therefore, because this activity constitutes a reasonable 
and customary business practice, as defined in 5 CFR 1320.3(b)(2) and 
(3), we believe that this provision imposes no additional burden on 
State agencies as described in Sec. 438.720(b)(1).

T. Section 438.722  Disenrollment During Termination Hearing Process

1. Requirement
    Section 438.722(a) states that after a State agency has notified an 
MCE of its intention to terminate the MCE's contract, the State agency 
may give the MCE's enrollees written notice of the State agency's 
intent to terminate the MCE's contract.
2. Burden
    State agencies have already had the authority to terminate MCE 
contracts according to State law and have been providing written notice 
to the MCEs. State agencies are now given, at their discretion, the 
option of notifying the MCE's enrollees of the State agency's intent to 
terminate the MCE's contract. While it is not possible to gather an 
exact figure, we estimate that 12 States agencies may terminate 1 
contract per year. We estimate that it will take States 30 minutes to 
prepare the notice to enrollees, for a total burden of 6 hours. In 
addition, we estimate that it will take State agencies approximately 5 
minutes per beneficiary to notify them of the termination, equating to 
a burden of 5 minutes multiplied by 12 States multiplied by 34,000 
beneficiaries per MCE, for a total burden of approximately 34,000 
hours.

U. Section 438.724  Notice to HCFA

1. Requirement
    In summary, Sec. 438.724 states that the State agency must give the 
HCFA Regional Office written notice whenever it imposes or lifts a 
sanction that specifies the affected MCE, the kind of sanction, and the 
reason on which imposition or lifting is based. The notice must be 
provided no later than 30 days after a sanction has been imposed or 
lifted.
2. Burden
    We estimate that this provision will require State agencies 30 
minutes to provide this type of notice per sanction imposed or lifted. 
In addition, we estimate that a total number of 36 State agencies will 
impose sanctions, with an average number of 1 sanction per State 
agency. Therefore, we estimate the total annual burden as a result of 
this requirement to be 18 hours.

V. Section 438.810  Expenditures for Enrollment Broker Services

1. Requirement
    Section 438.810(c) requires that a State agency contracting with an 
enrollment broker must submit the contract or memorandum of agreement 
MOA) for services performed by the broker to HCFA for review and 
approval prior to the effective date of services required by the 
contract or MOA.
2. Burden
    The burden associated with this requirement is the length of time 
for a State agency to mail each the contract to HCFA for review. We 
estimated that the burden associated with this requirement is 5 minutes 
per enrollment broker contract, for a total annual burden of 
approximately 3 hours per State agency (5 minutes multiplied by an 
estimated 35 enrollment broker contracts).
    We have submitted a copy of this proposed rule to OMB for its 
review of the information collection requirements described above. 
These requirements are not effective until they have been approved by 
OMB.
    If you comment on any of these information collection and record 
keeping requirements, please mail copies directly to the following:

Health Care Financing Administration, Office of Information Services, 
Security and Standards Group, Division of HCFA Enterprise Standards 
Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850 ATTN: 
Louis Blank, HCFA-2001-P

      and

Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Eydt, HCFA Desk Officer.

VII. Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 and the Regulatory Flexibility Act (RFA). 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, when regulation is necessary, 
to select regulatory approaches that maximize net benefits, including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity. A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more annually). This rule meets the criteria of being 
economically significant, as the impact will be over $100 million. This 
is also a ``major rule'' under 5 U.S.C. 804.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. The rule implements Medicaid provisions as directed 
by the BBA of 1997. The statute does not permit significant regulatory 
alternatives. Thus, we are not able to consider significant 
alternatives for reducing the burden on small entities. However, we 
invite interested parties to submit comments suggesting alternative 
rules that would reduce the burden. For purposes of the RFA, we prepare 
a regulatory flexibility analysis unless we certify that a rule will 
not have a significant economic impact on a substantial number of small 
entities. Small entities include small businesses, non-profit 
organizations, and governmental agencies. Most hospitals and other 
providers and suppliers are small entities, either by nonprofit status 
or by having revenues of $5 million or less annually. Individuals and 
State agencies are not included in the definition of a small entity.
    Section 1102(b) of the Act requires us 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. This analysis must conform to the provisions of section 603 
of the RFA. For purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside a 
Metropolitan Statistical Area and has fewer than 50 beds.
    We do not anticipate that the provisions in this proposed rule will 
have a substantial economic impact on most hospitals, including small 
rural hospitals. The BBA provisions include some new requirements on 
State agencies and managed care organizations, but not directly on 
individual hospitals. The impact on individual hospitals will vary 
according to each hospital's current and future contractual 
relationships with managed care organizations. Furthermore, the impact 
will also vary according to each hospital's current procedures and 
level of compliance with existing law and regulation pertaining to 
Medicaid managed care. For these reasons, this

[[Page 52070]]

proposed rule would not have a significant impact on the operations of 
a substantial number of hospitals.
    The Unfunded Mandates Reform Act of 1995 requires that agencies 
prepare an assessment of anticipated costs and benefits before 
proposing any rule that may result in an annual expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100,000,000 or more (adjusted annually for inflation). This 
rule does not impose any mandates on State, local, or tribal 
governments, or the private sector that will result in an annual 
expenditure of $100,000,000 or more.

B. Summary of the Proposed Rule

    This rule implements the Medicaid provisions as directed by the 
BBA. The primary objectives of these provisions are to allow for 
greater flexibility for State agencies to participate in Medicaid 
managed care programs and provide greater beneficiary protections, and 
quality assurance standards. The regulations address pertinent areas of 
concern between State agencies and MCEs, including enrollment, access 
to care, provider network adequacy, and grievance procedures for 
beneficiaries.
    Since 1995, enrollment by Medicaid beneficiaries in Medicaid 
managed care programs has grown over 50 percent to more than 15 million 
enrollees in 1997. The Medicaid BBA provisions will likely help to 
maintain this level of managed care, and may contribute to some 
additional growth in the Medicaid managed care program.

C. Discussion of Impact

    We believe that the overall impact of this proposed rule will be 
beneficial to Medicaid beneficiaries, MCOs, State agencies, and HCFA. 
Many of the BBA Medicaid managed care requirements merely codify in 
Federal law standards widely in place in State law or the managed care 
industry. Some of the BBA provisions represent new requirements for 
State agencies and MCOs, as well as expanded opportunities for 
participation in Medicaid managed care.
    The BBA provisions addressed in this regulation that may have 
significant financial impact on State agencies or MCOs include: (1) 
State options to use managed care; (2) increased beneficiary 
protections; (3) new quality standards; and (4) improved 
administration. Initially, some of these provisions may increase 
administrative costs for State agencies and MCOs. However, quantifying 
these costs is difficult, given the disparity in State and MCO current 
status and capabilities relative to meeting these requirements.
    Throughout the development of the regulation, we consulted with 
State agency representatives in order to gain more understanding of 
potential impacts. At the November, 1997 meeting of the Executive Board 
of the National Association of State Medicaid Directors (NASMD), we 
discussed the process for providing initial guidance to State agencies 
about the Medicaid provisions of BBA. We provided this guidance through 
issuance of a series of letters to State Medicaid Directors. From 
October, 1997 through July, 1998, over 40 of these letters were issued. 
Much of the policy included in this regulation relating to the State 
plan option provision was included in these letters. In May, 1998, the 
Executive Committee of NASMD was briefed on the general content of the 
regulation. More specific State agency input was obtained through 
discussions throughout the Spring of 1998 with the Medicaid Technical 
Advisory Groups (TAGs) on Managed Care and Quality. These groups are 
comprised of Medicaid agency staff with notable expertise in the 
subject area and our regional office staff and are staffed by the 
American Public Human Services Association. The Managed Care TAG 
devoted much of its agenda for several monthly meetings to BBA issues. 
The Quality TAG participated in two conference calls exclusively 
devoted to discussion of BBA quality issues. Through these contacts 
HCFA explored with State agencies their preferences regarding policy 
issues and the feasibility and practicality of implementing policy 
under consideration. We will also be seeking public comments as part of 
the Notice of Proposed Rulemaking process.
    It is clear that all State agencies will be affected by the 
Medicaid regulations, but in varying degrees. Much of the burden will 
be on MCOs contracting with State agencies, but this will also vary by 
existing and continuing relationships between State agencies and MCOs. 
Further, because the Medicaid regulations will have direct authority 
over the State agencies, not the MCOs, the effects on these MCOs are 
not incorporated within this impact statement. Nonetheless, these 
regulations are intended to maximize State flexibility and minimize the 
compliance cost to State agencies and MCOs to the extent possible 
consistent with the detailed BBA requirements. We believe the proposed 
rule will result in improved patient care outcomes and satisfaction 
over the long term.
    Recognizing that a large number of entities, such as hospitals, 
State agencies, and MCOs, will be affected by the implementation of 
these statutory provisions, and a substantial number of these entities 
may be required to make changes in their operations, we have prepared 
the following analysis. The terminology mainly used throughout this 
analysis is ``MCOs,'' which includes Federally qualified HMOs or public 
or private entities determined to meet the following conditions: (1) is 
organized primarily for the purpose of providing health care services; 
and (2) makes the services it provides to its Medicaid enrollees as 
accessible as those services are to other Medicaid recipients within 
the area served by the entity. Since primary care case managers do not 
fit this definition, the term ``MCEs'' is not used to describe the 
healthplans or MCOs in the analysis. This analysis, in combination with 
the rest of the preamble, is consistent with the standards for analysis 
set forth by both the RFA and RIA.

D. State Options to Use Managed Care

Managed Care Organizations (MCOs)
    Under this provision, a State may amend its State plan to require 
all Medicaid beneficiaries in the State to enroll in either a managed 
care organization or a primary care case manager, without the need to 
apply for a waiver of ``freedom of choice'' requirements under either 
section 1915(b) or 1115 of the Act. However, waivers would still be 
required to include certain exempted populations in mandatory managed 
care programs, notably, SSI populations, American Indians, and other 
groups of children with special needs. Federal review would be limited 
to a one time State Plan Amendment (SPA) approval, while State agencies 
would no longer need to request waiver renewals every 2 years for 
section 1915(b) and 5 years for section 1115 waivers. State agencies 
may include ``exempted'' populations as voluntary enrollees in State 
plan managed care programs, or to maintain parallel waiver programs to 
require enrollment of these groups in managed care, States agencies may 
also choose to continue to use one waiver process for groups that may 
be included under the State plan option. Currently, only a few State 
agencies have expressed interest in using SPAs to require beneficiary 
enrollment in managed care. In short, the new State plan option 
provides States agencies with a new choice of method to require 
participation in managed care. We do not anticipate that it alone will 
influence the prevalence of mandating managed care in Medicaid. MCOs 
and providers would continue to

[[Page 52071]]

provide care in a manner consistent with current and future standards, 
regardless of SPAs, and, consequently, Medicaid beneficiaries would 
receive the same level of health care in compliance with current and 
future standards.
    Pursuing the SPA option rather than a section 1915(b) or section 
1115 waiver may reduce State administrative procedures because it would 
eliminate the need for State agencies to go through the waiver 
renewals. Similarly, we will benefit from a reduced administrative 
burden if fewer waiver applications and renewals are requested. 
However, we believe the overall reduction in burden to both States and 
to us would be small in relation to the overall administrative 
requirements of the Medicaid program.

E. Primary Care Case Management

    Prior to the BBA, many State agencies elected to implement a 
``primary care case management'' system through a freedom of choice 
waiver under section 1915(b)(1) of the Act. Under the BBA, State 
agencies may now require beneficiaries to use a primary care case 
manager provider under their State plans without the need for a waiver. 
State agencies will have another avenue to include primary care case 
management contracts in Medicaid managed care programs. Most State 
agencies, however, are already participating in ``primary care case 
management'' programs. Therefore, while the BBA provision provides 
potential for more ``primary care case management'' programs to come 
into being, we do not expect expansion of primary care case managers to 
be substantial due to the State plan option. To the extent that the use 
of ``primary care case managers'' increases, patients of these 
providers will benefit from greater continuity of care and patient 
protections deriving from new and existing standards.

F. Elimination of 75:25 Rule

    Prior to the passage of the BBA, nearly all HMOs contracting with 
Medicaid were required to limit combined Medicare and Medicaid 
participation to 75 percent of their enrollment, and State agencies had 
to verify enrollment composition as a contract requirement. Elimination 
of this rule allows MCOs to participate without verifying that they 
comply with this requirement, and eliminates the need for State 
agencies to monitor enrollment composition in contracting MCOs. This 
will broaden the number of MCOs available to State agencies for 
contracting, leading to more choice for beneficiaries.
    With greater flexibility for State agency and MCO participation in 
managed care, providers can serve more Medicaid beneficiaries under 
managed care programs. Medicaid managed care enrollees will have more 
choice, better access to care, and improved satisfaction.

G. Increased Beneficiary Protection--Grievance Procedures

    The BBA requires MCOs to establish internal grievance procedures 
that permit an eligible enrollee, or a provider on behalf of an 
enrollee, to challenge the denials of coverage of medical assistance or 
denials of payment. While these requirements did not previously exist 
in Federal law, we believe they reflect widespread current practice 
and, therefore, do not impose significant incremental costs on MCOs or 
State agencies.

H. Provision of Information

    In mandatory managed care programs, we have required that 
beneficiaries be fully informed of the choices available to them in 
enrolling with an MCO. Section 1932(a)(5) of the Act, enacted in 
section 4701(a)(5) of the BBA, describes the kind of information that 
must be made available to Medicaid enrollees and potential enrollees. 
It also requires that this information, and all enrollment notices and 
instructional materials related to enrollment in MCOs, be in a format 
that can be easily understood by the individuals to whom it is 
directed. We do not believe that these requirements deviate 
substantially from current practice. Furthermore, there is no way to 
quantify the degree of burden on State agencies and MCOs for several 
reasons. We do not have State specific data on what information State 
agencies currently provide, or the manner in which they provide it. 
Variability among State agencies indicates that implementing or 
continuing enrollee information requirements will represent different 
degrees of difficulty and expense.
    As a requirement under the provision of information section, State 
agencies opting to implement mandatory managed care programs under the 
SPA option are required to provide comparative information on MCOs to 
potential enrollees. Currently only a few State agencies have expressed 
interest in using SPAs to require beneficiary enrollment in managed 
care. However, for State agencies that do select this option, we do not 
believe that providing the data elements in themselves represents a 
burden to State agencies choosing the SPA option, as these are elements 
of information that most State agencies currently provide. The 
regulation specifies that the information must be presented in a 
comparative or chart-like form that facilitates comparison between 
MCOs. This may be perceived as a burden to States that have previously 
provided this information in some other manner; however, it is our 
belief that even in the absence of the regulation, the trend is for 
States and many accreditation bodies, such as the National Committee 
for Quality Assurance (NCQA), to utilize chart-like formats. 
Consequently, enrollees will benefit from improved mechanisms for 
selecting MCOs. In the short term, only a few State agencies have opted 
for SPAs, but it is anticipated that more State agencies will 
participate over the long term. State agencies that participate in the 
future will benefit from any comparative tools developed by HCFA and 
State agencies in the short term.

I. Demonstration of Adequate Capacity and Services

    BBA requires Medicaid MCOs and Prepaid Health Plans (PHPs) to 
provide the State agency and the Secretary of HHS with assurances of 
adequate capacity and services, including service coverage within 
reasonable timeframes. State agencies currently require assurances of 
adequate capacity and services as part of their existing contractual 
arrangements with MCOs. However, we acknowledge that this information 
has not been routinely provided to HCFA in the past. Further, we have 
not required MCOs to submit to HCFA a certification from the State 
agency that the MCO or PHP has demonstrated adequate capacity and 
services. This regulation requires plans to send HCFA a copy of the 
certification they obtain from the State agency. Under this rule, each 
State agency retains its authority to establish standards for adequate 
capacity and services within MCO contracts. This may be perceived as a 
burden to MCOs and PHPs, and for State agencies that have not been 
required to formally certify that an MCO or PHP meets the State's 
capacity and service requirements; however, it allows MCOs to 
demonstrate to HCFA that adequate capacity and services standards 
established by State agencies are being met or exceeded.
    Quantifying the additional burden on State agencies, MCOs or PHPs 
as a result of implementing this regulation is not feasible for several 
reasons. First, HCFA does not have State-specific data on the types of 
detailed information States currently require of their contractors (for 
example, MCOs and PHPs) to ensure

[[Page 52072]]

adequate capacity and services. Second, we do not have State-specific 
information on the manner in which State agencies collect and evaluate 
documentation in this area. Rather, each State agency has its own 
documentation requirements and its own procedures to ensure adequate 
capacity and services. This regulation contemplates that State agencies 
continue to have that flexibility.
    Under this regulation, State agencies will determine and specify 
both the detail and type of documentation to be submitted by the MCO or 
PHP to ensure adequate capacity and services, and the type of 
certification to be submitted to us. Accordingly, variability among 
State agencies implementing this regulation represents different 
degrees of detail and expense. Regardless of the level of additional 
burden on MCOs, State agencies, and us, Medicaid beneficiaries will 
receive continued protections in access to health care under both State 
and Federal law.

