Federal Register, Volume 66 Issue 161 (Monday, August 20, 2001)

[Federal Register Volume 66, Number 161 (Monday, August 20, 2001)]
[Proposed Rules]
[Pages 43614-43677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20715]

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Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 400, 430, et al.

Medicaid Program; Medicaid Managed Care; Proposed Rule

Federal Register / Vol. 66, No. 161 / Monday, August 20, 2001 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

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

[CMS-2104-P]

RIN 0938-AK96

Medicaid Program; Medicaid Managed Care

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend the Medicaid regulations
published in the Federal Register on January 19, 2001 (66 FR 6228)
setting forth policies to implement provisions of the Balanced Budget
Act of 1997 (BBA) that--allow the States greater flexibility by
permitting them to amend their State plan to require certain categories
of Medicaid beneficiaries to enroll in managed care entities without
obtaining waivers if beneficiary choice is provided; establish new
beneficiary protections in areas such as quality assurance, grievance
rights, and coverage of emergency services; and 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. In addition, this proposed rule would
expand on existing regulatory beneficiary protections provided to
enrollees of prepaid health plans (PHPs) by requiring certain PHPs that
provide services on an inpatient basis to meet specified BBA
requirements that would not otherwise apply to these entities.

DATES: We will consider comments if we receive them at the appropriate
address, as provided below, no later than 4 p.m. on October 19, 2001.

ADDRESSES: Mail written comments (one original and three copies) to the
following address only: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-2104-P, P.O.
Box 8016, Baltimore, MD 21244-8016.
To ensure that mailed comments are received in time for us to
consider them, please allow for possible delays in delivering them.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and three copies) to one of the following
addresses: Room 443-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-16-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and could be considered late.
Because of staff and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code CMS-2104-P. For information on viewing public comments see
the beginning of the SUPPLEMENTARY INFORMATION section.
If you have comments on the information collection requirements,
please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Information
Services, DHES, SSG, Attn: Julie Brown, CMS-2001-F, Room N2-14-26, 7500
Security Boulevard, Baltimore, MD 21244-1850;

and

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

FOR FURTHER INFORMATION CONTACT: Part 438, Subparts A and B--Bruce
Johnson: (410) 786-0615.

Subpart C--Tim Roe: (410) 786-2006
Subpart D--Ann Page: (410) 786-0083
Subpart F--Tim Roe: (410) 786-2006
Subpart H--Tim Roe: (410) 786-2006
Subpart I--Tim Roe: (410) 786-2006
Subpart J--Bruce Johnson (410) 786-0615

For other amendments--Dierdre Duzor (410) 786-4626

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at
7500 Security Blvd, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
the public comments, phone: (410) 786-7195.
Copies: To order copies of the Federal Register containing this
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This Federal Register document is also available from the Federal
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Government Printing Office. The Website address is: http://www.access.gpo.gov/nara/index.html.

I. Background

A. General

In 1965, amendments to the Social Security Act (the Act)
established the Medicaid program as a joint Federal and State program
for providing financial assistance to individuals with low incomes to
enable them to receive medical care. Under the Medicaid program, each
State establishes its own eligibility standards, benefits packages,
payment rates and program administration in accordance with certain
Federal statutory and regulatory requirements. The provisions of each
State's Medicaid program are described in the State's Medicaid ``State
plan'' that we must approve. In addition to approving State plans and
monitoring States for compliance with Federal Medicaid laws, the
Federal role also includes providing matching funds to State agencies
to pay for a portion of the costs of providing health care to Medicaid
beneficiaries. Medicaid beneficiaries typically include low-income
children and their families, pregnant women, individuals age 65 and
older, and individuals with disabilities. (Throughout this preamble, we
use the term ``beneficiaries'' to mean ``individuals eligible for and
receiving Medicaid benefits.'' The term ``recipients'' in the CFR text
has the same meaning as the term ``beneficiary.'')
When the Medicaid program was created, coverage typically was
provided through reimbursements by the State agency to health care
providers who submitted claims for payment after they provided health
care services to Medicaid beneficiaries. This reimbursement arrangement
is referred to as ``fee-for-service'' payment. Before 1982, 99 percent
of Medicaid beneficiaries received Medicaid coverage through fee-for-
service

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arrangements. Since 1982, State agencies increasingly have provided
Medicaid coverage through contracts with managed care organizations
(MCOs), such as health maintenance organizations (HMOs). Through these
contracts an MCO is paid a fixed, prospective, monthly payment for each
beneficiary enrolled with the entity for health coverage. This payment
approach is referred to as ``capitation.'' Beneficiaries enrolled in
capitated MCOs are required to receive health care services provided
under the MCO's contract, through the MCO that receives the capitation
payment. The Omnibus Budget Reconciliation Act (OBRA) of 1981 (Pub. L.
97-35 enacted on August 13, 1981) allowed State agencies to mandate
that Medicaid beneficiaries enroll in MCOs, which increased the use of
MCOs. In most States, mandatory enrollment takes place for at least
certain categories of beneficiaries. To achieve this mandatory
enrollment, before the enactment of the Balanced Budget Act (BBA) of
1997 (Pub. L. 105-33, enacted on August 5, 1997), States were required
to obtain a waiver of a Medicaid statutory requirement for beneficiary
``freedom of choice'' of providers. (State programs that offered
beneficiaries voluntary enrollment in MCOs do not require these
waivers.) As a result, in 1997, just before the passage of the BBA,
almost 8.5 million Medicaid beneficiaries, or 43 percent of all
Medicaid beneficiaries, were enrolled in MCOs for a comprehensive array
of Medicaid services. Some of these beneficiaries and additional
Medicaid beneficiaries were enrolled in other organizations that
received capitated payment for a limited array of services, such as
behavioral health or dental services. These organizations that receive
capitation payment for a limited array of services are referred to as
``Prepaid Health Plans (PHP).''
While the Act was further amended in the 1980's and in 1990 to
address certain aspects of Medicaid managed care, the BBA represents
the first comprehensive revision to Federal statutes governing Medicaid
managed care in over a decade. In general, Chapter One (subtitle H) of
the BBA significantly renovated the Medicaid managed care program by
modifying Federal statute to: (1) Allow States to mandate the
enrollment of certain Medicaid beneficiaries into MCOs without having
to first seek a waiver of Federal law; (2) eliminate requirements on
the composition of enrollment in MCOs that had not been proven to be
effective; (3) apply consumer protections that were receiving
widespread acceptance in the commercial and Medicare marketplaces to
Medicaid beneficiaries; for example, consumer information standards and
standards for access to services; and (4) apply the advances and
developments in health care quality improvement that are in widespread
use in the private sector to State Medicaid managed care programs.
Specifically, sections 4701 through 4710 of the BBA provisions: (1)
Reduce requirements for State agencies to obtain waivers to implement
certain managed care programs; (2) eliminate enrollment composition
requirements for managed care contracts; (3) increase beneficiary
protections for enrollees in Medicaid managed care entities; (4)
improve quality assurance; (5) establish solvency standards; (6)
protect against fraud and abuse; (7) permit a period of guaranteed
eligibility for Medicaid beneficiaries; and (8) improve certain
administrative features of State managed care programs.

B. Statutory Basis

Section 4701 of the BBA enacted 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) to require that MCOs and MCO contracts comply with applicable
requirements in newly added section 1932. Among other things, section
1932 permits States to require most groups of Medicaid beneficiaries to
enroll in managed care arrangements without waiver authority granted
under section 1915(b) or 1115(a) of the Act. Under the statute before
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 also defines the
term ``managed care entity'' (MCE) to include MCOs and primary care
case managers (PCCMs); 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 amended section 1905 of the Act to provide for States
to contract with primary care case managers 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 eliminated a former statutory requirement that no more
than 75 percent of the enrollees in an MCO be Medicaid or Medicare
beneficiaries.
Section 4704 created section 1932(b) of the Act to add increased
protections for those enrolled in managed care arrangements. These
include, 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 created section 1932(c) of the Act, which requires
States 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 provided that, with limited exceptions, an MCO must
meet the same solvency standards set by States for private HMOs, or
otherwise be licensed or certified by the State as a risk-bearing
entity.
Section 4707 enacted section 1932(d) of the Act to add protections
against fraud and abuse, such as restrictions on marketing and
sanctions for noncompliance.
Section 4708 added a number of provisions to the Act to improve the
administration of managed care arrangements. These include, 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 allows States the option to provide 6 months of
guaranteed eligibility for all individuals enrolled in an MCE.
Section 4710 specifies the effective dates for all the provisions
identified in sections 4701 through 4709, and specifies that these
provisions do not apply to the extent they are inconsistent with the
terms and conditions of waivers under section 1915(b) or section 1115
of the Act.