J. New Quality Standards

    The BBA requires that each State agency and MCO or PHP have an 
ongoing quality assessment and performance improvement program (QAPI) 
for health care services it provides to its Medicaid enrollees. The 
QAPI, among other things, must include: (1) standards for access to 
care so that covered services are available within reasonable 
timeframes and in a manner that ensures continuity of care; (2) 
examination of other aspects of care and service directly related to 
quality of care, including grievance procedures and marketing; (3) 
procedures for monitoring and evaluating the quality and 
appropriateness of care and service to enrollees; and (4) regular and 
periodic examinations of the scope and content of the quality program.
    The requirements under this regulation provide that each MCO 
achieve minimum performance levels on standardized quality measures. 
They also require that plans conduct performance improvement projects 
that achieve, through ongoing measurement and intervention, 
demonstrable and sustained improvement in significant aspects of 
clinical care and non-clinical services that can be expected to affect 
health outcomes and member satisfaction. This approach to ensuring 
quality reflects the expansion in recent years of the problem-focused 
approach that was prevalent in the past to include a focus on 
systematic quality improvement as well.
    We have worked closely with State Technical Advisory Groups (TAGs) 
in developing the managed care quality regulations and standards. 
Requirements under this regulation build on a variety of State and our 
efforts to promote the assessment and improvement of quality in plans 
contracting with Medicaid, including:
     The Quality Improvement System for Managed Care (QISMC), 
an initiative with State and Federal officials, beneficiary advocates, 
and the managed care industry to develop a coordinated quality 
oversight system that reduces duplicative or conflicting efforts and 
emphasizes demonstrable and measurable improvement.
     QARI, serving as a foundation to the development of QISMC, 
highlights the key elements in the Health Care Quality Improvement 
System (HCQIS), including internal quality assurance programs, State 
monitoring, and Federal oversight. This guidance emphasizes quality 
standards developed in conjunction with all system participants, such 
as managed care contractors, State regulators, Medicaid recipients or 
their representatives, and external review organizations.
    We have built on efforts in other sectors in developing these 
quality assessment and performance improvement requirements in order to 
capitalize on current activities and trends in the health care 
industry. For example, many employers and cooperative purchasing groups 
and some State agencies already require that organizations be 
accredited by the National Committee on Quality Assurance (NCQA), the 
Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 
the American Healthcare Accreditational Commission (AHAC), or other 
independent bodies. Many also require that organizations report their 
performance using Health Plan Employer Data & Information Set (HEDIS), 
Foundation for Accountability (FACCT), or other measures and conduct 
enrollee surveys using the Consumer Assessment of Health Plans Study 
(CAHPS) or other instruments. NCQA estimates that more than 90 percent 
of plans are collecting some or all of HEDIS data for their commercial 
population. Also, States agencies have heightened their regulatory 
efforts through insurance or licensing requirements, and the National 
Association of Insurance Commissioners (NAIC) has developed model acts 
on network adequacy, quality assessment and improvement, and 
utilization review.
    We anticipate that many organizations will need to invest in new 
staff and information systems in order to perform these new quality 
improvement activities. It is difficult to quantify these financial and 
operational ``investments,'' as State agencies and MCOs across the 
country exhibit varying capabilities in meeting these standards. Even 
though these new quality requirements will present administrative 
challenges for some State agencies and MCOs, State agencies have 
significant latitude in how these requirements will be implemented. 
Acknowledging that there likely will be some degree of burden on State 
agencies and MCOs, we also believe that the long term benefits of 
greater accountability and improved quality in care delivery will 
outweigh the costs of implementing and maintaining these processes over 
time.
    Regarding the new quality standards, we are interested in receiving 
comments concerning the cost or other impact of these provisions on 
State agencies and health plans.

K. Administration

1. Certifications and Program Integrity Protections
    BBA sections 1902(a)(4) and (19) require that State agencies 
conduct appropriate processes and methods to ensure the efficient 
operation of the health plans. This includes mechanisms to not only 
safeguard against fraud and abuse, but also to ensure accurate 
reporting of data among health plans, State agencies, and HCFA.
    Section 438.602 addresses the importance of reliable data that is 
submitted to State agencies. These data include enrollment information, 
encounter data, or other information that are used for payment 
determination. For the most part, State agencies reimburse MCOs on a 
capitated basis, and do not use claims or encounter data as a basis for 
payment. However, the collection of encounter, provider, and enrollment 
data will be most useful for State agencies in measuring quality 
performance and addressing various methodologies of rate setting and 
risk adjustment. The Medicaid provision of attesting to the validity of 
data presents an additional step in the process of data submission. 
MCOs have historically been working closely with State agencies when 
reporting Medicaid data to affirm that the data are accurate and 
complete. Submitting a certification of validity could take place in a 
variety of ways and will represent a varying degree of burden for 
health plans.
    Section 438.606 requires MCOs to have effective operational 
capabilities to guard against fraud and abuse. This will result in 
reporting violations of law by

[[Page 52073]]

MCOs to the State agency. Providers and health plans have traditionally 
ensured compliance with Federal and State laws when providing and 
delivering health care to members. An example is compliance with 
National Association of Insurance Commissioners (NAIC) standards. 
However, additional resources and procedures will be necessary to have 
a systematic process for documenting violations and formally notifying 
the State agency of such instances.
    The requirement of MCOs to certify the accuracy and completeness of 
provider contracts or other documents, as stated in Sec. 438.608 is 
consistent with current practices. These demonstrations are evident in 
NCQA Accreditation procedures, Medicaid waiver reviews, and audits that 
are necessary for compliance with other relevant State and Federal 
laws. Depending on the MCO, new processes may be necessary to comply 
with this standard. This requirement may not necessarily result in new 
mechanisms or resources for MCOs, but may create the need for more 
coordination with additional State representatives in the review of 
provider contracts.
2. Change in Threshold from $100,000 to $1,000,000
    Before the passage of the BBA, the Secretary's prior approval was 
required for all HMO contracts involving expenditures in excess of 
$100,000. Under the BBA, the threshold amount is increased to 
$1,000,000. This change in threshold will have minimal impact on plans 
currently contracting with State agencies for Medicaid managed care. 
Currently, only one or two plans in the country have annual Medicaid 
expenditures of under $1,000,000. Therefore, this new provision will 
not affect a significant number of plans or States.

L. Permitting Same Copayments in HMOs as in Fee-for-Service

    Under section 4708(c) of the BBA, State agencies may now allow 
copayments for services provided by MCOs to the same extent that they 
allow copayments under fee-for-service. Imposition of copayments in 
commercial markets typically results in lower utilization of medical 
services, depending on the magnitude of payments required of the 
enrollee. Thus, we would normally expect State agencies that implement 
copayments for MCO enrollees to realize some savings as a result. 
However, applying copayments in Medicaid populations may cause State 
agencies and MCOs to incur more overhead costs related to administering 
these fees. Factors contributing to these costs include copayments that 
are significantly lower for Medicaid beneficiaries than typical 
commercial copayments and difficulty in ensuring compliance with these 
payments, along with collection efforts that would inevitably be 
necessary for MCOs to obtain all fees due to them. Also, if State 
agencies take full advantage of this option, Medicaid managed care 
enrollees would incur additional costs to obtain health care services. 
As a result of these variables, it is difficult to predict how many 
State agencies will take advantage of this new option of permitting 
copayments in HMOs.

M. Six-month Guaranteed Eligibility

    The legislation has expanded the States' option to guarantee up to 
6 months eligibility in two ways. First, it expands the types of HMOs 
whose members may have guaranteed eligibility, in that now it includes 
anyone who is enrolled with a Medicaid managed care organization as 
defined in section 1903(m)(1)(A) of the Act. Second, it expands the 
option to include those enrolled with a primary care case manager as 
defined in section 1905(t) of the Act. These changes are effective 
October 1, 1997. To the extent that State agencies choose this option, 
we expect MCEs in those States to support the use of this provision, as 
it affords healthplans with minimally acceptable assurance of 
membership for a specified period of time. Similarly, beneficiaries 
will gain from this coverage expansion and continuity of care will be 
enhanced.
    The table below displays our estimates of the impact of the 
expanded option for 6 months of guaranteed eligibility under section 
4709 of the BBA.

                                Cost of 6-Month Guaranteed Eligibility Option \1\
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                   FY 1999      FY 2000      FY 2001      FY 2002      FY 2003
----------------------------------------------------------------------------------------------------------------
Federal........................................           25           40           55           80          115
State..........................................           20           30           45           60           90
                                                ----------------------------------------------------------------
    Total......................................           45           70          100          140         205
----------------------------------------------------------------------------------------------------------------
\1\ These estimates are rounded to the nearest $5 million.

    The estimates of Federal costs are reflected in the current budget 
baseline. The estimates assume that half of the current Medicaid 
population is enrolled in managed care and that this proportion will 
increase to about two-thirds by 2003. We also assume that 15 percent of 
managed care enrollees are currently covered by guaranteed eligibility 
under rules in effect before to the BBA and that the effect of the 
expanded option under Section 4709 of the BBA will be to increase this 
rate to 20 percent initially and to 30 percent by 2003. The guaranteed 
eligibility provision is assumed to increase average enrollment by 3 
percent in populations covered by the option. This assumption is based 
on computer simulations of enrollment and turnover in the Medicaid 
program. Per capita costs used for the estimate were taken from the 
President's FY 1999 budget projections and the costs for children take 
into account the interaction of this provision with the State option 
for 12 months of continuous eligibility under section 4731 of the BBA. 
The distribution between Federal and State costs is based on the 
average Federal share representing 57 percent of the total costs.
    In States electing the 6-month guaranteed eligibility option, 
Medicaid beneficiaries will have access to increased continuity of care 
which should result in better health care management and improved 
clinical outcomes.

N. Conclusion

    This BBA managed care regulation will affect HCFA, State agencies, 
MCOs, providers, and beneficiaries in different ways. The initial 
investments that are needed by State agencies and MCOs will result in 
improved and more consistent standards for the delivery of health care 
to Medicaid beneficiaries. Greater consumer safeguards will result from 
new quality improvement and

[[Page 52074]]

protection provisions. Consequently, long term savings will derive from 
more consistent standards across State agencies and MCOs, and increased 
opportunities for provider and beneficiary involvement in improved 
access, outcomes, and satisfaction. We solicit public comments on the 
costs that may be incurred by the above mentioned entities to the 
extent that they may be significantly economically affected by these 
provisions.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 400

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

42 CFR Part 430

    Administrative practice and procedure, Grant programs--health, 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 431

    Grant programs--health, Health facilities, Medicaid, Privacy, 
Reporting and recordkeeping requirements.

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 Part 438

    Grant programs--health, Managed care entities, Medicaid, Quality 
assurance, Reporting and recordkeeping requirements.

42 CFR Part 440

    Grant programs--health, Medicaid.

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.
    42 CFR chapter IV would be amended as set forth below.

PART 400--INTRODUCTION; DEFINITIONS

    1. The authority citation for part 400 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. Section 400.200 is amended to add the following definitions, in 
alphabetical order:


Sec. 400.200  General definitions.

* * * * *
    HIO stands for health insuring organization.
* * * * *
    MCE stands for managed care entity.
    MCO stands for managed care organization.
* * * * *
    PHP stands for prepaid health plan

PART 430--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

    1. The authority citation for part 430 continues to read as 
follows:

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

    2. In part 430 a new Sec. 430.5 is added, to read as follows:


Sec. 430.5  Definitions.

    As used in this subchapter, unless the context indicates 
otherwise--
    Capitation payment means a payment the State agency makes 
periodically to a contract for each recipient enrolled under a contract 
for the provision of medical services under the State plan, regardless 
of whether the recipient receives services during the period covered by 
the fee.
    Clinical laboratory means a facility that examines materials 
derived from the human body, for the purpose of providing information 
for the diagnosis, prevention or treatment of a disease or the 
assessment of a medical condition.
    Comprehensive risk contract means a risk contract that covers 
comprehensive services, that is, inpatient hospital services and any of 
the following services, or any three or more of the following services:
    (1) Outpatient hospital services.
    (2) Rural health clinic services.
    (3) FQHC services.
    (4) Other laboratory and X-ray services.
    (5) Nursing facility (NF) services.
    (6) Early and periodic screening, diagnostic, and treatment (EPSDT) 
services.
    (7) Family planning services.
    (8) Physician services.
    (9) Home health services.
    Contractor means any entity that contracts with the State agency, 
under the State plan and in return for a payment, to process claims, to 
pay for or provide medical services, or to enhance the State agency's 
capability for effective administration of the program.
    Federally qualified HMO means an HMO that has been determined by 
HCFA to be a qualified HMO under section 1310(d) of the PHS Act.
    Health insuring organization means an entity that--
    (1) Covers (through payments or arrangements with providers) 
services for recipients in exchange for a fixed payment amount; and
    (2) Assumes risk for the cost of the services it covers.
    Nonrisk contract means a contract under which the contractor--
    (1) Is not at risk for costs incurred that do not exceed the upper 
limits on payments specified in Sec. 447.362 of this chapter; and
    (2) Is reimbursed based on the costs it actually incurs.
    Prepaid health plan (PHP) means an entity that provides medical 
services to enrolled recipients, under contract with the State agency 
and on the basis of prepaid capitation payments, but does not have a 
comprehensive risk contract.
    Risk contract means a contract under which the contractor--
    (1) Assumes risk for the cost of the services covered under the 
contract; and
    (2) Incurs loss if the cost of furnishing the services exceeds 
payment under the contract.

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

    1. The authority citation for part 431 continues to read as 
follows:

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

Sec. 431.51  [Amended]

    2. In Sec. 431.51, the following changes are made:
    a. In paragraph (a) introductory text, ``and 1915 (a) and (b) of 
the Act'' is revised to read 1915 (a) and (b) and 1932(a)(3) of the 
Act''.
    b. Paragraphs (a)(4), and (a)(5) are revised and a new paragraph 
(a)(6) is added, to read as set forth below.
    c. In paragraph (b)(1) introductory text, ``and part 438 of this 
chapter'' is added immediately before the comma that follows ``this 
section''.
    d. In paragraph (b)(2), ``an HMO'' is revised to read ``a Medicaid 
MCO''.


Sec. 431.51  Free choice of providers.

    (a) Statutory basis. * * *
    (4) Section 1902(a)(23) of the Act provides that a recipient 
enrolled in a

[[Page 52075]]

primary care case management system or a Medicaid managed care 
organization (MCO) may not be denied freedom of choice of qualified 
providers of family planning services.
    (5) Section 1902(e)(2) of the Act provides that an MCE enrollee 
who, while completing a minimum enrollment period, is deemed eligible 
only for services furnished by or through the MCE, may, as an exception 
to the deemed limitation, seek family planning services from any 
qualified provider.
    (6) Section 1932(a) of the Act, as added by section 4701(a) of the 
Balanced Budget Act of 1997, permits a State to restrict the freedom of 
choice required by section 1902(a)(23), under specified circumstances, 
but not with respect to family planning services.
* * * * *
    3. In Sec. 431.55, the following sentence is added at the end of 
paragraph (c)(1)(i):


Sec. 431.55  Waiver of other Medicaid requirements.