C. Federal Register Publications

On September 29, 1998, we published in the Federal Register (63 FR
52022) a proposed rule, setting forth proposed regulations to implement
the above provisions of the BBA. In that 1998 proposed rule, we also
proposed to strengthen regulatory requirements of PHPs by incorporating
regulatory requirements that would otherwise apply only to MCOs. We
received over 300 comments on the 1998 proposed rule. The comments were
extensive and generally addressed all sections of that

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proposed rule. On January 19, 2001, we published in the Federal
Register (66 FR 6228) a final rule with comment period that summarized,
and responded to the public comments we received on the proposed rule.
It also contained additional provisions not included in the 1998
proposed rule. Among these were revisions eliminating the existing
``upper payment limit'' (UPL) on risk capitation payments in
Sec. 447.361, and replacing this limit with provisions in Sec. 438.6(c)
setting forth requirements designed to ensure that rates were
actuarially sound. We invited comments only on these last two changes.
In a Federal Register notice (66 FR 11546) published on February
26, 2001, we announced a 60-day delay in the effective date of the
January 19, 2001 final rule with comment period. This 60-day delay
postponed the effective date of the rule until June 18, 2001. This
delay in effective date was necessary to give Department officials the
opportunity for further review and consideration of the new
regulations. During that review, we heard from key stakeholders in the
Medicaid managed care program, including States, advocates for
beneficiaries, and provider organizations. These parties expressed
strong (sometimes opposing) views about the regulation. In particular,
concerns were expressed about the revisions based on public comments we
received on the proposed rule. Other commenters raised concerns about
how we chose to implement those provisions in the final rule without
further opportunity for public comment. As a result of these comments,
on June 18, 2001, we published a final rule in the Federal Register
that delayed the effective date of the January 19, 2001 final rule with
comment period an additional 60 days, from June 18, 2001 until August
17, 2001, (66 FR 32776) for further review and consideration on the
most appropriate way to address the concerns expressed by key
stakeholders. In response to these concerns, we have prepared and are
requesting public comment on the proposed rule that is set forth in
this notice of proposed rulemaking. In addition, in order to give us
the time in the coming months to consider the public comments and take
final action on this rulemaking, we have also published in the August
17, 2001 Federal Register an interim final rule with comment period
that further delays until August 16, 2002, the effective date of the
January 2001 final rule with comment period.
We are publishing this new proposed rule to address some of the
concerns that were expressed to the Department during our review, as
well as to allow additional opportunity for public comment. In
developing this proposed rule, we have been guided by several
considerations. First, we gave serious attention to all the concerns
that have been communicated to us to date. We have tried to discern
when a difference of opinion represented different goals or different
methods of achieving the same goals. We believe that all commenters
have expressed the same goal, namely: strong, viable, State Medicaid
managed care programs that deliver high quality health care to Medicaid
beneficiaries. We have attempted to craft a regulation that will help
States to achieve this goal.
Second, we have drafted the provisions of this rule in full
recognition of the statutorily-designed structure of the Medicaid
program as a Federal-State partnership. States are assigned the
responsibility of designing their State programs, and typically do so
addressing local, as well as State needs. We have drafted this
regulation to recognize the responsibilities of the States and the need
to employ different approaches to achieving the same goal within their
varying State marketplaces and health care delivery systems.
Third, we appreciate that new advances and findings in health care,
health care quality assessment and improvement, and health services
research unfold on an almost daily basis. In many instances, States
have been at the forefront of implementing these new developments and
innovations. We have sought to standardize, through regulation, those
practices that have been found to be necessary to the delivery of high
quality health care. We simultaneously have sought to continue to allow
States, in consultation with their State and local partners and
customers (beneficiaries), to determine the best approach to
implementing their managed care program when there is an absence of
clear evidence about the superiority of a given approach.
Overall, we recognize the great diversity and sometimes ``special
needs'' of Medicaid beneficiaries. While the greatest numbers (54
percent) of Medicaid beneficiaries are children, 11 percent are age 65
or older. Medicaid also serves as a significant source of health care
for individuals with disabilities and conditions that place them at
risk of developing disabilities. In 1997, more than 6 million children
and adults were eligible for Medicaid on the basis of a physical,
mental, or cognitive disability. The Medicaid program insures more than
half of all people with Acquired Immune Deficiency Syndrome (AIDS) in
this country and up to 90 percent of children with AIDS. Medicaid also
is a significant source of health care coverage for individuals with
serious and persistent mental illness, and children in foster care. Our
report to the Congress, ``Safeguards for Individuals with Special
Health Care Needs Enrolled in Medicaid Managed Care'' (November 6,
2000), summarized existing evidence on effective practices in caring
for individuals with special health care needs. That report provides a
basis for some of the provisions in this proposed regulation.
The regulations in this proposed rule would mostly be set forth as
new provisions in part 438 created in the January 19, 2001 final rule.
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 aim to help users of the
regulations to better understand 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.

D. 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, 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 contracts with entities to provide ``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

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widespread use of managed care by State agencies but were also
accompanied by increased requirements in some areas (for example, OBRA
1981 required that Medicaid enrollees be allowed to voluntarily
disenroll without cause from HMOs. This 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 after OBRA 1981 and the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248,
enacted on September 3, 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 in 1981, by 1997
this number had increased to over 15 million. As of June 2000,
approximately 56 percent of the entire Medicaid population received at
least some services through an MCO, PHP, 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 MCOs. A 1997 General Accounting Office
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 these 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 plus any one of the other services specified in
section 1903(m)(2)(A) of the Act, or for any three of the non-inpatient
services specified in section 1903(m)(2)(A) of the Act. 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), either because they provided less than
comprehensive services or because they were specifically exempted by
the Congress from complying with section 1903(m) requirements. These
entities were called ``prepaid health plans,'' or ``PHPs.''
The regulatory requirements we applied to PHPs were not as
stringent in many areas as those under section 1903(m). 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 section 1903(m) requirement that beneficiaries
have the right to disenroll without cause at any time, and
beneficiaries enrolled in PHPs thus could have their ability to
disenroll restricted under section 1915(b) waiver authority, (where the
right to disenroll required under section 1903(m) 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 the 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 certain
PHPs meet most of the requirements that will apply to MCOs.
Concurrent with the increasing size of, and need for, stronger
Medicaid managed care programs, over the last decade we have been
developing improved tools, techniques, and strategies that State
agencies can use to strengthen their 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,'' which 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, we worked collaboratively with the
National Committee for Quality Assurance (NCQA) and the American Public
Human Services Association to produce a Medicaid version of the 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, which we modified for use by State
agencies. We contracted with NCQA to develop ``Health Care Quality
Improvement Studies in Managed Care Settings: Design and Assessment--A
Guide for State Medicaid Agencies''.
In 1996, we 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 NCQA, the 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
believed would most effectively measure and improve health care quality
in managed care. The quality assurance provisions of this regulation
espouse the same philosophy and goals for performance improvement as
are reflected in QISMC, but have been modified based on recent
developments in Medicaid, managed care and quality assessment and
improvement. For example, QISMC was written before our report to the
Congress addressing

[[Page 43618]]

individuals with special health care needs.
In 1997, the Agency for Health Care Policy and Research (AHCPR)
(now, the Agency for Healthcare Research and Quality) 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.
More recently, in 1999, we produced a technical assistance manual
for State agencies entitled, ``Writing and Designing Print Materials
for Beneficiaries: A Guide for State Medicaid Agencies.'' This
technical assistance tool for States was in direct response to the BBA
statutory provisions calling for dissemination of information to
Medicaid beneficiaries. Similarly, we currently have two additional
technical assistance projects underway. A contract with FACCT will
produce in the Fall of 2001 a manual describing valid and reliable
tools that State agencies can use to identify children and adults with
special health care needs. A contract with the Center for Health
Program Development and Management at the University of Maryland
Baltimore County will develop a guidance manual for States that will
describe various approaches to using health status-based risk
adjustment in making payments to MCOs.
These and other tools we have in planning stages 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 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 requirements could result in a disallowance of Federal
financial participation (FFP) in contract payments. In the latter two
cases, if the State fails to meet conditions for the section 1932
exception to the freedom-of-choice requirement in section 1902(a)(23),
or has its section 1915(b) waiver nonrenewed 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), 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 on 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, extends many of these
requirements to certain PHPs.
Section 4710(c) provided for a time-limited exemption from the
requirements in sections 4701 through 4710 for approved waiver programs
or demonstration projects under the authority of sections 1115 or
1915(b) of the Act. Specifically, the BBA States section 4710(c)
provided that none of the provisions contained in sections 4701 through
4710 would affect the terms and conditions of any approved section
1915(b) waiver or demonstration project under section 1115, as the
waiver or demonstration project was in effect on the date of the
enactment of the BBA (that is, August 5, 1997.) We interpreted this
``grandfather provision'' to apply only for the period for which the
waiver or demonstration project was approved as of August 5, 1997.
Thus, at the expiration of any 2-year waiver period under section
1915(b), or at the end of the period for which a demonstration project
was approved under section 1115, the grandfather provision in section
4710(c) would no longer apply.
In general, during the period approved as of August 5, 1997, any
provision of a State's approved section 1115 or section 1915(b) waiver
program that was 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 us, was not
affected by the BBA provisions, even if it differed from the BBA
managed care requirements. As long as the BBA provisions were addressed
in the State's approved waiver materials, no determination needed to be
made as to whether the State's policy or procedures meet or exceeded
the BBA requirements. If the BBA provisions were not addressed, the
State was required to meet the BBA requirements, except as specified
below for newly submitted or amended waivers.
As noted above, under our interpretation, the exemption from the
BBA requirements applied to section 1915(b) waiver programs only until
the date that the waiver authority approved or in effect as of August
5, 1997 expired, which in all cases occurred no later than 1999. As of
the date of the two year section 1915(b) waiver period approved on
August 5, 1997 expired, the State was required to comply with all BBA
requirements that were in effect.
In the case of section 1115 demonstrations, while the
``grandfather'' provision in 4710(c) only applies until the end of the
period for which the demonstration project was approved as of August 5,
1997, if the demonstration project has been extended under the
provisions in section 1115(e) of the Act, existing terms and conditions
inconsistent with BBA requirements are extended for three years,
nullifying the effect of the ``expiration'' of the grandfather
provision in section 4710(c). Therefore, any exemptions from the BBA
requirements to which these programs were entitled under the
``grandfather provision'' may continue during the period of the
extended waiver authority.
The Medicare, Medicaid, and State Child Health Insurance Program
Benefits Improvement and Protection Act of 2000 (BIPA), enacted on
December 21, 2000 (Pub. L. 106-554) provided for additional extensions
of section 1115 health care reform demonstrations, but did not include
language extending the same terms and conditions through this period.
Thus, we conclude that provisions of the BBA would apply to the
demonstrations in these extension periods under BIPA,

[[Page 43619]]

unless the Secretary uses his discretionary authority to waive the
requirements.
For newly submitted or amended section 1915(b) or section 1115
waivers, the Secretary of DHHS retains the discretionary authority to
waive the BBA managed care provisions. Generally, waivers are granted
that allow States 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 the BBA provisions would apply unless a State can
demonstrate that a waiver program beneficiary protection or quality
standard would equal or exceed the BBA requirement.

II. Provisions of the Proposed Rule

This proposed rule would amend the Medicaid regulations setting
forth policies to implement provisions of the Balanced Budget Act of
1997 (BBA) that (1) allow the States greater flexibility by permitting
them to amend their State plan to require certain categories of
Medicaid beneficiaries to enroll in managed care entities without
obtaining waivers if beneficiary choice is provided; (2) establish new
beneficiary protections in areas such as quality assurance, grievance
rights, and coverage of emergency services; and (3) 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. In addition, this proposed rule would
expand on existing regulatory beneficiary protections provided to
enrollees of prepaid health plans (PHPs) by requiring certain PHPs that
provide services on an inpatient basis to meet specified BBA
requirements that would not otherwise apply to these entities.
Under our proposal, virtually all managed care regulations would be
set forth in 42 CFR part 438. Some existing sections from part 434,
would be moved to this part. 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 Rights and Protections
Subpart D--Quality Assessment and Performance Improvement
Subpart E--[Reserved]
Subpart F--Grievance System
Subpart G [Reserved]
Subpart H--Certifications and Program Integrity
Subpart I--Sanctions
Subpart J--Conditions for Federal Financial Participation

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
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, and sets forth the scope of the applicabilty of these
regulations.
2. Definitions (Sec. 438.2)
Section 438.2 includes definitions of terms that apply for the
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 for 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). The new
statutory definition defines an MCO as one of several listed types of
full risk arrangements (for example, HMOs, a provider sponsored
organization, an ``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) 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), (m)(1)(A)(ii), and (m)(1)(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 primary
care case management and primary care case manager from the BBA. We
have not included the term ``managed care entity'' in the definitions
or the text of the regulation. This term was used in the BBA to include
MCOs and PCCMs. However, for purpose of clarity in the proposed rule,
we have specified in the text of the regulation whether each specific
provision applies to MCOs, PCCMs or both.
While most existing managed care definitions are unchanged, we are
proposing to split the current designation of prepaid health plans
(PHPs) into two new types of entities. We rely upon the authority in
section 1902(a)(4) of the Act to permit States to contract with PHPs
and to establish the requirements that these entities must meet. The
earliest PHPs in Medicaid managed care programs were predominantly the
equivalent of a capitated PCCM. Over the years, States have developed
programs using capitated reimbursement for much larger delivery
systems, most notably in the area of behavioral health. These contracts
may include a portion of the inpatient hospital benefit, as well as
physician, outpatient, and some other limited Medicaid services. States
have also developed PHPs to deliver transportation services and
contracted with dental PHPs to expand access to dental care for the
Medicaid population. We have recently reviewed proposals to contract
for institutional long-term care

[[Page 43620]]

services on a risk basis. Based on these developments, we have
concluded that it is no longer appropriate to describe all of these
models in the same way or subject them all to the same requirements.
In this proposed rule, we have eliminated the term PHP and replaced
it with two types of entities--Prepaid Inpatient Health Plans (PIHPs),
and Prepaid Ambulatory Health Plans (PAHPs). ``Prepaid inpatient health
plan'' (PIHP) means an entity that provides medical service on the
basis of capitation or other non-State plan payment rates, is
responsible for any inpatient hospital or institutional services, and
does not have a comprehensive risk contract. ``Prepaid ambulatory
health plan'' (``PAHP'') means an entity that provides medical service
on the basis of capitation or other non-State plan payment rates, is
not responsible for any inpatient or institutional services, and does
not have a comprehensive risk contract.
These two definitions include all entities that were previously
defined as PHPs, but make a distinction between (1) those responsible
for at least some (but not all) inpatient hospital or institutional
care an enrollee receives, as in the case of a large behavioral health
plans, and (2) those that are not, such as dental or transportation
plans and capitated PCCMs. The requirements that each type of entity
must meet are set forth in Sec. 438.8. By making the distinction
between these two types of entities, we are able to impose requirements
that more accurately reflect the scope of benefits that they contract
to provide. We are seeking comments on whether prepaid contracts that
include home and community based services should be subject to the
additional MCO-like requirements that we have proposed to apply to
PIHPs.
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, unless the above-discussed ``grandfather
provision'' in section 4710(c) of the BBA applies to the requirement in
question, these requirements apply to an MCO whether the MCO is
participating in a mandatory managed care enrollment program 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 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 mandatory. Finally, meeting this definition
permits an entity to offer ``primary care case management services'' as
a State plan service under section 1905(a)(25) of the Act.
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(h); and methods for
establishing certain enrollment practices and the default enrollment
process, as found in Sec. 438.50.
The terms MCO and PCCM are used in the statute to identify where
different requirements apply only to that entity. (As discussed above,
the term ``managed care entity'' is used to describe requirements that
apply both to MCOs and PCCMs.) As proposed 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 beneficiaries within the area
served by the entity, and meets the solvency standards of Sec. 438.116.
Thus, in general, HMOs that participate in Medicaid would be considered
as MCOs. For purposes of this rule, as described in detail under
Sec. 438.8(a), most requirements that would apply to MCOs would also
apply to PIHPs. Section 438.8(b) contains requirements that apply to
PAHPs.
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) clarifies that the CMS Regional Office must
review and approve all MCO, PIHP, and PAHP contracts, including those
that, on the basis of their value, are not subject to the prior
approval requirement in Sec. 438.806.
Section 438.6(b), like the current Sec. 434.20(a), proposes 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.
Proposed Sec. 438.6(c) addresses the computation of capitation
payments. We are proposing to delete the upper payment limit
requirement for risk contracts in existing Sec. 447.361 and create a
new Sec. 438.6(c), Payments under risk contracts, which: (1) Does not
include a UPL; (2) requires actuarial certification of capitation
rates; (3) specifies data elements that must be included in the
methodology used to set capitation rates; (4) requires States to
consider the costs for individuals with special health care needs or
catastrophic claims in developing rates; (5) requires States to provide
explanations of risk sharing or incentive methodologies; and (6)
imposes special rules, including a limitation on the amount that can be
paid under FFP in some of these arrangements.
We believe that the UPL is no longer an effective tool for purposes
of judging capitated payment rates. Many States no longer have fee-for-
service base year data recent enough to use as a reasonable comparison
to the costs of a current capitated managed care system, and the UPL
may not account for the cost of all services expected to be delivered
under an MCO contract.
In these changes, we are proposing that we move from a review that
compares capitation rates in risk contracts to the historical fee-for-
service cost of the services under contract for an actuarially
equivalent non-enrolled population, to a review of the utilization and
cost assumptions and methodology used by the state to set the actual
capitation rates. Eliminating the UPL requirement removes what has
become a barrier to effective managed care contracting in some areas,
and increasingly irrelevant as a regulatory tool. We also believe that
this change could result in a more appropriate review of capitation
rates by examining how the rates have been established rather than how
they compare to an increasingly difficult to establish fee-for-service
equivalent.
This change does not affect the rules governing UPLs for other
types of