* * * * *
    (c) * * *
    (1) * * *
    (i) * * * The person or agency must comply with the requirements 
set forth in part 438 of this chapter for primary care case management 
contracts and systems.
    4. Section 431.200 is revised to read as follows::


Sec. 431.200  Basis and scope.

    This subpart--
    (a) Implements section 1902(a)(3) of the Act, which requires that a 
State plan provide an opportunity for a fair hearing to any person 
whose claim for assistance is denied or not acted upon promptly;
    (b) Prescribes procedures for an opportunity for hearing if the 
State agency takes action to suspend, terminate, or reduce services, or 
an MCO or PHP takes similar action under subpart F of part 438 of this 
chapter; and
    (c) Implements sections 1919(f)(3), and 1919(e)(7)(F) of the Act by 
providing an appeals process for individuals who--
    (1) Are proposed to be transferred or discharged from nursing 
facilities; or
    (2) Are adversely affected by the preadmission screening or the 
annual resident review required by section 1919(e)(7) of the Act.
    5. In Sec. 431.220(a) introductory text , paragraph introductory 
text is republished and a new paragraph (a)(5) is added to read as 
follows


Sec. 431.220  When a hearing is required.

    (a) The State agency must grant an opportunity for a hearing to--
* * * * *
    (5) Any MCO or PHP enrollee who is entitled to a hearing under 
subpart F of part 438 of this chapter.
* * * * *

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. 434.1, paragraph (a) is revised to read as follows:


Sec. 434.1  Basis and scope.

    (a) Statutory basis. This part is based on section 1902(a)(4) of 
the Act, which requires that the State plan provide for methods of 
administration that the Secretary finds necessary for the proper and 
efficient operation of the plan.
* * * * *


Sec. 434.2  [Amended].

    3. In Sec. 434.2, the definitions of ``capitation fee'', ``clinical 
laboratory'', ``contractor'', ``enrolled recipient'', ``Federally 
qualified HMO'', ``health insuring organization'', ``health maintenance 
organization (HMO)'', ``nonrisk'' ``prepaid health plan'' ``provisional 
status HMO'' and ``risk or underwriting risk'' are removed.


Sec. 434.6  [Amended]

    4. In paragraph (a)(1), `` , appendix G'' is removed.

Subpart C [Removed]

    5. Subpart C, consisting of Secs. 434.20 through 434.38, is removed 
and reserved.

Subpart D [Amended]

    6. In subpart D, Secs. 434.42 and 434.44 are removed.

Subpart E [Removed]

    7. Subpart E, consisting of Secs. 434.50 through 434.67, is removed 
and reserved.

Subpart F [Amended]


Sec. 434.70  [Revised]

    8. Section 434.70 is revised to read as follows


Sec. 434.70  Conditions for Federal financial participation (FFP)

    (a) Basic requirements. FFP is available only for periods during 
which the contract--
    (1) Meets the requirements of this part;
    (2) Meets the applicable requirements of 45 CFR part 74; and
    (3) Is in effect.
    (b) Basis for withholding. HCFA may withhold FFP for any period 
during which--
    (1) The State fails to meet the State plan requirements of this 
part; or
    (2) Either party substantially fails to carry out the terms of the 
contract.


Secs. 434.71 through 434.75 and 434.80  [Removed]

    9. Sections 434.71 through 434.75 and 434.80 are removed.

PART 435--ELIGIBILITY IN THE STATES, THE 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).


Sec. 435.212  [Amended]

    2. In Sec. 435.212, the following changes are made:
    a. Throughout the section, ``HMO'', wherever it appears, is revised 
to read `` MCO''.
    b. The introductory text is revised to read as follows:


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

    The State agency may provide that a recipient who is enrolled in an 
MCE 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 MCE.

    If the State 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 an MCE.
    1. A new part 438 is added to chapter IV, to read as follows:

PART 438--MANAGED CARE PROVISIONS

Subpart A--General Provisions

Sec.
438.1  Basis and scope.
438.2  Definitions.
438.6  Contract requirements.
438.8  Provisions that apply to PHPs.
438.10  Information requirements.
438.12  Provider discrimination.

[[Page 52076]]

Subpart B-- State Responsibilities

438.50  State plan and contract requirements: General rule.
438.52  Choice of managed care entities.
438.56  Enrollment and disenrollment: Requirements and limitations.
438.58  Conflict of interest safeguards.
438.60  Limit on payment to other providers.
438.62  Continued service to recipients.
438.64  Computation of capitation payments.
438.66  Monitoring procedures.

Subpart C--Enrollee Protections

438.100  Benefits.
438.102  Enrollee-provider communications.
438.104  Marketing activities.
438.106  Liability for payment.
438.108  Cost sharing.
438.110  Assurances of adequate capacity and services.
438.114  Emergency and post-stabilization services.
438.116  Solvency standards.

Subpart D--[Reserved]

Subpart E--Quality Assessment and Performance Improvement

438.300  Scope.
438.302  State responsibilities.
438.304  Elements of State quality strategies.

Access Standards

438.306  Availability of services.
438.308  Continuity and coordination of care.
438.310  Coverage and authorization of services.

Structure and Operation Standards

438.314  Establishment of provider networks.
438.318  Enrollee information.
438.320  Enrollee rights.
438.324  Confidentiality.
438.326  Enrollment and disenrollment.
438.328  Grievance systems.
438.330  Subcontractual relationships and delegation.

Measurement and Improvement Standards

438.336  Practice guidelines.
438.340  Quality assessment and performance improvement program.
438.342  Health information systems.

Subpart F--Grievance System

438.400  Statutory basis and definitions.
438.402  General requirements.
438.404  Notice of intended action.
438.406  Handling of complaints and grievances.
438.408  Grievance resolution and notification.
438.410  Expedited resolution of grievances.
438.414  Information about the grievance system.
438.416  Recordkeeping and reporting requirements.
438.420  Continuation of benefits pending grievance resolution or 
State fair hearing decision.
438.421  Effectuation of reversed grievance resolutions.
438.422  Monitoring of the grievance system.
438.424  Consequences of noncompliance.

Subpart G--[Reserved]

Subpart H--Certifications and Program Integrity Protections

438.600  Statutory basis.
438.602  Certification of data that determine payment.
438.606  Conditions necessary to contract as an MCO.
438.608  Certification for contracts or proposals.

Subpart I--Sanctions

438.700  Basis for imposition of sanctions.
438.702  Types of intermediate sanctions.
438.704  Amounts of civil money penalties.
438.706  Special rules for temporary management.
438.708  Required imposition of temporary management for chronic 
substandard MCOs
438.710  Notice of sanction; due process.
438.718  Termination of an MCE contract.
438.720  Hearing on contract termination.
438.722  Disenrollment during termination hearing process.
438.724  Notice to HCFA.
438.730  Sanction by HCFA.

Subpart J--Conditions for Federal Financial Participation

438.802  Basic requirements.
438.806  Prior approval.
438.808  Exclusion of entities.
438.810  Expenditures for enrollment broker services.
438.812  Costs under risk and nonrisk contracts.

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

Subpart A--General Provisions


Sec. 438.1  Basis and scope.

    (a) Statutory basis. This part is based on sections 1902(a)(4), 
1903(m), 1905(t), and 1932 of the Act.
    (1) Section 1902(a)(4) requires that States provide for methods of 
administration that the Secretary finds necessary for proper and 
efficient operation. The application of the requirements of this part 
to PHPs that do not meet the statutory definition of MCO or a primary 
care case manager is under the authority in section 1902(a)(4).
    (2) Section 1903(m) contains requirements that apply to 
comprehensive risk contracts.
    (3) Section 1903(m)(2)(H) provides that an enrollee who loses 
Medicaid eligibility for not more than 2 months may be enrolled in the 
succeeding month in the same MCE if that MCE still has a contract with 
the State.
    (4) Section 1905(t) contains requirements that apply to primary 
care case managers.
    (5) Section 1932--
    (i) Provides that, with specified exceptions, a State may require 
Medicaid recipients to enroll in managed care entities;
    (ii) Defines ``managed care entity (MCE)'' as ``an MCO or a primary 
care case manager'';
    (iii) Establishes the rules that MCOs, primary care case managers, 
the State, and the contracts between the State and those entities must 
meet, including compliance with requirements in sections 1903(m) and 
1905(t) of the Act that are implemented in this part ;
    (iv) Establishes numerous protections for enrollees of MCEs;
    (v) Requires States to develop a quality assessment and performance 
improvement strategy;
    (vi) Specifies certain prohibitions aimed at the prevention of 
fraud and abuse;
    (vii) Provides that a State may not enter into contracts with MCEs 
unless it has established intermediate sanctions that it may impose on 
an MCE that fails to comply with specified requirements; and (viii) 
Makes other minor changes in the Medicaid programs.
    (b) Scope. This part sets forth requirements, prohibitions, and 
procedures for the provision of Medicaid services through managed care 
entities. Requirements vary depending on the type of entity and on the 
authority under which the State contracts with the entity. Provisions 
that apply only when the contract is under a mandatory managed care 
program authorized by section 1932(a)(1)(A) of the Act are identified 
as such.


Sec. 438.2  Definitions.

    As used in this part--
    Authorized representative means an individual authorized by an 
enrollee to act on his or her behalf in any dealings with an MCE or the 
State. The rules for appointment of representatives set forth in 20 CFR 
part 404, subpart R apply unless otherwise provided in this subpart.
    Managed care entity (MCE) means--
    (1) A Medicaid managed care organization (MCO) that has a 
comprehensive risk contract under section 1903(m) of the Act; or
    (2) A primary care case manager.
    Managed care organization (MCO) means--
    (1) A Federally qualified HMO that meets the advance directives 
requirements of subpart I of part 489 of this chapter; or
    (2) Any public or private entity that meets the advance directives 
requirements and is determined to also meet the following conditions:

[[Page 52077]]

    (i) Is organized primarily for the purpose of providing health care 
services.
    (ii) Makes the services it provides to its Medicaid enrollees as 
accessible (in terms of timeliness, amount, duration, and scope) as 
those services are to other Medicaid recipients within the area served 
by the entity.
    (iii) Meets the solvency standards of Sec. 438.116.
    Prepaid health plan (PHP) means an entity that provides medical 
services to enrolled recipients under contract with the State agency, 
and on the basis of prepaid capitation fees, but does not have a 
comprehensive risk contract.
    Primary care means all health care services and laboratory services 
customarily provided by or through a general practitioner, family 
physician, internal medicine physician, obstetrician/gynecologist, or 
pediatrician, in accordance with State licensure and certification laws 
and regulations.
    Primary care case management means a system under which a primary 
care case manager contracts with the State to furnish case management 
services, (which include the location, coordination and monitoring of 
primary health care services) to Medicaid recipients.
    Primary care case manager means a physician, a physician group 
practice, an entity that employs or arranges with physicians to furnish 
primary care case management services or, at State option, one of the 
following:
    (1) A physician assistant.
    (2) A nurse practitioner.
    (3) A certified nurse-midwife.
    Provider means--
    (1) Any individual who is engaged in the delivery of health care 
services in a State and is licensed or certified by the State to engage 
in that activity in the State; and
    (2) Any entity that is engaged in the delivery of health care 
services in a State and is licensed or certified by the State to 
deliver those services if licensing or certification is required by 
State law or regulation.


Sec. 438.6  Contract requirements.

    (a) Entities eligible for comprehensive risk contracts. A State 
agency may enter into a comprehensive risk contract only with one of 
the following:
    (1) An MCO.
    (2) The entities identified in section 1903(m)(2)(B)(i), (ii) and 
(iii) of the Act.
    (3) Certain Community, Migrant, and Appalachian Health Centers 
identified in section 1902(m)(2)(G) of the Act. Unless they qualify for 
a total exemption under section 1902(m)(2)(B) of the Act, these 
entities are subject to the regulations governing MCOs under this part.
    (4) An HIO that arranges for services and became operational before 
January 1986.
    (5) An HIO described in section 9517(c)(3) of the Omnibus Budget 
Reconciliation Act of 1985 (as added by section 4734(2) of the Omnibus 
Budget Reconciliation Act of 1990).
    (b) Capitation payments. All risk contracts must specify--
    (1) The actuarial basis for computation of the capitation payments; 
and
    (2) That the capitation payments and any other payments provided 
for in the contract do not exceed the payment limits set forth in 
Sec. 447.361 of this chapter.
    (c) Enrollment discrimination prohibited. Contracts with MCEs must 
provide as follows:
    (1) During open enrollment periods, the MCE accepts individuals 
eligible for enrollment in the order in which they apply without 
restriction (unless authorized by the Regional Administrator), up to 
the limits set under the contract.
    (2) Enrollment is voluntary, except as provided under Sec. 438.50 
or under a waiver of freedom of choice under section 1115(a)(1) or 
section 1915(b) of the Act.
    (3) The MCE will not, on the basis of health status or need for 
health services, discriminate against individuals eligible to enroll.
    (d) Services that may be covered. An MCE contract may cover, for 
enrollees, services that are in addition to those covered under the 
State plan for recipients who are not enrollees.
    (e) Compliance with contracting rules. All contracts must meet the 
requirements of this section.
    (f) Inspection and audit of financial records. Risk contracts must 
provide that the State agency and the Department may inspect and audit 
any financial records of the entity or its subcontractors relating to 
the entity's capacity to bear the risk of potential financial losses.
    (g) Physician incentive plans. (1) MCO contracts must provide for 
compliance with the requirements set forth in Secs. 422.208 and 422.210 
of this chapter.
    (2) In applying the provisions of Secs. 422.208 and 422.210, 
references to ``M+C organization'', ``HCFA'', and ``Medicare 
beneficiaries'' must be read as references to ``MCO'', ``State agency'' 
and ``Medicaid recipients'', respectively.
    (h) Advance directives. (1) MCO contracts must provide for 
compliance with the requirements of subpart I of part 489 of this 
chapter for maintaining written policies and procedures with respect to 
advance directives.
    (2) The MCO must provide adult enrollees with oral and written 
information on advance directives policies, and include a description 
of applicable State law.
    (3) The information must reflect changes in State law as soon as 
possible, but no later than 90 days after the effective date of the 
change.
    (i) Special rules for certain HIOs. Contracts with HIOs that began 
operating on or after January 1, 1986, and that the statute does not 
explicitly exempt from requirements in section 1903(m) of the Act, are 
subject to all the requirements of this part that apply to MCOs and 
contracts with MCOs. These HIOs may enter into comprehensive risk 
contracts only if they meet the criteria of paragraph (a) of this 
section.
    (j) Additional rules for contracts with primary care case managers. 
A primary care case manager contract must meet the following 
requirements:
    (1) Provide for reasonable and adequate hours of operation, 
including 24-hour availability of information, referral, and treatment 
for emergency medical conditions.
    (2) Restrict enrollment to recipients who reside sufficiently near 
one of the manager's delivery sites to reach that site within a 
reasonable time using available and affordable modes of transportation.
    (3) Provide for arrangements with, or referrals to, sufficient 
numbers of physicians and other practitioners to ensure that services 
under the contract can be furnished to enrollees promptly and without 
compromise to quality of care.
    (4) Prohibit discrimination in enrollment, disenrollment, and re-
enrollment, based on the recipient's health status or need for health 
care services.
    (5) Provide that enrollees have the right to terminate enrollment 
in accordance with Sec. 438.56.


Sec. 438.8  Provisions that apply to PHPs.

    The following requirements and options apply to PHPs, PHP 
contracts, and States with respect to PHPs, to the same extent that 
they apply to MCOs, MCO contracts, and States with respect to MCOs.
    (a) The requirements of Sec. 438.6, except those that pertain, 
respectively, to physician incentive plans, advance directives, and 
HIOs.
    (b) The information requirements of Sec. 438.10.
    (c) The provision against provider discrimination in Sec. 438.12.

[[Page 52078]]

    (d) The requirements in subpart C of this part (enrollee 
protections).
    (e) The requirements in subpart E of this part (quality) that are 
applicable to services furnished by the PHP.
    (f) The requirements in subpart F of this part (grievance and 
appeals) except for HCFA denial of FFP under Sec. 438.424(b).
    (g) The requirements in Sec. 438.56 (e) through (h) (enrollment and 
disenrollment) and Sec. 438.58 (conflict of interest safeguards).