[[Page 43621]]

providers or services including the currently applicable provisions in
Secs. 447.272, 447.304, and 447.321 or those in a final rule published
in the Federal Register (66 FR 3148) on January 12, 2001 on payments to
hospitals, nursing facilities, intermediate care facilities for the
mentally retarded, and clinics. Nor will this change affect the UPL for
nonrisk contracts in Sec. 447.362, which remains in effect.
As set forth above, FFP is only available for risk contracts to the
extent that payments are determined on an actuarially sound basis.
Under these provisions, we have determined that where total payments
exceed 105 percent of the capitation payments paid under the contract,
these payments are no longer actuarially sound. Thus, no FFP would be
available for payments resulting from risk corridors or incentive
arrangements for amounts that exceed 105 percent of the capitation
payments made under the contract. If the risk corridor or incentive
arrangement does not apply to all enrollees or services under the
contract, the 105 percent limit is based only in that portion of the
total capitation payments for the enrollees or services covered by the
arrangement. States could make payments under these arrangements with
their own funds, but would be precluded from claiming FFP for these
payments.
This limitation protects the Federal government against potentially
unlimited exposure under risk corridor or bonus arrangements. This is
particularly important since the ``cost-effectiveness'' requirement in
section 1915(b) and the ``budget neutrality'' standard imposed under
section 1115(a) demonstrations generally do not contain an outright
limit on the Federal share of expenditures under the contract. And,
neither of these limits apply to voluntary managed care contracts under
section 1915(a) or contracts for mandatory enrollment under section
1932(a)(1)(A) using State plan authority.
Without any upper limit on the amount that can be paid in incentive
arrangements or risk sharing mechanisms the potential exists for
inefficiency or inappropriate actions by the contractor to maximize
funding, resulting in rates that bear no relationship to those
certified by actuaries, and that, thus, are no longer ``actuarially
sound.'' We have proposed limitations in Secs. 438.6(c)(5)(ii) and
438.814 as a workable alternative to the current UPL which meets the
following criteria: (1) It provides a clear consistent rule that can be
applied to all risk contracts, regardless of the authority under which
the contract operates (waiver or otherwise); (2) it should not
discourage the use of any of these arrangements; (3) it explicitly
conditions Federal matching on the imposition of these limits under any
of these arrangements to prevent any potential abuses; and (4) it can
be easily administered. Similarly, proposed Sec. 438.60 also clarifies
that a State may not make payments directly to providers for services
that are available under its contracts with MCOs, PIHPs, or PAHPs,
except where these payments are provided for in Federal statute or
regulation. This provision is intended to preclude duplicate or
supplemental payments for amounts that should be included in the
capitation rate.
Although not part of this proposed rule, we also are planning to
revise the policies governing cost effectiveness for section 1915(b)
waiver programs. The current regulations at Sec. 431.55, which require
waiver programs to be cost effective and efficient and require States
to document this cost effectiveness of their waiver programs, will
remain unchanged. However, HCFA is modifying the process by which
States document this cost effectiveness through re-issuance of State
Medicaid Manual provisions and revision of the section 1915(b) Medicaid
waiver applications. The revised waiver cost effectiveness test will
apply to all waivers under section 1915(b) of the Act, regardless of
the payment system, such as capitation or fee-for-service.
Section 438.6(d) includes the enrollment requirements currently in
Sec. 434.25. We specify that an MCO, PIHP, PAHP, or PCCM contract must
provide for an open enrollment period when the MCO, PIHP, PAHP, or PCCM
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(d)(2), we have added language expressly providing for
exceptions to the requirement that enrollment be voluntary.
Section 438.6(e) includes language currently in Sec. 434.20(d) and
provides that an MCO contract may cover services not provided under the
State plan to enrolled beneficiaries. 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, CMS can waive statewideness and
comparability requirements if additional services are offered.
Section 438.6(f) would retain the requirement currently found in
Sec. 434.20(e)(1), that contracts comply with the general contract
requirements in Sec. 438.6, and has been expanded to specify Federal
anti-discrimination statues with which contracts must comply.
Section 438.6(g) 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 CMS, the right to inspect or
audit financial records of the MCO or its subcontractors.
Proposed Sec. 438.6(h) would implement the physician incentive plan
requirements in section 1903(m)(2)(A)(x) of the Act, which currently
are implemented in existing paragraphs (2) through (4) of
Sec. 434.70(a) of the regulations. We propose to expand this
requirement to apply to PIHPs and PAHPs, both of which may contract
with physicians and put them at financial risk. 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 prior to 1999, applied 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 incentive plans that
place physicians at ``substantial financial risk'' for services they do
not provide to conduct enrollee surveys, and provide ``adequate and
appropriate'' stop-loss protection. Section 1876(i)(8) of the Act was
implemented in Sec. 417.479, which defines ``substantial financial
risk'' and ``adequate and appropriate'' stop-loss protection. The
current Medicaid physician incentive plan provisions in paragraphs
(a)(2) through (a)(4) of Sec. 434.70 reference Sec. 417.479.
On January 1, 1999, however, Medicare risk contractors were
required to enter into Medicare+Choice (M+C) contracts under Part C of
Title XVIII if they wished to continue to contract with Medicare. The
physician incentive rules in part 417 of the regulations that
implemented section 1876(i)(8) of the Act no longer apply and will 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

[[Page 43622]]

implemented section 1852(j)(4) in M+C regulations in part 422. While
the substantive requirements and standards in section 1852(j)(4) of the
Act are identical to 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 have not applied to Medicare contracts since
1998, we did not revise the regulations in part 417 to eliminate this
reporting requirement.
Even though the Medicaid statute continues to cite section
1876(i)(8) of the Act, proposed Sec. 438.6(g) incorporates the
regulations in part 422 that implement nearly identical statutory
language, and the same substantive requirements, as set forth in
section 1852(j)(4) of the Act.
Section 438.6(i) 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 or PIHP.
Section 438.6(j) would implement the statutory requirement that
``HIOs'' that 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.
Section 438.6(k) 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.
Section 438.6(l) incorporates terminology currently in
Sec. 434.6(a)(ii)(b) on subcontracts. Section 438.6(m) incorporates
terminology currently in Sec. 434.29 on choice of health professionals.
4. Provisions That Apply to PIHPs and PAHPs (Sec. 438.8)
In this proposed rule, we propose to eliminate the term PHP and
replaced it with two types of entities--Prepaid Inpatient Health Plans
(PIHPs), and Prepaid Ambulatory Health Plans (PAHPs). A PIHP is an
entity that provides medical services to enrollees, under a contract
with the State agency that is not risk comprehensive, but for which
payment is made on a prepaid capitation basis or other payment
arrangements that do not use State plan payment rates, and in which the
entity provides, arranges for, or is otherwise responsible for the
provision of, any inpatient hospital or institutional services for its
enrollees. Like a PIHP, a PAHP is an entity that provides medical
services to enrollees, under a contract with the State agency that is
not risk comprehensive, and for which payments are made on the basis of
prepaid capitation payments or other payment arrangements that do not
use State plan payment rates. However, unlike a PIHP, a PAHP the entity
does not provide or arrange for, and is not otherwise responsible for
the provision of any inpatient hospital services for its enrollees. All
entities that met the definition of PHP under part 434 will meet one of
these definitions in Sec. 438.8.
Title XIX does not specifically address State contracts with PHPs
(now PIHPs or PAHPs), and thus does not impose requirements on these
entities. Instead, we have relied upon section 1902(a)(4) of the Act
for the authority to publish regulations governing these entities. This
section of the Act provides the Secretary with discretion to specify
methods of administration determined to be necessary for proper and
efficient operation of State Medicaid programs. Under that authority we
are now substituting the terms PIHP and PAHP and proposing to apply
specific provisions of this proposed rule to each of these entities.
This change, from the approach taken in the January 19, 2000 final
rule, which applied most of these requirements to all PHPs, is
warranted for several reasons. First, the scope of services under PHP
contracts with States has greatly expanded over the years. The earliest
PHPs in Medicaid managed care programs were predominantly capitated
PCCMs. States have developed programs using capitated reimbursement for
much larger delivery systems, most notably in the area of behavioral
health. These contracts may include a portion of the inpatient hospital
benefit, as well as physician, outpatient, and some other limited
Medicaid services. More than two-thirds of all current PHP contracts
are of this type. States have also developed PHPs to deliver
transportation services and found that contracting with dental PHPs
provides an opportunity to expand access to dental care for the
Medicaid population. We have recently reviewed proposals to contract
for institutional long-term care services on a risk basis. Based on
these developments, we have concluded that it is no longer appropriate
to describe all of these models in the same way or subject them all to
the same requirements.
Second, the BBA and this proposed rule contain many significant
beneficiary protections that were intended to apply to MCOs and States
contracting with MCOs. We believe that these protections are also
appropriate for those PHPs that are responsible for a benefit package
that closely resembles the risk comprehensive range of services
provided by MCOs. However, where PHPs contract to provide a much more
limited array of services, such as transportation or dental care, we
believe applying the same requirements would not be appropriate. Thus
we are making a distinction between these two types of entities based
on whether they are responsible for all or some of the inpatient
hospital or institutional services needed by their enrollees.
In Sec. 438.8(a), we propose to make PIHPs subject to nearly all of
the requirements that apply to MCOs, including: the contract
requirements of Sec. 438.6, except for requirements that pertain to
HIOs; the information requirements in Sec. 438.10; the provision
against provider discrimination in Sec. 438.12; the State
responsibility provisions of subpart B, except Sec. 438.50; the
enrollee rights and protection provisions in subpart C of this part;
the quality assessment and performance improvement requirements in
subpart D of this part to the extent that they are applicable to
services furnished by the PIHP; the grievance system provisions in
subpart F of this part; and the certification and program integrity
protection provisions in subpart H of this part.
Under proposed Sec. 438.8(a)(6), the State agency would have to
require, at a minimum, through its contract, that the PIHP 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 PIHP. The nature of some PIHPs may not allow them to
report on performance measures in all of the clinical and non-clinical
areas as MCOs can. Also, some PIHPs may not be able to undertake
performance projects in the same clinical areas as MCOs can address.
The State agency would be required to evaluate the applicability of the
MCO performance measures and improvement project areas when
establishing the PIHP's contractual

[[Page 43623]]

obligations for its quality assessment and performance improvement
program.
In proposed Sec. 438.8(b) we would make PAHPs subject to the
following requirements: the contract requirements of Sec. 438.6, except
for requirements for advance directives and those that pertain to HIOs;
designated portions of the information requirements in Sec. 438.10; the
provision against provider discrimination in Sec. 438.12; the State
responsibility provisions of subpart B, except Sec. 438.50; designated
portions of subpart C on enrollee rights and protections; and
Sec. 438.206(a) on availability of services.
We have not applied the provisions for sanctions in subpart I to
PIHPs or PAHPs (except to the extent that they contract as PCCMs, in
which case designated provisions apply). This does not, however,
preclude States from applying sanctions to PIHPs and/or PAHPs with
which they contract. Similarly, we have not specifically applied the
Conditions for FFP in subpart J to PIHPs or PAHPs, since these
provisions govern the Federal-State relationship rather than the State-
contractor relationship. Nonetheless, provisions governing the
availability of FFP to a State may have an impact on the contract a
State implements with a PIHP and a PAHP, such as the provisions in
Sec. 438.812 governing costs under risk and nonrisk contracts and in
Sec. 438.814 governing the limit on payment in excess of capitation
rates.
We believe that this two-tiered approach provides the flexibility
necessary for innovative contracting by States while applying
regulatory requirements that are appropriate to the range of services
under the contract. We note that a primary care case manager as defined
in section 1905(t)(2) of the Act, could also meet the definition of a
PAHP and be subject to the requirements in Sec. 438.8(b). In this case,
the primary care case manager would be both a PAHP and a PCCM. This
entity would be subject to the requirements in Sec. 438.6(k) and
Sec. 438.8(b).
While we are proposing to apply MCO requirements to PIHPs and
PAHPs, State agencies would still be free to apply for Federal waiver
authority, 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 PIHP.
In this instance, the Secretary has the discretionary authority to
waive freedom of choice, under section 1902(a)(23) of the Act, and the
right to disenroll in part 438 (for PIHPs and PAHPs is authorized under
section 1902(a)(4) of the Act, and therefore, can be waived) to enable
the State agency to establish or continue these programs.
5. Information Requirements (Sec. 438.10)
Section 438.10(b) contains the basic rule that all enrollment
notices and informational and instructional materials relating to
enrollment in MCOs, PIHPs, PAHPs, and PCCMs must be provided in a
manner and form that are easily understood by Medicaid enrollees and
potential enrollees. As a general rule, each State agency, MCO, PIHP,
PAHP, PCCM, and enrollment broker must meet the requirements of
Sec. 438.10 that pertain to language and format requirements (as
specified in Sec. 438.10(c) and (d)). However, a distinction is made
within the regulation as to which information needs to be provided to
an enrollee or a potential enrollee. We have defined these terms in
Sec. 438.10(a). And we have made a distinction between which
information needs to be provided to all managed care enrollees and
which information needs to be provided only to MCO and PIHP enrollees.
Finally, we have identified some information that only has to be made
available upon request.
In Sec. 438.10(c) we propose requirements for the languages in
which information would have to 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 MCO, PIHP, PAHP, or PCCM contracts to
ensure that written materials are available in those specified
languages. States have discretion to determine criteria for when a
language is ``prevalent'' for purposes of this requirement, as long as
they comply with the requirements of Title VI of the Civil Rights Act
of 1964. For technical assistance, States may contact the HHS Office of
Civil Rights. Enrollees and potential enrollees must be informed about
how to obtain written information published in prevalent languages in
that area. 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, MCO, PIHP, PAHP, and PCCM be required to have oral
interpretation services available free of charge for each enrollee and
potential enrollee who has limited English proficiency, and that
enrollees and potential enrollees be informed about how to obtain these
services.
In Sec. 438.10(d), we propose to implement the requirement in
section 1932(a)(5)(A) of the Act that all written information be
provided in an easily understood language and format. 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 (for example, 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(d)(1)(i) and (ii), we propose that enrollment notices as
well as informational and instructional materials relating to
enrollment in MCOs, PIHPs, PAHPS, and PCCMs 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 media such as, large print, Braille, or audio tapes) and
for individuals with limited reading proficiency (through video or
audio tapes).
In Sec. 438.10(e) we propose to require the State to provide
certain information to potential enrollees. While section 1932(a)(5)(B)
requires MCOs and PCCMs to make information available to enrollees and
potential enrollees ``upon request,'' we believe it is important to
ensure that potential enrollees have certain information prior to
enrollment, so they may make an informed choice. It would be
unreasonable, however, to require every MCO, PIHP, PAHP or PCCM to
provide the relevant information to all potential enrollees. The State
agency is the more appropriate entity to do so. Therefore, under
authority in section 1902(a)(4) of the Act to provide for necessary and
proper methods of administration, we propose in Sec. 438.10(e) that the
State (or its contracted representative) be required to provide the
information described below to each potential enrollee.
The required information includes general information about the
basic features of managed care; which populations are excluded from
enrollment, subject to mandatory enrollment, or free to enroll
voluntarily in the MCOs, PIHPs, PAHPs and PCCMs; and MCO, PIHP, PAHP
and

[[Page 43624]]