438.10  Information requirements.

    (a) Basic rules. (1) Each State, MCE, and enrollment broker must, 
in furnishing information to enrollees and potential enrollees, meet 
the requirements that are applicable to it under this section.
    (2) The provisions of paragraphs (b) and (c) of this section apply 
to all information furnished to enrollees and potential enrollees, such 
as enrollment notices, informational and instructional materials and 
the information specified in paragraphs (d) through (i) of this 
section.
    (b) Language. The State must meet the following requirements:
    (1) Establish a methodology for determining the prevalent language 
or languages in a geographic area.
    (2) Make information available in the languages that predominate 
throughout the State, and require each MCE to make its information 
available in the languages that predominate in its particular service 
area.
    (3) Make translation services available and require each MCE to 
make translation services available to meet the needs of all enrollees 
and potential enrollees.
    (4) Provide instructions to enrollees and potential enrolees and 
require each MCE to provide instructions to its enrollees and potential 
enrollees on how to obtain information in the appropriate language and 
how to access translation services.
    (c) Format. The material must--
    (1) Use easily understood language and format; and
    (2) Take into consideration the special needs of those who, for 
example, are visually impaired or have limited reading proficiency.
    (d) Provision of basic information. (1) The information listed in 
paragraph (e) of this section must be provided as follows:
    (i) To each enrollee, by the MCO or by the State if the State 
prohibits the MCO from providing it, within a reasonable time after it 
receives, from the State or the enrollment broker, notice of the 
recipient's enrollment.
    (ii) To any potential enrollee who requests it, by the MCO, or by 
the State if the State prohibits MCOs from providing it.
    (2) Once a year the MCO must notify its enrollees of their right to 
request and obtain the information listed in paragraph (e) of this 
section.
    (e) Basic information. The following information must be provided 
as specified in paragraph (d) of this section.
    (1) Kinds of benefits, and amount, duration, and scope of benefits 
available under the contract. There must be sufficient detail to ensure 
that enrollees receive the services to which they are entitled, 
including pharmaceuticals, mental health, and substance abuse services.
    (2) Procedures for obtaining services, including authorization 
requirements.
    (3) Names and locations of current network providers, including 
identification of those who are not accepting new patients.
    (4) Any restrictions on the enrollee's freedom of choice among 
network providers.
    (5) The extent to which enrollees may obtain services from out-of-
network providers.
    (6) The extent to which after-hours and emergency coverage are 
provided.
    (7) Policy on referrals for specialty care and for other services 
not furnished by the enrollee's primary care provider.
    (8) Cost sharing, if any.
    (9) The rights and responsibilities of enrollees, such as those set 
forth in Secs. 438.56 and 438.320.
    (10) Complaint, grievance, and fair hearing procedures required 
under Sec. 438.414(b).
    (11) Any appeal rights that the State chooses to make available to 
providers.
    (f) Additional information available upon request. (1) The 
information specified in paragraph (f)(2) of this section must be 
provided, upon request, as follows:
    (i) To each enrollee, by the MCO; and
    (ii) To each potential enrollee, by the MCO, or by the State if the 
State prohibits the MCO from providing it.
    (2) The following information must be provided in accordance with 
paragraph (f)(1) of this section:
    (i) With respect to MCOs and health care facilities, their 
licensure, certification, and accreditation status.
    (ii) With respect to health professionals, information that 
includes, but is not limited to, education and Board certification and 
recertification.
    (g) Additional information: Medicaid-covered benefits not provided 
under the MCE contract. Before or during enrollment, the State must, 
directly or through the MCE, provide to Medicaid recipients information 
on the following:
    (1) Any benefits to which they may be entitled under the Medicaid 
program, but that are not covered under the MCE contract.
    (2) Specific instructions on where and how to obtain those 
benefits, including how transportation is provided.
    (3) Cost sharing, if any.
    (h) Information that primary care case managers are required to 
provide. Each primary care case manager must, upon request, provide 
information about the grievance procedures available to enrollees, 
including procedures for obtaining services during the appeals process.
    (i) Additional information: Mandatory MCE enrollment under section 
1932 of the Act.
    (1) Basic rule. If the State plan provides for mandatory MCE 
enrollment under section 1932(a)(1)(A) of the Act, the State must 
provide the information specified in paragraph (i)(2) of this section, 
either directly or through the MCE--
    (i) To potential enrollees whenever they request it, and at least 
once a year; and
    (ii) Presented in a comparative, chart-like format.
    (2) Required information. The information must include the 
following for each contracting MCE:
    (i) The MCE's service area.
    (ii) The benefits covered under the contract.
    (iii) Any cost sharing imposed by the MCE.
    (iv) To the extent available, quality and performance indicators, 
including but not limited to disenrollment rates, as defined by the 
State, and enrollee satisfaction.


Sec. 438.12  Provider discrimination.

    (a) General rules. (1) An MCO may not discriminate with respect to 
the participation, reimbursement, or indemnification of any provider 
who is acting within the scope of his or her license or certification 
under applicable State law, solely on the basis of that license or 
certification.
    (2) The MCO must contract with all health care professionals in the 
manner specified in Sec. 438.314.
    (b) Construction. Paragraph (a) of this section may not be 
construed to--
    (1) Require the MCO to contract with providers beyond the number 
necessary to meet the needs of its enrollees;
    (2) Preclude the MCO from using different reimbursement amounts for 
different specialties; or
    (3) Preclude the MCO from establishing measures designed to

[[Page 52079]]

maintain quality of services and control costs, consistent with its 
responsibilities to enrollees.

Subpart B--State Responsibilities


Sec. 438.50  State plan and contract requirements: General rule.

    A State plan that provides for requiring Medicaid recipients to 
enroll in managed care entities must--
    (a) Specify the types of entities with which the State will 
contract under a mandatory enrollment program authorized by section 
1932(a)(1)(A) of the Act, the payment method that will be used (whether 
fee-for-service or capitation), and whether the contract is a 
comprehensive risk contract; and
    (b) Provide assurances that the State will meet all applicable 
requirements of--
    (1) Section 1903(m) of the Act, with respect to MCOs;
    (2) Section 1905(t) of the Act, with respect to primary care case 
managers and primary care case manager contracts;
    (3) Section 1932(a)(1)(A) of the Act, which provides the option for 
States to limit freedom of choice by requiring recipients to receive 
their benefits through managed care entities; and
    (4) This part, with respect to MCEs.
    (c) Provide assurances that--
    (1) All contracts will meet the applicable requirements of this 
part and of part 434 of this chapter;
    (2) All MCO contracts will also meet the requirements of section 
1903(m)(2) of the Act;
    (3) All primary care case manager contracts will comply with the 
requirements of section 1905(t) of the Act; and
    (4) All risk contracts will comply with the upper limit of payment 
restrictions imposed by Sec. 447.361 of this chapter.


Sec. 438.52  Choice of managed care entities.

    (a) Terminology. For purposes of this section, a State may define 
``rural area'' as any of the following:
    (1) Any area outside of an ``urban area'' as defined in 
Sec. 412.62(f)(1)(ii) of this chapter.
    (2) Any area not delineated as an ``urbanized area'' in the last 
census conducted by the Census Bureau, as described in Sec. 491.5(c) of 
this chapter.
    (3) Any area (except the whole State) under a definition proposed 
by a State and approved by HCFA or determined by HCFA (that may apply 
to one State or all States).
    (b) General requirement. Except as specified in paragraphs (c) and 
(d) of this section, a State that requires Medicaid recipients to 
enroll in an MCE must give recipients a choice of at least two MCEs.
    (c) Exception for rural area residents. For recipients who reside 
in a rural area, the State may, under a program authorized by section 
1932(a) of the Act, or under a waiver under Sec. 431.55 of this 
chapter, limit recipients to a single MCE, provided it permits the 
recipient--
    (1) To choose from at least two physicians or case managers; and
    (2) To obtain services from any other provider under the following 
circumstances:
    (i) The service or type of provider is not available within the MCE 
network.
    (ii) The provider is not part of the MCE network, but has an 
existing relationship with the recipient.
    (iii) The only plan or provider available to the recipient does 
not, because of moral or religious objections, provide the service the 
enrollee seeks.
    (iv) The State determines that other circumstances warrant out-of-
network treatment.
    (d) Exception for certain health insuring organizations (HIOs). The 
State may limit recipients to a single HIO if--
    (1) The HIO is one of those described in section 1932(a)(3)(C) of 
the Act; and
    (2) The recipient who enrolls in the HIO has a choice of at least 
two providers within the entity.


Sec. 438.56  Enrollment and disenrollment: Requirements and 
limitations.

    (a) Applicability. (1) The provisions of paragraphs (b) through (d) 
of this section apply only to enrollment mandated under the authority 
of section 1932 of the Act.
    (2) Paragraphs (a) and (e) through (h) apply under all MCE 
contracts, regardless of whether enrollment is mandated under section 
1932, or voluntary, and under PHP contracts, as provided in Sec. 438.8.
    (b) Limitations on enrollment. The State must provide assurances 
that, in implementing the State plan managed care option, it will not 
require the following groups to enroll in an MCE:
    (1) Recipients who are also eligible for Medicare.
    (2) Indians who are members of Federally recognized tribes, except 
when the MCE is--
    (i) The Indian Health Service; or
    (ii) An Indian health program operated by a tribe or tribal 
organization under a contract, grant, cooperative agreement or compact 
with the Indian Health Service.
    (3) Children under 19 years of age who are:
    (i) Eligible for SSI under title XVI;
    (ii) Eligible under section 1902(e)(3) of the Act;
    (iii) In foster care or other out-of-home placement;
    (iv) Receiving foster care or adoption assistance; or
    (v) Receiving services through a family-centered, community-based, 
coordinated care system that receives grant funds under section 
501(a)(1)(D) of title V, and is defined by the State in terms of either 
program participation or special health care needs.
    (c) Priority for enrollment. Enrollment procedures must include a 
system under which recipients already enrolled in an MCE are given 
priority to continue that enrollment if the MCE does not have the 
capacity to accept all those seeking enrollment under the program.
    (d) Enrollment by default. (1) For recipients who do not choose an 
MCE during their enrollment period, the State must have a default 
enrollment process for assigning those recipients to contracting MCEs.
    (2) The process must seek to preserve existing individual provider-
recipient relationships and relationships with providers that have 
traditionally served Medicaid recipients. If that is not possible, the 
State must distribute the recipients equitably among qualified MCEs 
available to enroll them.
    (3) An ``existing provider-recipient relationship'' is one in which 
the provider was the main source of Medicaid services for the recipient 
during the previous year. This may be established through State records 
of previous managed care enrollment or fee-for-service experience, or 
through contact with the recipient.
    (4) A provider is considered to have ``traditionally served'' 
Medicaid recipients if it has experience in serving the general 
Medicaid population.
    (e) Disenrollment by the recipient: Timing. (1) General rule. If 
the State chooses to restrict disenrollment, its contracts must provide 
that a recipient enrolled in an MCE is permitted to disenroll as 
follows:
    (i) For cause, at any time.
    (ii) Without cause, as follows:
    (A) During the 90 days following the effective date of the 
individual's initial enrollment with the MCE. (If notice of enrollment 
to the recipient is delayed, the 90-day period may be extended to 
compensate for that delay.)
    (B) At least once every 12 months thereafter.
    (2) Special rule for certain programs. The provisions of paragraph 
(e)(1) of this section apply to changes among individual physicians or 
primary care case managers, for enrollees who--
    (i) Reside in a rural area in which the State makes available only 
one MCE, as permitted under Sec. 438.52(c); or

[[Page 52080]]

    (ii) Reside in an area in which only one HIO is available, as 
permitted under Sec. 438.52(d).
    (f) Procedures for disenrollment for cause. (1) Request for 
disenrollment. (i) The enrollee must submit a written request to the 
State agency or, if the State permits MCEs to process disenrollments 
for cause, to the MCE.
    (ii) When an MCE receives a request for disenrollment, it must 
promptly submit a copy to the State agency.
    (2) Action on enrollee's request. (i) The MCE may approve the 
request if the State permits MCEs to process disenrollments for cause.
    (ii) If the MCE approves the request, it must give the enrollee and 
the State agency written notice of the approval and of the effective 
date of disenrollment, which must be consistent with paragraph (f)(4) 
of this section.
    (iii) If the MCE, for whatever reason, does not take action to 
approve the request, it must notify the State agency within a 
reasonable time-frame established by the State.
    (iv) Upon receipt of the MCE's notice, the State agency determines 
whether there is good cause for disenrollment, based on the following:
    (A) Reasons cited in the request, such as poor quality care, lack 
of access to necessary specialty services covered under the contract, 
or other reasons satisfactory to the State agency.
    (B) Information provided by the MCE at the State agency's request.
    (3) Use of the MCE's grievance procedures. (i) The State agency may 
require that the enrollee seek redress through the MCE's grievance 
system before making a determination on the enrollee's request, except 
when the request alleges that any delay would pose immediate jeopardy 
to the enrollee's health.
    (ii) The grievance process, if used, must be completed in time to 
permit the disenrollment (if approved) to be effective no later than 
the first day of the second month after the month the enrollee makes 
the request.
    (iii) If, as a result of the grievance process, the MCE approves 
disenrollment, the State agency is not required to make a 
determination.
    (4) State agency determination. (i) If a State agency determination 
is required, the timing of that determination must be such as to permit 
disenrollment effective no later than the first day of the second month 
following the month in which the enrollee makes the request.
    (ii) If the State agency fails to make a determination within the 
specified time frames, the request for disenrollment is considered 
approved.
    (g) Notice and appeals. A State that restricts disenrollment under 
this section must take the following actions:
    (1) Require MCEs to notify enrollees and potential enrollees of 
their disenrollment rights--
    (i) At least 60 days before the start of each enrollment period; 
and
    (ii) At least once a year.
    (2) Establish an appeals process for enrollees dissatisfied with a 
State agency determination that there is not good cause for 
disenrollment.
    (h) Automatic reenrollment. If the State plan so specifies, the 
contract must provide for automatic reenrollment of a recipient who is 
terminated from an MCE solely because he or she loses Medicaid 
eligibility for a period of two months or less.


Sec. 438.58  Conflict of interest safeguards.

    (a) As a condition for contracting with MCOs a State must have in 
effect safeguards against conflict of interest on the part of State and 
local officers and employees and agents of the State who have 
responsibilities relating to MCO contracts or the default enrollment 
process specified in Sec. 438.56 of this chapter.
    (b) These safeguards must be at least as effective as the 
safeguards specified in section 27 of the Office of Federal Procurement 
Policy Act (41 U.S.C. 423).


Sec. 438.60  Limit on payment to other providers.

    (a) Basic rule. The State agency must ensure that, except as 
provided in paragraph (b) of this section, no payment is made, for 
services not furnished through the MCO if the services were available 
under the MCO contract with the State agency.
    (b) Exception. In accordance with Sec. 438.114(c) and (d), 
emergency services and post-stabilization services are not subject to 
the limitation of paragraph (a) of this section.


Sec. 438.62  Continued service to recipients.

    The State agency must arrange for Medicaid services to be provided 
without delay to any Medicaid enrollee of an MCO whose contract is 
terminated and for any Medicaid enrollee who is disenrolled from an MCO 
for any reason other than ineligibility for Medicaid.


Sec. 438.64  Computation of capitation payments.

    The State agency must determine that capitation payments and any 
other payments provided for in the contract are computed on an 
actuarially sound basis.


Sec. 438.66  Monitoring procedures.

    The State agency must have in effect procedures for monitoring the 
following aspects of the MCO's practices and procedures:
    (a) Enrollment and termination practices.
    (b) Implementation of grievance procedures.
    (c) Violations subject to intermediate sanctions, as provided in 
subpart I of this part.
    (d) Violations of the conditions for FFP, as set forth in subpart J 
of this part.

Subpart C--Enrollee Protections


Sec. 438.100  Benefits.

    (a) Contracts with MCOs must specify the services that the entity 
is required to provide to Medicaid enrollees.
    (b) If the contract does not cover all Medicaid services covered 
under the State plan, the State must make arrangements for furnishing 
those other services and give enrollees written instructions on how to 
obtain them.


Sec. 438.102  Enrollee-provider communications.

    (a) Practitioner defined. As used in this subpart ``practitioner'' 
means a physician, as defined in section 1861(r) of the Act, or any of 
the following: a psychologist, physician assistant, physical or 
occupational therapist or therapist assistant, speech-language 
pathologist, audiologist, registered or licensed practical nurse 
(including nurse practitioner, clinical nurse specialist, certified 
registered nurse anesthetist, and certified nurse midwife), licensed or 
certified social worker, registered respiratory therapist and certified 
respiratory therapy technician.
    (b) General rule. An MCO may not prohibit, or otherwise limit or 
restrict a participating practitioner (who is acting within the scope 
of his or her practice) from advising an enrollee who is the 
practitioner's patient, about the enrollee's health status or about 
medical care or treatment for the enrollee's condition or disease, 
regardless of whether the MCO provides benefits for the particular type 
of care or treatment.
    (c) Conscience protection. The general rule in paragraph (b) of 
this section does not require the MCO to cover, furnish, or pay for a 
particular counseling or referral service if the MCO--
    (1) Objects to the provision of that service on moral or religious 
grounds; and
    (2) Makes written information on these policies available as 
follows:
    (i) To the State, with its application for a Medicaid contract.

[[Page 52081]]

    (ii) To prospective enrollees, before and during enrollment.
    (iii) To current enrollees, within 90 days after adopting the 
policy with respect to any particular service.
    (d) Construction. Nothing in paragraph (c) of this section may be 
construed to affect disclosure requirements under State law or under 
the Employee Retirement Income Security Act of 1974.


Sec. 438.104  Marketing activities.

    (a) Terminology. As used in this section--
    Choice counseling means activities such as answering questions and 
providing information (in an unbiased manner) on available delivery 
system options, and advising on what factors to consider when choosing 
among them and in selecting a primary care provider.
    Cold-call marketing means any unsolicited personal contact by the 
MCE with a potential enrollee for the purpose of influencing the 
individual to enroll in that particular MCE.
    Enrollment activities means activities such as distributing, 
collecting, and processing enrollment materials and taking enrollments 
by phone or in person.
    Enrollment broker means an individual or entity that performs 
choice counseling or enrollment activities, or both.
    Marketing materials means materials that--
    (1) Are produced in any medium, by or on behalf of an MCE;
    (2) Are used by the MCE to communicate with individuals who are not 
its enrollees; and
    (3) Can reasonably be interpreted as intended to influence the 
individuals to enroll or reenroll in that particular
    MCE and entity include any of the entity's employees, affiliated 
providers, agents, or contractors.
    Recipient and potential recipient include the recipient's 
authorized representative.
    (b) Requirements and prohibitions. Each MCE contract must----
    (1) Specify the methods by which the entity assures the State 
agency that marketing plans and materials are accurate and do not 
mislead, confuse, or defraud the recipients or the State agency.
    (2) Provide that the entity--
    (i) Does not distribute any marketing materials without first 
obtaining State approval;
    (ii) Distributes the materials to its entire service area;
    (iii) Complies with the information requirements of Sec. 438.10 to 
ensure that, before enrolling, the recipient receives, from the entity 
or the State, the accurate oral and written information he or she needs 
to make an informed decision on whether to enroll;
    (iv) Does not seek to influence enrollment in conjunction with the 
sale of any other insurance: and
    (v) Does not, directly or indirectly, engage in door-to-door, 
telephone, or other ``cold-call'' marketing activities.
    (c) State agency review. In reviewing the marketing materials 
submitted by the entity, the State must consult with the Medical Care 
Advisory Committee established under Sec. 431.12 of this chapter or an 
advisory committee with similar membership.


Sec. 438.106  Liability for payment.

    Each MCO must provide that its Medicaid enrollees are not held 
liable for any of the following:
    (a) The debts of the MCO, in the event of its insolvency.
    (b) Services provided to the enrollee, for which--
    (1) The State does not pay the MCO; or
    (2) The State or the MCO does not pay the individual or health care 
provider that furnishes the services under a contractual, referral, or 
other arrangement.
    (c) Payments for services furnished under a contract, referral, or 
other arrangement, to the extent that those payments are in excess of 
the amount that the enrollee would owe if the MCO provided the services 
directly.


Sec. 438.108  Cost sharing.

    The contract must provide that any cost sharing imposed on Medicaid 
enrollees is in accordance with Secs. 447.50 through 447.58 of this 
chapter.


Sec. 438.110  Assurances of adequate capacity and services.

    (a) Basic rule. Each MCO must give the State and HCFA assurances 
that it has the capacity to serve the expected enrollment in its 
service area in accordance with subpart E of this part.
    (b) Nature of assurances. The MCO must submit documentation, as 
provided in paragraphs (c) and (d) of this section, to demonstrate that 
it--
    (1) Offers an appropriate range of services, including access to 
preventive services, primary care services and specialty services for 
the anticipated number of enrollees for the service area; and
    (2) Maintains a network of providers that is sufficient in number, 
mix, and geographic distribution to meet the needs of the anticipated 
number of enrollees in the service area; and
    (3) Meets the availability of services requirements of 
Sec. 438.306.
    (c) Timing of documentation. The MCO must submit the documentation 
described in paragraph (b) of this section at least every 2 years, and, 
specifically--
    (1) At the time it enters into or renews a contract with the State; 
and
    (2) At any time the State determines there has been a significant 
change in the MCO's delivery network or enrollee population.
    (d) State review and submission to HCFA. After the State reviews 
the documentation, and after the MCO makes any changes required as a 
result of that review, the MCO must submit to HCFA assurances that 
include copies of--
    (1) The documentation reviewed by the State; and
     (2) The State's certification that the MCO has complied with the 
State's requirements for availability of services, as set forth in 
Sec. 438.306.


Sec. 438.114  Emergency and post-stabilization services.

    (a) Definitions. As used in this section--
    Emergency medical condition means a medical condition manifesting 
itself by acute symptoms of sufficient severity (including severe pain) 
such that a prudent layperson, with an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in--
    (1) Serious jeopardy to the health of the individual or, in the 
case of a pregnant woman, the health of the woman or her unborn child;
    (2) Serious impairment of bodily function; or
    (3) Serious dysfunction of any bodily organ or part.
    Emergency services means covered inpatient or outpatient services 
that are--
    (1) Furnished by a provider qualified to furnish emergency 
services; and
    (2) Needed to evaluate or stabilize an emergency medical condition.
    Post-stabilization services means medically necessary non-emergency 
services furnished to an enrollee after he or she is stabilized 
following an emergency medical condition.
    (b) Disclosure requirements. At the time of enrollment and at least 
annually thereafter, each MCE must provide, in clear, accurate, and 
standardized form, information that, at a minimum, describes or 
explains the following:
    (1) What constitutes an emergency, and what constitutes post-
stabilization services, with reference to the

[[Page 52082]]

definitions in paragraph (a) of this section.
    (2) The appropriate use of emergency services.
    (3) The process and procedures for obtaining emergency services, 
including use of the 911 telephone system or its local equivalent.
    (4) The locations of any emergency settings and other locations at 
which MCE physicians and hospitals provide emergency services and post-
stabilization services covered under the contract.
    (5) The fact that prior authorization is not required for emergency 
services.
    (6) The fact that the provider must request authorization for post-
stabilization services, but pre-authorization is not required if the 
MCE does not provide it within an hour after receiving a request for 
authorization or cannot be reached for authorization.
    (c) Coverage and payment: Post-stabilization services. (1) The 
provider of post-stabilization services must request prior 
authorization for those services.
    (2) Each MCE with a risk contract that covers post-stabilization 
services must pay for those services if--
    (i) The services are pre-approved by the MCE; or
    (ii) The services are not pre-approved because the MCE does not 
respond within 1 hour after receiving the provider's request, or cannot 
be contacted for approval.
    (3) If services are covered under paragraph (c)(2) of this section, 
the MCE must continue to pay for the services until it contacts the 
provider and makes other arrangements.
    (4) If post-stabilization services are not covered under an MCE 
risk contract, the State must pay for those services if they meet the 
conditions of paragraph (c)(2)(i) or (c)(2)(ii) of this section.
    (5) If authorization by a primary care case manager is a condition 
for coverage of services, a primary care case manager may not deny 
authorization for post-stabilization services that meet the conditions 
of paragraph (c)(2)(ii) of this section.
    (d) Additional rules for emergency services. (1) An MCO must pay 
for emergency services regardless of whether the entity that furnishes 
the services has a contract with the MCO.
    (2) A primary care case manager must--
    (i) Allow enrollees to obtain emergency services outside the 
primary care case management system regardless of whether the case 
manager referred the enrollee to the health care provider that 
furnishes the services; and
    (ii) Pay for the emergency services if the manager's contract is a 
risk contract that covers those services.
    (e) Financial responsibility. (1) An MCO may not deny payment for 
treatment obtained under either of the following circumstances:
    (i) An enrollee had an emergency medical condition, including cases 
in which the absence of immediate medical attention would not have had 
the outcomes specified in paragraphs (1), (2), and (3) of the 
definition of ``emergency medical condition'' in this section.
    (ii) A practitioner or other representative of the MCO instructs 
the enrollee to seek emergency services.
    (2) The MCO is not responsible for services obtained outside the 
network unless they are emergency services or post-stabilization 
services that meet the requirement of paragraph (c)(2) of this section.
    (f) Stabilized condition. The attending physician, or the 
practitioner actually treating the enrollee, determines when the 
enrollee is sufficiently stabilized for transfer or discharge, and that 
determination is binding on the MCO.


Sec. 438.116  Solvency standards.

    (a) Basic rule. Each MCO must meet the solvency standards in 
paragraph (b) of this section, and must provide assurances satisfactory 
to the State showing that it has adequate provision against the risk of 
insolvency such as to ensure that its Medicaid enrollees will not be 
liable for the MCO's debts if it becomes insolvent.
    (b) State solvency standards requirement. Except as provided in 
paragraph (c) of this section, an MCO satisfies the solvency 
requirements if it meets the solvency standards established by the 
State for private health maintenance organizations, or is licensed or 
certified by the State as a risk-bearing entity.
    (c) Exceptions to State solvency standards requirement. The 
requirement of paragraph (b) of this section does not apply if the 
MCO--
    (1) Does not provide both inpatient hospital services and physician 
services;
    (2) Is a public entity;
    (3) Is (or is controlled by) one or more Federally qualified health 
centers and meets the solvency standards established by the State for 
those centers;
    (4) Has its solvency guaranteed by the State;
    (5) Entered into its current contract before October 1998; or
    (6) Had a contract under 1903(m) on August 5, 1997. (This exemption 
expires on August 5, 2000.)

Subpart D [Reserved]

Subpart E--Quality Assessment and Performance Improvement


Sec. 438.300  Scope.

    This subpart implements section 1932(c)(1) and sets forth 
specifications for quality assessment and performance improvement 
strategies that States must implement to ensure the delivery of quality 
health care by MCOs. It also establishes standards that States and MCOs 
must meet.


Sec. 438.302  State responsibilities.

    Each State contracting with an MCO must--
    (a) Have a strategy for assessing and improving the quality of 
managed care services offered by the MCO;
    (b) Ensure compliance with standards established by the State, 
consistent with this subpart; and
    (c) Conduct regular, periodic reviews to evaluate the effectiveness 
of the strategy, as often as the State considers appropriate, but at 
least every three years.


Sec. 438.304  Elements of State quality strategies.

    At a minimum, State strategies must include the following--
    (a) Contract provisions that incorporate the standards specified in 
this subpart.
    (b) Procedures for assessing the quality and appropriateness of 
care and services furnished to all Medicaid enrollees under the 
contract. These procedures include, but are not limited to, continuous 
monitoring and evaluation of MCO compliance with the standards.
    (c) Arranging for annual, external independent reviews of the 
quality outcomes and timeliness of, and access to services covered 
under each MCO contract.
    (d) Appropriate use of intermediate sanctions that, at a minimum, 
meet the requirements of Subpart I of this part.
    (e) An information system that is sufficient to support initial and 
ongoing operation and review of the State's quality strategy.
    (f) Standards, at least as stringent as those in this subpart, for 
access to care, structure and operations, and quality measurement and 
improvement.

Access Standards


Sec. 438.306  Availability of services.

    (a) Basic rule. Each State must ensure that all covered services 
are available and accessible to enrollees.
    (b) Choice of entities. If a State limits freedom of choice, it 
must comply with

[[Page 52083]]

the requirements of Sec. 438.52, which specifies the choices that the 
State must make available.
    (c) Services not covered by the MCO contract. If an MCO contract 
does not cover all of the services covered under the State plan, the 
State must arrange for those services to be made available from other 
sources and instruct all enrollees on where and how to obtain them, 
including how transportation is provided.
    (d) Delivery network. The State must ensure that each MCO complies 
with the requirements set forth in this paragraph.
    (1) The MCO maintains and monitors a network of appropriate 
providers that is supported by written agreements and is sufficient to 
provide adequate access to all services covered under the contract. In 
establishing and maintaining the network, the MCO must consider the 
following:
    (i) The anticipated enrollment, with particular attention to 
pregnant women and children.
    (ii) The expected utilization of services, considering enrollee 
characteristics and health care needs.
    (iii) The numbers and types of providers required to furnish the 
contracted services.
    (iv) The number of network providers who are not accepting new 
patients.
    (v) The geographic location of providers and enrollees, considering 
distance, travel time, the means of transportation ordinarily used by 
enrollees, and whether the location provides physical access for 
enrollees with disabilities.
    (2) The MCO provides female enrollees with direct access to a 
women's health specialist within the network for womens' routine and 
preventive health care services, notwithstanding that the MCO maintains 
a primary care provider for each enrollee.
    (3) If seeking expansion of its service area, the MCO demonstrates 
that it has sufficient numbers and types of providers to meet the 
anticipated additional volume and types of services the added enrollee 
population may require.
    (4) The MCO demonstrates that its providers are credentialed as 
required by Sec. 438.314.
    (5) When medically appropriate, the MCO makes services available 24 
hours a day, 7 days a week. This applies, at a minimum, to --
    (i) Emergency services and post-stabilization services; and
    (ii) Non-emergency services that are required immediately because 
of an unforseen illness.
    (6) The MCO ensures that its providers' hours of operation are 
convenient for enrollees and do not discriminate against Medicaid 
enrollees.
    (e) Provision of services. The State must ensure that each MCO 
complies with the requirements of this paragraph.
    (1) Timely access. The MCO must--
    (i) Meet and require its providers to meet State standards 
established under Sec. 438.304(f) for timely access to care and member 
services, taking into account the urgency of need for services;
    (ii) Establish mechanisms to ensure compliance;
    (iii) Monitor continuously to determine compliance; and
    (iv) Take corrective action if there is failure to comply.
    (2) Initial assessment. The MCO must provide initial assessments 
within the following time frames:
    (i) For each enrollee, within 90 days of the effective date of 
enrollment.
    (ii) For pregnant women and enrollees with complex and serious 
medical conditions, within a shorter period of time, as determined by 
the State.
    (3) Pregnancy and complex and serious medical conditions. The MCO 
must have in effect State-approved procedures under which the MCO--
    (i) Timely identifies and furnishes care to pregnant women;
    (ii) Timely identifies individuals with complex and serious medical 
conditions, assesses those conditions and identifies appropriate 
medical procedures for monitoring or treating them; and
    (iii) Implements a treatment plan that--
    (A) Is appropriate to the conditions identified and assessed under 
paragraph (e)(3)(ii) of this section;
    (B) Is for a specific period of time;
    (C) Specifies an adequate number of direct access visits to 
specialists as required by the treatment plan; and
    (D) Is updated periodically by the physician responsible for 
overall coordination of the enrollee's health care.
    (4) Cultural considerations. The MCO ensures that services are 
provided in a culturally competent manner to all enrollees, including 
at least the language requirements of Sec. 438.10.


Sec. 438.308  Continuity and coordination of care.