PCCM responsibilities for coordination of enrollee care. In addition,
Sec. 438.10(e)(2)(ii) proposes to require the State to provide at least
summary information specific to each MCO, PIHP, and PAHP, and for PCCM
programs in the potential enrollee's service area, including benefits
covered, cost sharing, service area, network provider information, and
benefits covered under the State plan but not available under the
contract.
In Sec. 438.10(f), we propose to require MCOs, PIHPs, PAHPs, and
PCCMs or States on behalf of their PCCM programs, to provide certain
information to their own enrollees. 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
these fundamental elements as enrollees' rights and responsibilities.
Further, it is our belief that it is not sufficient for this
information to merely be ``available'' at designated locations.
Therefore, in keeping with the Congress' intent to provide adequate
information to actual enrollees, under the authority in section
1902(a)(4), we propose to require these entities to provide basic
information that all enrollees should have. In addition, we propose in
paragraphs (f)(1) through (f)(5) to require specific timeframes for the
provision of specific information, such as disenrollment rights, and
changes in providers or operations of the managed care program.
Paragraph (f)(2) specifically would require MCOs, PIHPs, PAHPs, PCCMs
or the State to notify enrollees annually of their right to request
information listed in paragraphs (f) and (g) of this section (as
applicable).
In proposed Sec. 438.10(f)(6), we set forth the type of information
that, under section 1932(a)(5)(B) of the Act, MCOs and PCCMs must
provide to enrollees. We are proposing in Sec. 438.10(f)(6) to require
that the information must also be furnished to enrollees of PIHPs and
PAHPs. This information must include at least the following:
Names, locations and telephone numbers of current network
providers, including identification of those who speak languages other
than English and those who are 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 enrollees explaining how they can obtain this
supplemental information. Enrollees making a decision about whether to
enroll in a particular MCO, PIHP, PAHP, or PCCM 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, PIHP's, PAHP's, or
PCCM program's informational materials emphasize any limitations on
enrollees' provider selections. If an MCO, PIHP, PAHP, or PCCM program
contracts with formal subnetworks, or the entity's arrangement with
primary care providers allow for the establishment of informal
subnetworks, the 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.
Enrollee rights as described in Sec. 438.100.
Grievance and fair hearing procedures.
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 must include the procedures for
obtaining pharmaceuticals and mental health and substance abuse
services, as well as the procedure for obtaining out-of-area coverage.
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 coverage of after-hours, emergency, and
post-stabilization services.
Policies on referrals for specialty care and other
services not furnished by the enrollee's primary care provider.
Cost sharing, if any.
Any benefits to which they may be entitled under the
Medicaid program, but that are not made available to them through the
MCO, PIHP, PAHP, or PCCM. For example, enrollees would have to be
provided notice about how to access mental health coverage if it is not
a service covered by the MCO, PIHP, PAHP, or PCCM or if the entity
provides only limited coverage. This information would have to be
provided either directly by the State agency or through the MCO, PIHP,
PAHP, or PCCM. The notice would have to provide information on where
and how enrollees may access benefits such as mental health coverage
not available through the entity. In addition, this notice would be
required to include information on how transportation services not
covered by the MCO, PIHP, PAHP, or PCCM would be furnished.
While State agencies would be required to develop grievance and
appeal processes for enrollees in accordance with subpart F of part
438, this proposed requirement is not meant to imply that State
agencies must establish grievance and appeal processes for individual
health care providers. However, if these processes exist, information
on the processes must be made available to enrollees and potential
enrollees in accordance with the requirements of this section.
Proposed Sec. 438.10(g) would require MCOs and PIHPs to provide
additional information to their enrollees, based on provisions that
apply only to those types of entities. This information must be
provided by the MCO or PIHP except where 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). MCOs and PIHPs would be required to provide information
on grievance, appeal and fair hearing procedures and timeframes in
Sec. 438.400. This includes the following:
The right to a State fair hearing, the method for
obtaining a State fair hearing, and the rules that govern
representation at the hearing.
The right to file grievances and appeals.
The requirements and timeframes for filing a grievance or
appeal.
The availability of assistance in the filing process.
The toll-free numbers that the enrollee can use to file a
grievance or an appeal by phone.
The fact that, when requested by the enrollee, benefits
will continue if the enrollee files an appeal or a request for State
fair hearing within the timeframes specified for filing; and that the
enrollee may be required to pay the cost of services furnished while
the

[[Page 43625]]

appeal is pending, if the final decision is adverse to the enrollee.
Further, if the State agency chooses to furnish appeal rights to
providers, it must provide MCO and PIHP enrollees 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 these procedures be provided by
MCOs or PIHPs. 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.''
MCOs and PIHPs are also required to provide information on advance
directives, physician incentive plans, and upon request, information on
the structure and operation of the entity as follows:
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.
Other information on accessing services, including
physical accessibility and non-English languages spoken
A description of procedures to control utilization and
expenditures
A summary of the method for compensating physicians.
We are distinguishing between information that must be furnished to
all enrollees and information furnished on request because it is our
belief that some information is not typically used by enrollees in
selecting a provider. By making the information available by request,
interested beneficiaries can obtain the information, and MCOs and PIHPs
are not required to furnish information that will not be used.
Proposed Sec. 438.10(h) would implement section 1932(a)(5)(C) of
the Act, which requires 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. Under proposed
Sec. 438.10(h), this information would be provided directly by the
State agency, or through the MCO or PCCM at least annually, as well as
upon request. The information must be presented in a comparative chart-
like form that facilitates comparison among MCOs and PCCMs and must be
available in the prevalent languages (as determined by the State)
spoken by populations in the geographic area. It should include the
following information for each MCO or PCCM: (1) The service area of the
MCO or PCCM; (2) the benefits covered; (3) any cost-sharing imposed by
the MCO or PCCM; 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 must specify the meaning of ``disenrollment rates'' and the
voluntary disenrollment from one plan to another plan.
6. Provider Discrimination (Sec. 438.12)
Proposed Sec. 438.12 would reflect the anti-discrimination
provisions in section 1932(b)(7) of the Act. Those provisions 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 the license or
certification. Section 1932(b)(7) also states, that this provision 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, or from establishing measures
designed to maintain quality and control costs consistent with the
responsibilities of the MCO.
Proposed Sec. 438.12 must not be construed as an ``any willing
provider'' provision. We believe that in section 1932(b)(7) of the Act
the Congress intended 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 discriminatory actions
may have provided beneficiaries with fewer choices and may have reduced
beneficiaries' overall access to quality health care. Accordingly,
under proposed Sec. 438.12, MCOs and, under the authority in section
1902(a)(4) of the Act, PIHPs would be required to implement policies
for provider participation, reimbursement, and indemnification that are
not arbitrary, but rather relate to quality factors such as outcome
measures and satisfaction surveys, cost factors, and other legitimate
business concerns.
We also propose in Sec. 438.12 that an MCO or PIHP that declines to
include individual or groups of providers in its network must give the
provider written notice of the reason for its decision.

B. State Responsibilities (Subpart B)

1. State Plan Requirements (Sec. 438.50)
Proposed Sec. 438.50 would implement section 1932(a)(1)(A) of the
Act, which permits State agencies to enroll their Medicaid
beneficiaries in an MCO or PCCM 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 proposed Sec. 438.50, a State agency no longer needs to
request, obtain, and seek periodic renewal of CMS 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 MCOs or PCCMs, without being out of
compliance with the freedom of choice, statewideness, or comparability
of services requirements.
We are requiring State agencies to submit a Medicaid State plan
amendment 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 State plan amendment, 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
plan amendment within 90 days of receipt of the State agency's response
to the additional information request. As with other State plan
amendments, the effective date provisions specified in the current
regulations at Secs. 430.20 and 447.256 apply to State plan amendments
submitted to implement a section 1932(a) of the Act request. Thus,
section 1932(a) State plan amendments may be effective as early as the
first day of the quarter in which a State plan amendment is submitted
to CMS.
Under proposed Sec. 438.50(b), we identify what the State plan
would be required to specify, including the payment method, whether the
State contracts on a comprehensive risk basis, and how the State
involves the public. Under paragraph (c), State agencies wishing to
utilize the authority in Sec. 438.50 would be required to provide
assurances of State compliance with all applicable requirements.
Proposed Sec. 438.50(d) reflects the statutory exclusion of the
following populations from mandatory managed care enrollment under the
State plan option in section 1932(a) of the Act:
Dual Medicare-Medicaid eligibles.
Indians who are members of Federally-recognized tribes
except when

[[Page 43626]]

the MCO or PCCM 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.