    The State must ensure that each MCO meets the requirements of this 
section.
    (a) Primary care and over-all coordination. This requires written 
policies that--
    (1) Provide that each enrollee has an ongoing source of primary 
care appropriate to the enrollee's needs, and a health care 
practitioner who is formally designated as primarily responsible for 
coordinating the enrollee's overall health care; and
    (2) Specify whether coordination is provided by the enrollee's 
primary care provider or by a different practitioner.
    (b) Coordination program. Each MCO must ensure coordination of 
services internally and with services available from community 
organizations and other social programs.
    (c) Patient care information. The MCO and its providers must have 
the information necessary for effective and continuous patient care and 
quality improvement, including procedures to ensure that--
    (1) Each provider maintains, for Medicaid enrollees, health records 
that meet the requirements established by the MCO, taking into account 
professional standards; and
    (2) There is appropriate and confidential exchange of information 
among providers.
    (d) Enrollee participation. To ensure optimum enrollee 
participation, there must be procedures to ensure that providers--
    (1) Inform enrollees of specific health conditions that require 
follow-up and, if appropriate, provide training in self-care; and
    (2) Deal with factors that hinder enrollee compliance with 
prescribed treatments or regimens.


Sec. 438.310  Coverage and authorization of services.

    (a) Coverage. Each contract must--
    (1) Identify, define, and specify the amount, duration, and scope 
of each service that the MCO offers;
    (2) Specify what constitutes ``medically necessary services'' to 
the extent they are described in the State plan; and
    (3) Provide that the MCO furnishes the services in accordance with 
that provision.
    (b) Processing of requests. Each contract must--
    (1) Require that, in processing requests for initial and continuing 
authorization of services, the MCO and its subcontractors follow 
written policies and procedures that reflect current standards of 
medical practice;
    (2) Specify the information required for authorization decisions 
and require that the MCO--
    (i) Have in effect mechanisms to ensure consistent application of 
review criteria for authorization decisions;
    (ii) Consult with the requesting provider when appropriate; and
    (iii) Observe the time-frames specified in paragraph (d) of this 
section.

[[Page 52084]]

    (c) Notice of adverse action. Each contract must provide that, 
within the time frames specified in paragraph (d) of this section, the 
MCO will give the requesting provider and the enrollee written notice, 
in accordance with Sec. 438.404, of the following:
    (1) Any decision to deny, limit, reduce, delay, or terminate a 
services, including specific reasons for the decision.
    (2) The enrollee's right to file a grievance or request a State 
fair hearing, in accordance with subpart F of this part.
    (d) Time-frames. Each contract must specify that the MCO will 
provide services as expeditiously as the enrollee's health condition 
requires and within State-established time-frames that may not exceed 
the following:
    (1) Ordinarily, no later than 14 calendar days after receipt of the 
request for service, with a possible extension of up to 14 additional 
calendar days, if--
    (i) The enrollee requests extension; or
    (ii) The MCO justifies (to the State agency upon request) a need 
for additional information and how the extension is in the enrollee's 
interest.
    (2) If the physician indicates, or the MCO determines that 
following the ordinary time-frame could seriously jeopardize the 
enrollee's life or health or ability to regain maximum function, no 
later than 72 hours after receipt of the request for service, with a 
possible extension of up to 14 additional calendar days if--
    (i) The enrollee requests extension; or
    (ii) The MCO justifies (to the State agency upon request) a need 
for additional information and how the extension is in the enrollee's 
interest.
    (e) Compensation for utilization management activities. Each 
contract must provide that, consistent with Sec. 438.6(g), and 
Sec. 422.208 of this chapter, compensation to individuals or entities 
that conduct utilization management activities is not structured so as 
to provide incentives for the individual or entity to deny, limit, or 
discontinue medically necessary services to any enrollee.

Structure and Operation Standards


Sec. 438.314  Establishment of provider networks.

    (a) The State must ensure that each MCO implements a documented 
selection and retention process that meets the requirements of this 
section.
    (b) For each practitioner, including each practitioner who is a 
member of a contracting group that provides services to the MCO's 
Medicaid enrollees, the process must include procedures for the 
following:
    (1) Initial credentialing that is based on a written application 
and site visits as appropriate, as well as primary source verification 
of licensure, disciplinary status, and eligibility for payment under 
Medicaid.
    (2) Recredentialing that is accomplished--
    (i) Within time-frames set by the State, but no less frequently 
than required by the State for private health maintenance 
organizations; and
    (ii) Through a process that updates information obtained during 
initial credentialing and considers performance indicators, including 
those obtained through the following:
    (A) The quality assessment and performance improvement program.
    (B) The utilization management system.
    (C) The grievance system.
    (D) Enrollee satisfaction surveys.
    (E) Other MCO activities, as specified by the State.
    (3) Use of formal selection and retention criteria that, consistent 
with Sec. 438.12 do not discriminate against particular practitioners, 
such as those who serve high risk populations, or specialize in 
conditions that require costly treatment.
    (4) For each provider other than an individual practitioner, 
initial determination and periodic redetermination (at specified 
intervals determined by Federal and State credentialing cycles) to 
ensure that, at a minimum, the provider is licensed (if the State 
requires licensing to operate in the State) and in compliance with any 
other Federal or State requirements.


Sec. 438.318  Enrollee information.

    (a) General rule. The requirements that States must meet under 
Sec. 438.10 constitute part of the State's quality strategy.
    (b) Additional requirement. (1) Each State or its contracted 
representative must also provide the information specified in paragraph 
(b)(2) of this section, for each contracting MCO throughout the State--
    (i) To any potential enrollee who requests it; and
    (ii) To all potential enrollees, when they first become eligible 
for Medicaid, are considering choice of MCOs under a voluntary program, 
or are first required to choose an MCO under a mandatory enrollment 
program; and
    (iii) Within a time frame that enables them to use the information 
in choosing among available MCOs.
    (2) Required information. Following is the information that the 
State must provide:
    (i) Benefits covered.
    (ii) Cost-sharing, if any.
    (iii) Service area.
    (iv) Names and locations of current network providers, including 
identification of those who are not accepting new patients.
    (v) Benefits that are available under the State plan but are not 
covered under the contract, including how and where the enrollee may 
obtain those services, any cost sharing, and how transportation is 
provided.


Sec. 438.320  Enrollee rights.

    (a) General rule. The State must ensure that each MCO has written 
policies regarding the enrollee rights specified in this section, 
complies with any other Federal and State laws that pertain to enrollee 
rights, and ensures that its staff and affiliated providers take into 
account those rights when furnishing services to enrollees.
    (b) Basic rights. The State must ensure that each enrollee has the 
right to--
    (1) Receive information in accordance with Secs. 438.10 and 
438.318.
    (2) Be provided health care services in accordance with 
Secs. 438.306 through 438.310.
    (3) Be treated with respect and with due consideration for his or 
her dignity and privacy;
    (4) Receive information on available treatment options and 
alternatives;
    (5) Participate in decisions regarding his or her health care; and
    (6) Have access to his or her medical records in accordance with 
applicable Federal and State laws.
    (c) Other statutory requirements. The State must ensure that each 
MCO complies with any other Federal or State laws (such as the Civil 
Rights Act of 1964, the Age Discrimination Act of 1975, and the 
Americans with Disabilities Act) that pertain to enrollee rights.


Sec. 438.324  Confidentiality.

    The State must ensure, consistent with the regulations in subpart F 
of part 431 of this chapter, that each MCO establishes and implements 
procedures to do the following:
    (a) Maintain the records and any other information (in oral, 
written, or electronic format) in a timely and accurate manner.
    (b) Safeguard the privacy of any information that identifies a 
particular enrollee by ensuring that--
    (1) Original medical records are released only in accordance with 
Federal or State law, or court orders or subpoenas;
    (2) Copies of records and information from the MCO are released 
only to authorized individuals; and

[[Page 52085]]

    (3) Unauthorized individuals do not gain access to, or alter, 
patient records.
    (c) Protect the confidentiality and privacy of minors, subject to 
applicable Federal and State law.
    (d) Ensure that enrollees have timely access to the records and 
information that pertain to them.
    (e) Abide by all Federal and State laws regarding confidentiality 
and disclosure of mental health records, medical records, other health 
information, and any information about an enrollee.


Sec. 438.326  Enrollment and disenrollment.

    The State must ensure that each MCO complies with the enrollment 
and disenrollment requirements and limitations set forth in 
Sec. 438.56.


Sec. 438.328  Grievance systems.

    The State must ensure that each MCO has in effect a grievance 
system that meets the requirements of subpart F of this part.


Sec. 438.330  Subcontractual relationships and delegation.

    (a) General rule. The State must ensure that each MCO oversees and 
is accountable for any functions and responsibilities that it delegates 
to any subcontractor, and meets the conditions of paragraph (b) of this 
section.
    (b) Specific conditions. (1) Before any delegation, the MCO 
evaluates the prospective subcontractor's ability to perform the 
activities to be delegated.
    (2) There is a written agreement that specifies the delegated 
activities and reporting responsibilities of the subcontractor and 
provides for revocation of the delegation or imposition of other 
sanctions if the subcontractor's performance is inadequate.
    (3) The MCO monitors the subcontractor's performance on an ongoing 
basis and subjects it to formal review at least once a year.
    (4) If the MCO identifies deficiencies or areas for improvement, 
the MCO and the subcontractor take corrective action.

Measurement and Improvement Standards


Sec. 438.336  Practice guidelines.

    The State must ensure that each MCO develops (or adopts) and 
disseminates practice guidelines in accordance with this section.
    (a) Development of guidelines. Guidelines----
    (1) Are based on reasonable medical evidence or a consensus of 
health care professionals in the particular field;
    (2) Consider the needs of the MCO's enrolles;
    (3) Are developed in consultation with contracting health 
professionals; and
    (4) Are reviewed and updated periodically.
    (b) Dissemination of guidelines. The MCO disseminates the 
guidelines to all providers, to all enrollees as appropriate, and to 
individual enrollees when they request them.
    (c) Application of guidelines. Decisions with respect to 
utilization management, enrollee education, coverage of services, and 
other areas to which the guidelines apply are consistent with the 
guidelines.


Sec. 438.340  Quality assessment and performance improvement program.

    (a) General rules. (1) The State must require, through its 
contracts, that each MCO has an ongoing quality assessment and 
performance improvement program for the services it furnishes to its 
enrollees.
    (2) Paragraphs (b) through (d) of this section set forth the basic 
elements, minimum performance levels, and performance improvement 
projects required for MCOs.
    (b) Basic elements of an MCO quality assessment and performance 
improvement program. At a minimum, the State must require that the 
MCO----
    (1) Achieve required minimum performance levels on standardized 
quality measures, in accordance with paragraph (c) of this section;
    (2) Conduct performance improvement projects as described in 
paragraph (d) of this section. These projects must achieve, through 
ongoing measurements and intervention, demonstrable and sustained 
improvement in significant aspects of clinical care and non-clinical 
care areas that can be expected to have a favorable effect on health 
outcomes and enrollee satisfaction; and
    (3) Have in effect mechanisms to detect both underutilization and 
overutilization of services.
    (c) Minimum performance levels. (1) The MCO must meet the following 
requirements:
    (i) Measure its performance, using standard measures required by 
the State, and report its performance to the State.
    (ii) Achieve any minimum performance levels that the State 
establishes with respect to the standard measures.
    (2) The State----
    (i) May specify the standard measures in uniform data collection 
and reporting instruments; and
    (ii) Must, in establishing minimum performance levels for the MCO--
    (A) Consider data and trends for both the MCO and fee-for-service 
Medicaid in that State; and
    (B) Establish the minimum performance levels prospectively upon 
contract initiation and renewal.
    (d) Performance improvement projects. (1) Performance improvement 
projects are MCO initiatives that focus on clinical and non-clinical 
areas, and that involve the following:
    (i) Measurement of performance using objective quality indicators.
    (ii) Implementation of system interventions to achieve improvement 
in quality.
    (iii) Evaluation of the effectiveness of the interventions.
    (iv) Planning and initiation of activities for increasing or 
sustaining improvement.
    (2) Each project must represent the entire population to which the 
measurement specified in paragraph (d)(1)(i) of this section is 
relevant.
    (3) The State must establish MCO obligations for the number and 
distribution of projects among the required clinical and non-clinical 
areas specified in paragraphs (d)(4) and (d)(5) of this section, to 
ensure that the projects are representative of the entire spectrum of 
clinical and non-clinical areas associated with the MCO.
    (4) Clinical areas include--
    (i) Prevention and care of acute and chronic conditions;
    (ii) High-volume services;
    (iii) High-risk services; and
    (iv) Continuity and coordination of care.
    (5) Non-clinical areas include--
    (i) Appeals, grievances, and complaints; and
    (ii) Access to, and availability of, services.
    (6) In addition to requiring that the MCO initiate its own 
performance improvement projects, the State may require that the MCO--
    (i) Conduct particular performance improvement projects that are 
specific to the MCO; and
    (ii) Participate annually in at least one Statewide performance 
improvement project.
    (7) For each project, the MCO must assess its performance using 
quality indicators that are--
    (i) Objective, clearly and unambiguously defined, and based on 
current clinical knowledge or health services research; and
    (ii) Capable of measuring outcomes such as changes in health 
status, functional status, and enrollee satisfaction, or valid proxies 
of these outcomes.
    (8) Performance assessment on the selected indicators must be based 
on

[[Page 52086]]

systematic ongoing collection and analysis of valid and reliable data.
    (9) The MCO's interventions must achieve improvement that is 
significant and sustained over time.
    (10) The MCO must report the status and results of each project to 
the State as requested.
    (e) Program review by the State. (1) The State must review, at 
least annually, the impact and effectiveness of the MCO's quality 
assessment and performance improvement program. The review must 
include--
    (i) The MCO's performance on the standard measures on which it is 
required to report; and
    (ii) The results of the MCO's performance improvement projects.
    (2) The State may require that the MCO have in effect a process for 
its own evaluation of the impact and effectiveness of its quality 
assessment and performance improvement program.


Sec. 438.342  Health information systems.

    (a) General rule. The State must ensure that each MCO maintains a 
health information system that collects, analyzes, integrates, and 
reports data and can achieve the objectives of this subpart. The system 
should provide information on areas including, but not limited to, 
utilization, grievances, disenrollments, and solvency.
    (b) Basic elements of a health information system. The State must 
require, at a minimum, that the MCO comply with the following:
    (1) Collect data on enrollee and provider characteristics as 
specified by the State, and on services furnished to enrollees through 
an encounter data system or such other methods as may be specified by 
the State.
    (2) Ensure that data received from providers is accurate and 
complete by--
    (i) Verifying the accuracy and timeliness of reported data;
    (ii) Screening the data for completeness, logic, and consistency; 
and
    (iii) Collecting service information in standardized formats to the 
extent feasible and appropriate.
    (3) Make all collected data available to the State and to HCFA, as 
required in this subpart, or upon request.

Subpart F--Grievance System


Sec. 438.400  Statutory basis and definitions.

    (a) Statutory basis. This subpart is based on sections 1902(a)(3), 
1902(a)(4), and 1932(b)(4) of the Act.
    (1) Section 1902(a)(3) requires that a State plan provide an 
opportunity for a fair hearing to any person whose claim for assistance 
is denied or not acted upon promptly.
    (2) Section 1902(a)(4) requires that the State plan provide for 
methods of administration that the Secretary finds necessary for proper 
and efficient operation of the plan.
    (3) Section 1932(b)(4) requires Medicaid managed care organizations 
to establish internal grievance procedures under which Medicaid 
enrollees, or providers acting on their behalf, may challenge the 
denial of coverage of, or payment for, medical assistance.
    (b) Definitions. As used in this subpart, the following terms have 
the indicated meanings.
    Complaint means any oral or written communication, made by or on 
behalf of an enrollee, to any employee of the MCO or of its providers, 
or to the State, expressing dissatisfaction with any aspect of the 
MCO's or provider's operations, activities, or behavior, regardless of 
whether the communication requests any remedial action.
    Enrollee means an enrollee or his or her authorized representative.
    Governing body means the MCO's Board of Directors or a designated 
committee of its senior management.
    Grievance means a written communication, submitted by or on behalf 
of a Medicaid enrollee, expressing dissatisfaction with any aspect of 
the MCO's or provider's operations, activities, or behavior that 
pertains to--
    (1) The availability, delivery, or quality of health care services, 
including utilization review decisions that are adverse to the 
enrollee;
    (2) Payment, treatment, or reimbursement of claims for health care 
services; or
    (3) Issues unresolved through the complaint process.


Sec. 438.402  General requirements.

    (a) The grievance system. Each MCO must provide for a grievance 
system that includes a complaint process, a grievance process, and a 
link to the State's fair hearing system.
    (b) Complaint and grievance process requirements. The MCO must--
    (1) Base its complaint and grievance processes on written policies 
and procedures that, at a minimum, meet the conditions set forth in 
this subpart;
    (2) Obtain the State's written approval of the complaint and 
grievance processes before implementation;
    (3) Require that its governing body approve and be responsible for 
the effective operation of complaint and grievance processes; and
    (4) Require that its governing body review and resolve complaints 
and grievances, unless it delegates this responsibility in writing to a 
grievance committee.
    (c) Grievance process requirements. Each MCO grievance process must 
meet the following requirements:
    (1) Consist of clearly explained steps that--
    (i) Permit the enrollee to appeal to the MCO and to the State; and
    (ii) Allow the enrollee a reasonable time to request grievance 
resolution and fair hearing. (The minimum time is 90 days from the date 
the MCO mails the notice of action, as provided under the fair hearing 
process at Sec. 431.221 of this chapter.)
    (2) Include, for each step, time frames that take into 
consideration the enrollee's health condition and provide for expedited 
resolution of grievances in accordance with Sec. 438.410.
    (3) Permit enrollees to appear before the MCO personnel responsible 
for resolving the grievance.
    (4) Provide that, if the grievance resolution decision is wholly or 
partly adverse to the enrollee, the MCO submits the decision and all 
supporting documentation to the State as expeditiously as the 
enrollee's health condition requires but no later than the following:
    (i) For a standard resolution, no later than 30 days after receipt 
of the grievance or the expiration of any extension.
    (ii) For an expedited resolution, no later than 24 hours after 
reaching the decision.
    (5) Not substitute for the State's fair hearing system.
    (d) State fair hearing. The State must either permit the enrollee 
to request a State fair hearing on a grievance at any time, or provide 
for a State fair hearing following an MCO adverse decision on the 
grievance under paragraph (c)(4) of this section.


Sec. 438.404  Notice of intended action.

    If an MCO intends to deny, limit, reduce, delay, or terminate a 
service or deny payment for a service, the MCO must give the enrollee 
timely written notice, within time-frames specified in Sec. 438.310, to 
explain the following:
    (a) The action the MCO intends to take.
    (b) The reasons for the intended action.
    (c) Any laws and rules that support the action.
    (d) The enrollee's right to file a complaint or grievance with the 
MCO and to request a State fair hearing.
    (e) The circumstances under which expedited grievance review is 
available and how to request it.
    (f) How to file complaints, grievances, and State fair hearing 
requests.

[[Page 52087]]

    (g) That if the enrollee files a grievance, he or she has a right 
to appear in person before the MCO personnel assigned to resolve the 
grievance.
    (h) The circumstances under which benefits will continue pending 
resolution of the grievance or issuance of a State fair hearing 
decision.
    (i) How to contact the designated office described in 
Sec. 438.406(a).
    (j) How to obtain copies of enrollee's records, not limited to 
medical records.


Sec. 438.406  Handling of complaints and grievances.

    Each MCO must comply with the following requirements in handling 
complaints and grievances:
    (a) Have an adequately staffed office that is designated as the 
central point for enrollee issues, including complaints and grievances.
    (b) Acknowledge receipt of each complaint and grievance.
    (c) Give enrollees any assistance they need in completing forms or 
taking other steps necessary to obtain resolution of the complaint or 
grievance at the MCO level.
    (d) Conduct the grievance process using impartial individuals who 
were not involved in any previous level of review or decision making. 
In the case of a denial based on lack of medical necessity, the 
individual must be a physician with appropriate expertise in the field 
of medicine that encompasses the enrollee's condition or disease.
    (e) Resolve all grievances in accordance Sec. 438.408.


Sec. 438.408  Grievance resolution and notification.

    (a) Resolution. The MCO must take the following actions and comply 
with the following requirements:
    (1) Investigate the grievance.
    (2) For a grievance that requires standard resolution, resolve the 
grievance as expeditiously as the enrollee's health condition requires, 
within time frames established by the State, but no later than 30 
calendar days after it receives the grievance. The MCO may extend the 
30-day time frame by up to 14 calendar days if--
    (i) The enrollee requests the extension; or
    (ii) The MCO justifies (upon request, to the State agency) a need 
for additional information and how the delay is in the interest of the 
enrollee.
    (3) For a grievance that requires expedited resolution under 
Sec. 438.410, resolve the grievance as expeditiously as the enrollee's 
health condition requires, within time frames established by the State, 
but no later than 72 hours after it receives the grievance. The MCO may 
extend the time frame by up to 14 calendar days if--
    (i) The enrollee requests the extension; or
    (ii) The MCO justifies (upon request, to the State agency) a need 
for additional information and how the delay is in the interest of the 
enrollee;
    (4) Base the decision on the record of the case, including any MCO 
hearing provided under Sec. 438.402(c)(3), and relevant program laws, 
regulations, and policies.
    (b) Notification. (1) Timing. Within the time frames specified in 
paragraphs (a)(2) and (a)(3) of this section, the MCO must--
    (i) Give the affected parties written notice of a standard 
resolution decision and oral and written notice of an expedited 
resolution decision; and
    (ii) If the decision is wholly or partially adverse to the 
enrollee, submit the decision and all supporting documentation to the 
State as expeditiously as the enrollee's health condition requires, but 
no later than the following:
    (A) For a standard resolution, no later than 30 days after it 
receives the grievance.
    (B) For an expedited resolution, no later than 24 hours after it 
reaches the decision.
    (2) Content of notice. The notice of grievance resolution must 
include the following:
    (i) The name of the MCO contact for the grievance.
    (ii) The results of the grievance process and the date it was 
completed.
    (iii) A summary of the steps taken on behalf of the enrollee to 
resolve the issue.
    (iv) A clear explanation of the right to a State fair hearing, if 
the enrollee is dissatisfied with the decision, and how to timely file 
for a fair hearing.
    (v) For a grievance decision that is wholly or partly adverse to 
the enrollee, an explanation of the circumstances under which--
    (A) Benefits will continue if the enrollee files a fair hearing 
request timely; and
    (B) The enrollee may be required to pay the cost of any services 
furnished during the pendency of the appeal, if the final decision is 
adverse to him or her.


Sec. 438.410  Expedited resolution of grievances.

    Each MCO must establish and maintain an expedited grievance review 
process under which the MCO--
    (a) Provides an enrollee with expedited resolution of a grievance 
in response to a written request, or an oral request confirmed in 
writing within 24 hours, under the following circumstances:
    (1) An enrollee makes the request, and the MCO determines that 
taking the time for a standard non-expedited resolution could seriously 
jeopardize the enrollee's life or health or the enrollee's ability to 
regain maximum function.
    (2) A physician makes the request or supports an enrollee's request 
and indicates that taking the time for standard, non-expedited 
resolution could seriously jeopardize the enrollee's life or health or 
the enrollee's ability to regain maximum function.
    (b) Issues the decision of the expedited resolution, including the 
information specified in Sec. 438.408(b)--
    (1) As expeditiously as the enrollee's health condition requires;
    (2) Within the time frame established by the State agency, but no 
later than 72 hours after it receives the grievance, or the date of 
expiration of any extension specified in Sec. 438.408(a)(3).
    (c) Notifies the State of each decision that is wholly or partly 
adverse to the enrollee, and submits, for further review by the State, 
the records and documentation that support the decision--
    (1) As expeditiously as the enrollee's health condition requires; 
but
    (2) No later than 24 hours after the expedited decision,
    (d) Continues the enrollee's benefits, pending final resolution, in 
accordance with Sec. 438.420.
    (e) Neither takes nor threatens to take any punitive action against 
a physician who requests an expedited resolution or supports an 
enrollee's request for expedited resolution.
    (f) If it denies a request for expedited resolution of a grievance, 
takes the following actions:
    (1) Automatically transfers the request to the time frame for 
standard resolution established under Sec. 438.408(a)(2). The time 
frame begins with the day that the MCO receives the request for 
expedited resolution.
    (2) Gives the enrollee prompt oral notice of the denial of the 
request and follows up, within 2 working days, with a written letter 
that --
    (i) Explains that the MCO will process the request using the 30-day 
time frame for standard resolutions;
    (ii) Informs the enrollee of the right to file a grievance if he or 
she disagrees with the MCO's decision not to expedite; and (iii) 
Provides instructions about the grievance process and its time frames.

[[Page 52088]]

Sec. 438.414  Information about the grievance system.

    (a) To whom information must be provided. Each MCO must provide 
information about the grievance system, as required under Sec. 438.10 
and specified in paragraph (b) of this section to--
    (1) Enrollees;
    (2) Potential enrollees (as permitted by the State); and
    (3) All providers, at the time of subcontracting.
    (b) Information content. The information must explain the grievance 
system through a State-developed or State-approved description and must 
include the following:
    (1) Specification of what constitutes grounds for a complaint, 
grievance, or State fair hearing request.
    (2) An explanation of how to file complaints, grievances and State 
fair hearing requests, and the time frames for doing so.
    (3) An explanation of the availability of assistance with the 
grievance process and State fair hearings.
    (4) Toll-free numbers that the enrollee can use to register a 
complaint or complete a grievance form by telephone. The toll-free 
numbers must have adequate TTY and interpreter capability.
    (5) The specific titles and telephone numbers of the persons who 
have responsibility for the proper functioning of the grievance process 
and the authority to require corrective action.
    (6) Assurance that filing a grievance or requesting a State fair 
hearing will not negatively affect or impact the way the MCO and its 
providers, or the State agency treat the enrollee.
    (7) Information on how to obtain care or services during the 
grievance and fair hearing processes as specified in Sec. 438.420.
    (c) Aggregate information. Upon request, the MCO must provide 
enrollees and potential enrollees with aggregate information, derived 
from the information collected under Sec. 438.416(e), regarding the 
nature of enrollee grievances and their resolution.


Sec. 438.416  Recordkeeping and reporting requirements.

    Each MCO must comply with the following requirements, and in so 
doing, must comply with the confidentiality requirements of 
Sec. 438.324:
    (a) Maintain a log of all complaints and grievances and their 
resolution.
    (b) Track each grievance until its final resolution.
    (c) Record any disenrollment and the reason for it, even if it 
occurs before the grievance process is completed.
    (d) Retain the records of complaints, grievances (including their 
resolution) and disenrollments for three years, in a central location, 
and make them accessible to the State. If any litigation, claim 
negotiation, audit, or other action involving the documents or records 
is started before the expiration of the three-year period, the MCO must 
retain the records until completion of the action and resolution of 
issues which arise from it or until the end of the regular three-year 
period, whichever is later.
    (e) As often as the State requests, but at least once a year, 
analyze the collected information and prepare and send to the State a 
summary that includes the following information:
    (1) The number and nature of all complaints and grievances.
    (2) The time frames within which they were resolved, and the 
decisions.
    (3) A listing of all grievances that have not been resolved to the 
satisfaction of the affected enrollee.
    (4) The number and nature of grievances for which the MCO provided 
expedited resolution, and the decisions.
    (5) Any trends relating to a particular provider or a particular 
service.


Sec. 438.420  Continuation of benefits pending grievance resolution or 
State fair hearing decision.

    (a) Terminology. (1) As used in this section, ``timely'', as it 
pertains to the filing of a grievance, or a request for expedited 
grievance resolution or State fair hearing, means filing--
    (i) On or before the time limit specified by the State and 
communicated in the notice of intended action; or
    (ii) Before the effective date of the MCO's proposed action, 
whichever is later.
    (2) The State-specified time limit may not be less than the 5-day 
or 10-day time-frames specified in Secs. 431.230 and 431.231 of this 
chapter for advance notice to Medicaid beneficiaries.
    (b) Basic rule. If an enrollee timely files a grievance or requests 
expedited grievance resolution or a State fair hearing, the MCO must 
continue the enrollee's benefits until issuance of the final grievance 
decision or State fair hearing decision if the following conditions are 
met:
    (1) The current level of services was ordered by the MCO treating 
physician or another MCO physician.
    (2) The physician is authorized to order the services under the MCO 
contract.
    (3) The enrollee requests continuation.


Sec. 438.421  Effectuation of reversed grievance resolutions.

    (a) Reversal by the MCO. If the MCO reconsiders and reverses a 
grievance resolution decision to deny service, the MCO must authorize 
or provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 30 calendar days after 
reversal.
    (b) Reversal by State fair hearing decision. If an MCO grievance 
resolution decision to deny service is reversed by a State fair hearing 
decision, the MCO must authorize or provide the service under dispute 
as expeditiously as the enrollee's health condition requires, but no 
later than 60 calendar days after receipt of the State's notice of 
reversal.


Sec. 438.422  Monitoring of the grievance system.

    (a) The records that MCOs are required to maintain and summarize 
under Sec. 438.416 provide the basis for monitoring by the MCO and by 
the State.
    (b) If the summaries required under paragraph (e) of Sec. 438.416 
reveal undesirable trends by a particular provider or involving a 
particular service, the MCO must conduct an in-depth review, report the 
results to the State, and take corrective action.


Sec. 438.424  Consequences of noncompliance.

    If an MCO (or its providers) fails to comply with the provisions of 
this subpart--
    (a) The State may terminate the MCO's contract, in accordance with 
Sec. 438.718; and
    (b) HCFA may deny FFP to the State, in accordance with 
Secs. 438.802 and 438.804.

Subpart G--[Reserved]

Subpart H--Certifications and Program Integrity Protections


Sec. 438.600  Statutory basis.

    This subpart is based on sections 1902(a)(4) and 1902(a)(19) of the 
Act.
    (a) Section 1902(a)(4) requires that the State plan provide for 
methods of administration that the Secretary finds necessary for the 
proper and efficient operation of the plan.
    (b) Section 1902(a)(19) requires that the State plan provide the 
safeguards necessary to ensure that eligibility will be determined, and 
services will be provided in a manner consistent with simplicity of 
administration and the best interests of the recipients.

[[Page 52089]]

Sec. 438.602  Certification of data that determine payment.

    When State payments to MCOs are based on data submitted by the 
MCO--
    (a) The data includes but is not limited to enrollment information, 
encounter data, and other information required by the State; and
    (b) As a condition for receiving payment, the MCO must, concurrent 
with the submission of the data, attest to its accuracy, completeness, 
and truthfulness.


Sec. 438.606  Conditions necessary to contract as an MCO.

    (a) Any entity seeking to contract as an MCO must have 
administrative and management arrangements or procedures designed to 
guard against fraud and abuse. Unless otherwise provided for by State 
law, the arrangements or procedures must include reporting to the 
State, and to HCFA or the OIG (or both) credible information on 
violations of law by the MCO or its subcontractors or enrollees.
    (b) With respect to enrollees, this reporting requirement applies 
only to credible information on violations of law that pertain to 
enrollment in the plan, or the provision of, or payment for, health 
services.


Sec. 438.608  Certification for contracts and proposals.

    MCOs must certify the accuracy, completeness, and truthfulness of 
information in contracts, requests for proposals, and other related 
documents specified by the State.

Subpart I--Sanctions


Sec. 438.700  Basis for imposition of sanctions.

    (a) Each State that contracts with an MCO must establish 
intermediate sanctions, as specified in Sec. 438.702, that it may 
impose if it makes a determination that an MCO acts or fails to act as 
follows:
    (1) Fails substantially to provide medically necessary services 
that the MCO is required to provide, under law or under its contract 
with the State, to an enrollee covered under the contract.
    (2) Imposes on enrollees premiums or charges that are in excess of 
the premiums or charges permitted under the Medicaid program.
    (3) Acts to discriminate among enrollees on the basis of their 
health status or requirements for health care services. This includes 
termination of enrollment or refusal to reenroll a recipient, except as 
permitted under the Medicaid program, or any practice that would 
reasonably be expected to discourage enrollment by recipients whose 
medical condition or history indicates probable need for substantial 
future medical services.
    (4) Misrepresents or falsifies information that it furnishes to 
HCFA or to the State, or to an enrollee, potential enrollee, or health 
care provider.
    (5) Fails to comply with the requirements for physician incentive 
plans, as set forth in Sec. 422.208 of this chapter.
    (6) Distributes directly, or indirectly through any agent or 
independent contractor, marketing materials that have not been approved 
by the State or contain false or materially misleading information.
    (b) Each State that contracts with a primary care case manager may 
establish intermediate sanctions that it may impose if it determines 
that the case manager has distributed directly, or indirectly through 
any agent or independent contractor, marketing materials that have not 
been approved by the State or contain false or materially misleading 
information in violation of Sec. 438.104(b).