While State agencies are prohibited from enrolling the above groups
under the State plan option, a State agency may permit voluntary
enrollment of these individuals in a program authorized under section
1932(a) of the Act or use a section 1915(b) waiver or section 1115
demonstration authority to mandate enrollment for these individuals in
a managed care system. Under section 1915(b) or section 1115 authority,
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 or
demonstration request demonstrates 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.
The requirements in paragraph (e) reflect the requirements in
section 1932(a)(4)(C) on enrollment priorities. For beneficiaries
enrolled under the State plan option under section 1932(a)(1) of the
Act, the State agency must establish a method whereby individuals
already enrolled with an MCO or PCCM must be given priority to continue
that enrollment where the MCO or PCCM does not have the capacity to
enroll all individuals seeking enrollment under the program.
Proposed Sec. 438.50(f) reflects the provisions in section
1932(a)(4)(D) of the Act, which stipulate 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 a beneficiary's existing relationships with providers and
providers'traditional service to Medicaid beneficiaries. If enrollment
based on the foregoing considerations is not possible, States must
utilize an assignment process that equitably distributes enrollees
among qualified, available MCOs or PCCMs.
Except when State agencies have a fee-for-service experience or
prior MCO or PCCM 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 or PCCM in which that
provider participates.
We propose under Sec. 438.50(f)(3) that existing provider-
individual relationships be defined as the provider who was the main
source of care for the beneficiary in the last year. This can be
established through State records of previous MCO or PCCM enrollment or
fee-for-service experience, or through contact with the beneficiary.
Under proposed Sec. 438.50(f)(4), we describe providers as
traditionally serving Medicaid beneficiaries if the provider has
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. If no
traditional providers are available, remaining individuals are to be
equitably distributed among qualified MCOs and PCCMs with adequate
capacity.
2. Choice of MCO, PIHPs, PAHPs, and PCCMs (Sec. 438.52)
Subject to certain exceptions, under section 1932(a)(3) of the Act,
a State agency that requires Medicaid beneficiaries to enroll in an MCO
or PCCM must offer to its beneficiaries a choice of at least two MCOs
or PCCMs. 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, and applies to primary
care case managers under section 1905(t) of the Act as well. 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. We also propose
to extend this requirement to PIHPs and PAHPs.
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 MCO, PIHP,
PAHP, or PCCM 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 CMS
regulations.
Since a State agency may elect 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(b)(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 MCO, PIHP, PAHP, or PCCM network; (2) for up
to 60 days, when a provider that is not part of the MCO, PIHP, PAHP, or
PCCM network, has an existing relationship with the beneficiary, is the
beneficiary's main source of care, and has not accepted an offer to
participate in the network; (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; or (4) when the
beneficiary's primary care provider determines that there is
unnecessary risk to the beneficiary to receive separately a related
service not

[[Page 43627]]

available in the network. 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.
For purposes of the rural area exception in section 1932(a)(3)(B)
of the Act, we propose in paragraph (b)(3) to define ``rural area'' as
any area not meeting the Medicare definition of ``urban area'' at
Sec. 412.62(f)(1)(ii). Under this definition, any area that is part of
a Metropolitan Statistical Area cannot be considered ``rural'' for the
purposes of this exception. Areas designated as Metropolitan Areas,
Primary Metropolitan Statistical Areas, or Consolidated Metropolitan
Statistical Areas are all considered to be urban. Therefore, they are
ineligible for this exception.
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.
Finally, we propose in paragraph (d) that when there is a rural or
HIO exception to choice, any limitation to change between primary care
providers may be no more restrictive than the limitations on
disenrollment under Sec. 438.56(c).
Section 1932(a)(4)(A)(i) of the Act expressly permits individuals
to disenroll at any time with cause. Under section 1932(a)(4)(A)(ii),
enrollees must be permitted to disenroll without cause during the
initial 90 days of enrollment with an MCO or PCCM, and at least once
every 12 months thereafter. If read to apply in all circumstances, this
requirement would be inconsistent with allowing only one MCO or PCCM
option, 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, the Congress was providing for
an implicit exception to the general rule under section 1932(a)(4) of
the Act in these cases. Under these exceptions, therefore, we propose
that the requirements in section 1932(a)(4)(A) of the Act are 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 MCO or PCCM system. This would make it unnecessary for
a State agency to operate a parallel fee-for-service 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 MCO or
multi-provider PCCM 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), because they are exempt from section
1903(m) requirements.)
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 and disenrollment of beneficiaries in MCOs and PCCMs.
In addition to applying ``directly'' to mandatory programs under
section 1932(a)(1)(A) of the Act, these requirements are also
incorporated under section 1903(m)(2)(A) of the Act for MCOs and
section 1905(t) of the Act for PCCMs. Thus, these new requirements also
apply to voluntary programs, and, unless the ``grandfather provision''
in section 4710(c) of the BBA applies or an exception is authorized by
CMS under section 1115(a)(2) in the case of a demonstration project, to
mandatory programs under section 1915(b) or section 1115.
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 PCCM in a rural area as
described earlier in regards to Sec. 438.52(b). Beneficiaries must also
be permitted to disenroll without cause from an MCO or PCCM within the
first 90 days of the initial enrollment period of up to 12 months, and
annually thereafter. We propose in Sec. 438.56 that these enrollment
provisions would apply to all PIHPs and PAHPs as well. Thus, the
provisions apply to virtually all Medicaid managed care entities and
programs.
We propose to replace Sec. 434.27, which required HMO and PHP
contracts to specify when they could request beneficiary disenrollment,
with proposed Sec. 438.56(b). The new requirement specifies the
conditions under which an MCO, PIHP, PAHP, or PCCM may request
beneficiary disenrollment. These conditions are consistent with
Medicare+Choice requirements.
The right of an enrollee to disenroll without cause (paragraph
(c)(2)) during the first 90 days of enrollment, from a particular MCO,
PIHP, PAHP, or PCCM 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. The BBA permitted 12-month lock-ins
without demonstration authority, and even in the case of a voluntary
program.
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 period to all MCOs and
PCCMs, rather than a specific type of HMO;
Requires that beneficiaries 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.
Under proposed Sec. 438.56(c), the above provisions apply to
enrollment and disenrollment in MCOs, PIHPs, PAHPs, and PCCMs,
regardless of authority, with the exception of (1) waiver or
demonstration projects ``grandfathered'' under section 4710(c) of the
BBA, and (2) States that have been granted an exception from these
rules under section 1115, or, for PIHPs and PAHPs, under section
1915(b) of the Act.
We note that the language in section 1932(a)(4)(A)(ii) of the Act
specifies 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 propose in Sec. 438.56(c)(2)(i) that the 90
days will begin when enrollment is

[[Page 43628]]

effective or notice is sent, whichever is later.
We provide that the 90-day period for disenrollment without cause
applies only when an individual first enrolls with a particular MCO,
PIHP, PAHP, or PCCM. 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
entity 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 MCO, PIHP, PAHP, or PCCM.
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 MCO, PIHP, PAHP, or PCCM effective with the start
of their initial enrollment period with a particular MCO, PIHP, PAHP,
or PCCM. 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 MCO, PIHP, PAHP, or PCCM and determine whether they wish to remain
enrolled through the enrollment period. This interpretation is
consistent with the statutory language, that 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 MCO, PIHP, PAHP, or PCCM and see whether
it is right for him or her. A beneficiary who has already had a 90-day
period with a particular MCO, PIHP, PAHP, or PCCM does not need another
one in order to try out that entity. The only exceptions provided are
when a beneficiary is automatically re-enrolled under paragraph (g) and
missed the annual enrollment opportunity, and when a State imposes
intermediate sanctions specified in proposed Sec. 438.702(a)(3).
Proposed Sec. 438.56(d) sets forth procedures for disenrollment.
The enrollee may submit a disenrollment request orally or in writing to
the State agency. In Sec. 438.56(d)(1)(ii), we propose that the MCO,
PIHP, PAHP, or PCCM may approve the request for disenrollment if the
State agency permits this.
We propose to describe cause for disenrollment in paragraph (d)(2)
to include circumstances in which the beneficiary moves out of the MCO,
PIHP's, PAHP's, or PCCM's service area; cases in which the plan does
not cover, because of moral or religious objections, a service the
enrollee seeks; and for other reasons determined by the State, such as
for homeless individuals or migrant workers.
In paragraph (d)(3) and (d)(4), we propose that the disenrollment
request be processed within the timeframe specified in paragraph (e),
or the request be deemed approved. In paragraph (d)(5), we permit the
State agency to require that the enrollee seek redress in the MCO's,
PIHP's, PAHP's, or PCCM's grievance system before making a
determination on the request.
In paragraph (e), we propose to establish the timeframe for
processing all disenrollment requests. The effective date of an
approved disenrollment would have to be no later than the first day of
the second month in which the request was filed. If a determination is
not made within that timeframe, it would be considered approved.
In accordance with section 1932(a)(4)(B) of the Act, we propose, in
Sec. 438.56(f), a requirement for States that restrict disenrollment to
notify enrollees 60 days before the start of each enrollment period,
and ensure access to the State fair hearing process if disenrollment
for cause is denied.
Section 1932(a)(4), of the Act requires State agencies to permit
disenrollment without cause at least every 12 months after the
individual's enrollment with an MCO or PCCM. State agencies may fulfill
this requirement by having an annual open season for all MCO or PCCM
enrollees or establishing an open enrollment opportunity for each
individual based on the individual's date of enrollment. Through this
regulation, we would apply these provisions to PIHPs and PAHPs as well.
Section 438.56(g) incorporates section 4732(c) of Pub. L. 101-508,
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 MCOs and PCCMs for the automatic
re-enrollment of beneficiaries who become disenrolled from the MCO or
PCCM solely by virtue of becoming temporarily (for months or less)
ineligible for Medicaid.
4. Conflict of Interest Safeguards (Sec. 438.58)
Under section 1932(d)(3) of the Act, State agencies cannot enter
into contracts with any MCO, unless the 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 these MCOs, or to the 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 U.S.C. 423). This provision applies to
contracts entered into or renewed by October 1, 1997 and signed by both
parties.
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
contractors.
Disclosure to unauthorized persons.
Certification and enforcement matters.
These requirements are designed to ensure that there is no undue
influence or preference given to an MCO because a State employee has an
interest in that MCO and to require 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.
In proposed Sec. 438.58, we would extend these provisions to PIHPs
and PAHPs as well, under our authority under section 1902(a)(4) of the
Act.
5. Limit on Payment to Other Providers (Sec. 438.60)
We are proposing to redesignate existing Sec. 434.57 as
Sec. 438.60, and to clarify that this section prohibits payments to
providers for services available under an MCO, PIHP, or PAHP contract.
The only exceptions to this prohibition are for payments specifically
authorized by Federal statute or regulation.