Sec. 438.702  Types of intermediate sanctions.

    (a) The types of intermediate sanctions that a State may impose 
under this subpart include any of the following:
    (1) Civil money penalties in the amounts specified in Sec. 438.704.
    (2) Appointment of temporary management as provided in 
Sec. 438.706. (The State may not impose this sanction on a primary care 
case manager.)
    (3) Granting enrollees of MCEs the right to terminate enrollment 
without cause. (The State must notify the affected recipients of their 
right to disenroll.)
    (4) Suspension of all new enrollment, including default enrollment, 
after the date HCFA or the State notifies the MCE of a determination 
under Sec. 438.700.
    (5) Suspension of payment to the MCE for recipients enrolled after 
the date HCFA or the State notifies the MCE of a determination under 
Sec. 438.700, and until HCFA or the State is satisfied that the reason 
for imposition of sanction no longer exists and is not likely to recur.
    (b) The State may also impose the sanctions specified in paragraphs 
(a)(4) and (a)(5) of this section on entities that have been determined 
by the State or by HCFA to have committed violations as follows:
    (1) On an MCO that has violated any of the requirements in section 
1903)(m) of the Act or implementing regulations; and
    (2) On an MCE that has violated any of the requirements in section 
1932 of the Act or implementing regulations.


Sec. 438.704  Amounts of civil money penalties.

    The limit on the amount of a civil money penalty the State may 
impose varies depending on the nature of the MCE's action or failure to 
act, as provided in this section.
    (a) The limit is $25,000 for each determination of either of the 
following:
    (1) A failure to act described in paragraph (a)(1), (a)(5), (a)(6), 
or (b) of Sec. 438.700.
    (2) A misrepresentation or falsification of information furnished 
to an enrollee, potential enrollee, or health care provider.
    (b) The limit is $100,000 for each determination of either of the 
following:
    (1) Discriminatory action as described in paragraph (a)(3) of 
Sec. 438.700.
    (2) A misrepresentation or falsification of information furnished 
to HCFA or to the State.
    (c) The limit is $15,000 (subject to the $100,000 limit of 
paragraph (b) of this section) for each recipient the State determines 
was not enrolled because of the discriminatory practice determined 
under paragraph (b) of this section.
    (d) For premiums or charges in excess of the amounts permitted 
under the Medicaid program, the limit is double the amount of the 
excess charges. The State must deduct from the penalty the amount of 
overcharge and return it to the affected enrollee.


Sec. 438.706  Special rules for temporary management.

    (a) Basis for imposition of sanction. The State may impose 
temporary management if it finds (through onsite survey, enrollee 
complaints, financial audits, or any other means) that--
    (1) There is continued egregious behavior by the MCO, including but 
not limited to behavior that is described in Sec. 438.700 or 
Sec. 434.67(a) of this chapter, or that is contrary to any requirements 
of sections 1903(m) or 1932 of the Act;
    (2) There is substantial risk to enrollees' health; or
    (3) The sanction is necessary to ensure the health of the MCO's 
enrollees--
    (i) While improvements are made to remedy violations under 
Sec. 438.700; or
    (ii) Until there is an orderly termination or reorganization of the 
MCO.
    (b) Duration of sanction. The State may not terminate temporary 
management until it determines that the MCO can ensure that the 
sanctioned behavior will not recur.

[[Page 52090]]

Sec. 438.708  Required imposition of temporary management for chronic 
substandard MCOs.

    For an MCO that the State finds has repeatedly substantially failed 
to meet requirements in sections 1903(m) and 1932 of the Act and 
implementing regulations, the State must (regardless of any other 
sanctions that may be provided) impose temporary management and grant 
enrollees the right to terminate enrollment without cause, as described 
in Sec. 438.702(a)(3).


Sec. 438.710  Notice of sanction; due process.

    (a) General rule. Except as provided in paragraph (b) of this 
section, before imposing any of the sanctions specified in this 
subpart, the State must give the affected MCE timely written notice 
that explains----
    (1) The basis and nature of the sanction; and
    (2) Any other due process protections that the State elects to 
provide.
    (b) Exception. The State may not delay imposition of temporary 
management during the time required for due process procedures, and may 
not provide a hearing before imposition of temporary management.


Sec. 438.718  Termination of an MCE contract.

    A State has the authority to terminate an MCE's contract, and 
enroll that entity's enrollees in other MCEs or provide their Medicaid 
benefits through other options included in the State plan if the State 
determines that the MCE--
    (a) Has failed substantially to carry out the terms of its 
contract; or
    (b) Has failed to meet applicable requirements in sections 1932, 
1903(m), or 1905(t) of the Act.


Sec. 438.720  Hearing on contract termination.

    (a) Requirement. Before terminating an MCE contract under 
Sec. 438.718, the State must provide the MCE a pre-termination hearing.
    (b) Procedure. The State must--
    (1) Within 30 days after reaching the determination to terminate, 
give the MCE written notice of its intent to terminate, the reason for 
termination, and the time and place of the hearing; and
    (2) Provide the hearing not less than 30 nor more than 60 days 
after the notice, unless the State and the MCE reach written agreement 
on a different date.
    (c) Decision following a hearing. (1) After the hearing, the State 
must give the MCE a written decision affirming or reversing the 
proposed determination to terminate the contract.
    (2) If the hearing decision affirms the proposed determination to 
terminate, the State must indicate the date the termination is 
effective.


Sec. 438.722  Disenrollment during termination hearing process.

    After a State has notified an MCE of its intention to terminate the 
MCE's contract, the State may----
    (a) Give the MCE's enrollees written notice of the State's intent 
to terminate the MCE's contract; and
    (b) Allow enrollees to disenroll immediately without cause.


Sec. 438.724  Notice to HCFA.

    (a) The State must give the HCFA Regional Office written notice 
whenever it imposes or lifts a sanction.
    (b) The notice must----
    (1) Be given no later than 30 days after the State imposes or lifts 
the sanction; and
    (2) Specify the affected MCE, the kind of sanction, and the reason 
for the State's decision to impose or lift the sanction.


Sec. 438.730  Sanction by HCFA.

    (a) Nature of sanction. If the conditions of this section are met, 
HCFA may impose on an MCO the sanction of denial of payment for new 
enrollees, that is, for recipients enrolled after the effective date of 
the sanction.
    (b) Basis for sanction. (1) A State agency may recommend that HCFA 
impose the denial of payment sanction on an MCO with a comprehensive 
risk contract if the MCO----
    (i) Has failed to comply with the requirement of 
Sec. 438.700(a)(1);
    (ii) Has acted as specified in paragraph (a)(2), (a)(3), or (a)(4) 
of Sec. 438.700.
    (iii) Has failed to meet the physician incentive plan requirements 
specified in Sec. 438.700(a)(5), or has failed to submit information on 
the incentive plan as required by Sec. 417.479 of this chapter.
    (2) The State agency's recommendation becomes HCFA's decision 
unless HCFA rejects it within 15 days.
    (c) Notice of sanction. If HCFA accepts the recommendation, HCFA 
and the State agency take the following actions:
    (1) HCFA conveys the determination to the OIG for consideration of 
possible imposition of civil money penalties under part 1003 or 1005 of 
this title.
    (2) The State agency----
    (i) Gives the MCO written notice of the proposed sanction;
    (ii) Allows the MCO 15 days from date of receipt of the notice to 
provide evidence that it has not acted or failed to act in the manner 
that is the basis for the recommended sanction;
    (iii) May extend the original 15-day period for an additional 15 
days if, before the end of that period, the MCO submits a written 
request that includes a credible explanation of why it needs additional 
time; and
    (iv) May not grant an extension if HCFA determines that the MCO's 
conduct poses a threat to an enrollee's health and safety.
    (d) Informal reconsideration. (1) If the MCO submits a timely 
response to the notice of sanction, the State agency conducts an 
informal reconsideration that includes----
    (i) Review of the evidence by an State agency official who did not 
participate in the original recommendation; and
    (ii) A concise written decision setting forth the factual and legal 
basis for the decision.
    (2) The State agency decision under paragraph (d)(1)(ii) of this 
section is forwarded to HCFA and becomes HCFA's decision unless HCFA 
reverses or modifies the decision with 15 days from date of receipt.
    (3) If HCFA reverses or modifies the State agency decision, the 
agency sends the MCO a copy of HCFA's decision.
    (e) Effect of HCFA sanction. HCFA's denial of payment for new 
enrollees automatically results in denial of State agency payments to 
the MCO for the same enrollees.
    (f) Effective date of sanction. (1) If the MCO does not seek 
reconsideration, a sanction is effective 15 days after the date of the 
notice of sanction under paragraph (c) of this section.
    (2) If the MCO seeks reconsideration, the following rules apply: 
(i) Except as specified in paragraph (f)(2)(ii) of this section, the 
sanction is effective on the date specified in HCFA's reconsideration 
notice.
    (ii) If HCFA, in consultation with the State agency, determines 
that the MCO's conduct poses a serious threat to an enrollee's health 
and safety, HCFA may make the sanction effective earlier than the date 
of HCFA's reconsideration decision under paragraph (d) of this section.
    (g) State plan requirement. The State plan must provide that the 
State will monitor for violations of the actions or failures to act 
specified in this section and will implement the provisions of this 
section.
    (h) HCFA's role. HCFA retains the right to independently perform 
the functions assigned to the State agency under this section.

[[Page 52091]]

Subpart J--Conditions for Federal Financial Participation


Sec. 438.802  Basic requirements.

    FFP is available in expenditures for payments under an MCO contract 
only for the periods during which the following conditions are met:
    (a) The contract--
    (1) Meets the requirements of this part; and
    (2) Is in effect.
    (b) The MCO and its subcontractors are in compliance with the 
physician incentive plan requirements set forth in Secs. 422.208 and 
422.210 of this chapter.
    (c) The MCO and the State are in compliance with the requirements 
of the MCO contract and of this part.


Sec. 438.806  Prior approval.

    (a) Comprehensive risk contracts. FFP is available under a 
comprehensive risk contract only if--
    (1) The Regional Office has confirmed that the contractor meets the 
definition of MCO or is one of the entities described in paragraphs 
(a)(2) through (a)(5) of Sec. 438.6; and
    (2) The contract meets all the requirements of section 
1903(m)(2)(A) of the Act, the applicable requirements of section 1932 
of the Act, and the implementing regulations in this part.
    (b) MCO contracts. Prior approval by HCFA is a condition for FFP 
under any MCO contract that extends for less than one full year or that 
has a value equal to, or greater than, the following threshold amounts:
    (1) For 1998, the threshold is $1,000,000.
    (2) For subsequent years, the amount is increased by the percentage 
increase in the consumer price index for all urban consumers.
    (c) FFP is not available in an MCO contract that does not have 
prior approval from HCFA under paragraph (b) of this section.


Sec. 438.808  Exclusion of entities.

    (a) General rule. FFP is available in payments under MCO contracts 
only if the State excludes from such contracts any entities described 
in paragraph (b) of this section.
    (b) Entities that must be excluded. (1) An entity that could be 
excluded under section 1128(b)(8) of the Act as being controlled by a 
sanctioned individual.
    (2) An entity that has a substantial contractual relationship as 
defined in Sec. 431.55(h)(3), either directly or indirectly, with an 
individual convicted of certain crimes as described in section 
1128(b)(8)(B) of the Act.
    (3) An entity that employs or contracts, directly or indirectly, 
for the furnishing of health care, utilization review, medical social 
work, or administrative services, with one of the following:
    (i) Any individual or entity excluded from Medicaid participation 
under section 1128 or section 1128(a) of the Act.
    (ii) Any entity that would provide those services through an 
excluded individual or entity.


Sec. 438.810  Expenditures for enrollment broker services.

    State expenditures for the use of enrollment brokers are considered 
necessary for the proper and efficient operation of the State plan only 
if the following conditions are met:
    (a) The broker is independent of any managed care entity or health 
care provider that furnishes services in the State in which the broker 
provides enrollment services.
    (b) No person who is the owner, employee, or consultant of the 
broker or has any contract with the broker--
    (1) Has any direct or indirect financial interest in any entity or 
health care provider that furnishes services in the State in which the 
broker provides enrollment services;
    (2) Has been excluded from participation under title XVIII or XIX 
of the Act;
    (3) Has been debarred by any Federal agency; or
    (4) Has been, or is now, subject to civil money penalties under the 
Act.
    (c) The initial contract or memorandum of agreement (MOA) for 
services performed by the broker has been reviewed and approved by HCFA 
before the effective date of the contract or MOA.


Sec. 438.812  Costs under risk and nonrisk contracts.

    (a) Under a risk contract, the total amount the State agency pays 
for carrying out the contract provisions is a medical assistance cost.
    (b) Under a nonrisk contract--
    (1) The amount the State agency pays for the furnishing of medical 
services to eligible recipients is a medical assistance cost; and
    (2) The amount the State agency pays for the contractor's 
performance of other functions is an administrative cost.

PART 440--SERVICES: GENERAL PROVISIONS

    1. The authority citation for part 440 continues to read as 
follows:

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

    2. In subpart A, a new Sec. 440.168 is added, to read as follows:


Sec. 440.168  Primary care case management services.

    (a) Primary care case management services means case management 
related services that--
    (1) Include location, coordination, and monitoring of primary 
health care services; and
    (2) Are provided under a contract between the State and either of 
the following:
    (i) A primary care case manager who is a physician or may, at State 
option, be a physician assistant, nurse practitioner, or certified 
nurse-midwife.
    (ii) A physician group practice, or an entity that employs or 
arranges with physicians to furnish the services.
    (b) Primary care case management services may be offered by the 
State--
    (1) As a voluntary option under the regular State plan program; or
    (2) On a mandatory basis under section 1932 (a)(1) of the Act or 
under a section 1915(b) or 1115 waiver authority.

PART 447--PAYMENTS FOR SERVICES

    1. The authority citation for part 447 continues to read as 
follows:

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

    2. A new Sec. 447.46 is added, to read as follows:


Sec. 447.46  Timely claims payment by managed care organizations.

    (a) Basis and scope. This section implements section 1932 (f) of 
the Act by specifying the rules and exceptions for prompt payment of 
claims by managed care organizations.
    (b) Definitions. ``Claim'' and ``clean claim'' have the same 
meaning as those terms have in Sec. 447.45.
    (c) Contract requirements. (1) Basic rule. A contract with a 
managed care organization must provide that the organization will meet 
the requirements of Sec. 447.45 (d)(2), (d)(3), (d)(5), and (d)(6).
    (2) Exception. The managed care organization and its providers may, 
by mutual agreement, establish an alternative payment schedule.
    (3) Any alternative schedule must be stipulated in the contract.


Sec. 447.53  [Amended]

    3. In Sec. 447.53(b), the following changes are made:
    a. In paragraph (b) introductory text, the parenthetical phrase is 
removed.
    b. Paragraph (b)(6) is removed.


Sec. 447.58  [Amended]

    4. In Sec. 447.58, ``Except for HMO services subject to the 
copayment

[[Page 52092]]

exclusion in Sec. 447.53(b)(6), if'' is removed and ``If'' is inserted 
in its place.
    5. A new Sec. 447.60 is added to subpart A to read as follows:


Sec. 447.60  Cost-sharing requirements for services furnished by MCOs.

    Contracts with MCOs must provide that any cost-sharing charges the 
MCO imposes on Medicaid enrollees are in accordance with the 
requirements set forth in Secs. 447.50 and 447.53 through 447.58 for 
cost sharing charges imposed by the State agency.

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

    Dated: September 22, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Approved: September 23, 1998.
Donna E. Shalala,
Secretary.
[FR Doc. 98-26068 Filed 9-25-98; 8:45 am]
BILLING CODE 4120-01-P