[[Page 43629]]

6. Continued Service to Beneficiaries (Sec. 438.62)
We propose to redesignate Sec. 434.59 as Sec. 438.62 with
appropriate changes in terminology.
7. 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. Enrollee Rights and Protections (Subpart C)

1. Enrollee Rights (Sec. 438.100)
We are proposing requirements to ensure that each contract with an
MCO or PIHP have written polices regarding enrollee rights and that
MCOs, PIHPs, PAHPs, and PCCMs ensure compliance with Federal and State
laws affecting the rights of enrollees. Under this proposed rule, as
set forth in proposed Sec. 438.100, each enrollee would have the right
to receive information in accordance with proposed Sec. 438.10; be
treated with respect and consideration for enrollee dignity and
privacy; receive information on available treatment options or
alternative courses of care; participate in decision-making regarding
his or her health care; and be free from any form of restraint or
seclusion used as a means of coercion, discipline, convenience, or
retaliation. In addition, each enrollee of an MCO or PIHP would have
the right to obtain a second opinion from a qualified health care
provider in accordance with proposed Sec. 438.206(b), and to access his
or her medical records and request that they be amended or corrected.
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. Further, under proposed Sec. 438.100, the MCO,
PIHP, PAHP, and PCCM would have to 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.
In proposed Sec. 438.100(d), we would require that States ensure
that MCOs, PIHPs, PAHPs, and PCCMs and their subcontractors 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 Civil Rights Act of 1964 as implemented by regulations
at 45 CFR part 484; the Age Discrimination Act of 1975 as implemented
by regulations at 45 CFR part 91; the Rehabilitation Act of 1973; and
Titles II and III of the Americans with Disabilities Act; and other
laws regarding privacy and confidentiality.
2. Enrollee-Provider Communications (Sec. 438.102)
Medicaid beneficiaries have historically been entitled to receive
from their health care providers the full range of medical advice and
counseling that is appropriate for their condition. The BBA expanded
upon this basic right by expressly precluding an MCO from establishing
restrictions that interfere with enrollee-practitioner communications.
Under proposed Sec. 438.102, which expands this right to PIHPs and
PAHPs, a 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, PIHP, or PAHP. A health
care professional means a physician, physician assistant, physical or
occupational therapist, therapist assistant, speech-language
pathologist, audiologist, registered or practical nurse (including
nurse practitioner, clinical nurse specialist, certified registered
nurse anesthetist, and certified nurse midwife), licensed certified
social worker, registered respiratory therapist, and certified
respiratory therapy technician.
While the new provision precludes MCOs, PIHPs, and PAHPs from
interfering with enrollee-practitioner communications, it does not
require MCOs, PIHPs and PAHPs to provide reimbursement for, or provide
coverage of counseling or referral services for specific services, if
the MCO, PIHP, or PAHP objects to the service on moral or religious
grounds. Please note, however, that the State agency remains
responsible for ensuring access to all covered services. In these
cases, the MCO, PIHP, or PAHP must inform beneficiaries in writing of
its policies before and during enrollment. If the MCO, PIHP, or PAHP
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. However, this timeframe, while
sufficient to meet the statutory requirement related to changes in
counseling or referral services, is overridden by the provision at
proposed Sec. 438.10(e)(1)(ii) that requires the MCO and PIHP to
furnish the information at least 30 days before the effective date of
the policy.
3. Marketing Activities (Sec. 438.104)
Terminology. We currently require each MCO, under Sec. 434.36, to
specify in its contract a 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 strengthened consumer protections and prohibits fraud and abuse
by restricting marketing activities by MCOs and PCCMs. Section
1932(d)(2) of the Act requires that marketing materials be distributed
to the entire service area covered under contract, prohibits ``cold-
call'' marketing, and requires that marketing materials not be
distributed without the prior approval of the State agency. We propose
to implement these BBA provisions and prohibit certain other marketing
practices, under proposed Sec. 438.104. We also propose to extend the
requirements to PIHPs and PAHPs.
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 MCO, PIHP, PAHP, or PCCM, used to communicate with
individuals who are not its enrollees and that can reasonably be
interpreted as intended to influence the individuals to enroll in that
particular MCO, PIHP, PAHP, or PCCM.
Required Marketing Activities. In Sec. 438.104(b)(1)(i) and (ii),
we propose to reflect the requirements in section 1932(d)(2)(B) of the
Act that MCOs and PCCMs must: (1) Obtain State approval before
distributing marketing materials; and (2) distribute marketing
materials to the entire service area in which they have contracts under
sections 1903(m) or 1903(t)(3) of the Act. According to the last
sentence in section 1932(d)(2)(A)(i) of the Act this, prior approval
requirement was to take effect on a date specified by the Secretary in
consultation with the State agency. Following this consultation, this
requirement became effective on July 1, 1998. In
Sec. 438.104(b)(1)(iii), we propose to include the requirement in
section 1932(d)(2)(D) of the Act that MCOs and PCCMs that comply with
the information requirements set forth in Sec. 438.10 to ensure that
each Medicaid beneficiary receives accurate oral and written
information in order that the individual can make an informed decision
whether or not to enroll.

[[Page 43630]]

Prohibited Marketing Activities. In Sec. 438.104(b)(1)(iv), we
propose to include the prohibition in section 1932(d)(2) of the Act on
the MCO, PCCM, or any agent attempting to influence enrollment with the
MCO or PCCM in conjunction with the sale of any other insurance. We
interpret this to mean that MCOs and PCCMs may not entice a Medicaid
beneficiary to join the MCO or PCCM 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.
In Sec. 438.104(b)(1)(v) we propose to include the prohibition in
section 1932(d)(2)(E) of the Act barring an MCO or PCCM, directly or
indirectly, from conducting door-to-door, telephonic, or other ``cold-
call'' marketing of enrollment. MCOs , PCCMs, 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 MCOs and
PCCMs 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, Medicaid
beneficiaries 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
statute. 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 that entity. This would include
those 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 Medicaid
beneficiaries decision to enroll with a particular plan.
In addition, we propose in Sec. 438.104(b)(2) to implement the
provision in section 1932(d)(2)(A)(i)(II) of the Act on the
distribution by MCOs, PCCMs, or any agents, of marketing materials that
contain false or materially misleading information by requiring that
MCO and PCCM 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 MCO or PCCM to get Medicaid benefits, or that the MCO or PCCM is
recommended or endorsed by us.
Consultation in State Agency Approval of Marketing Materials. In
Sec. 438.104(c) we propose to specify the requirement in section
1932(d)(2)(A)(ii) of the Act that State agencies provide for
consultation with a Medical Care Advisory Committee (MAC) in the
process of reviewing and approving marketing materials. Currently, MAC
is described 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 similar membership to
that described above and in Sec. 431.12.
4. Liability for Payment (Sec. 438.106)
In Sec. 438.106, we propose to specify the requirement in section
1932(b)(6) of the Act that MCOs 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, under the regulation, if the
MCO, PIHP, or PAHP were to become bankrupt, the Medicaid enrollee would
not have to assume responsibility for costs that the MCO, PIHP, or PAHP
was responsible for covering, nor any of the debts of the providers
affiliated with the MCO, PIHP, or PAHP. In addition, if the MCO, PIHP,
or PAHP fails to receive payment from the State agency, or if a
provider fails to receive payment from the State agency or the MCO,
PIHP, or PAHP, 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, PIHP, or PAHP had directly provided the service.
5. Cost Sharing (Sec. 438.108)
Proposed Sec. 438.108 would require compliance with the
restrictions on cost-sharing in Secs. 447.50 through 447.60. We note
that section 4708(b) of the BBA amended sections 1916(a)(2)(D) and
1916(b)(2)(D) of the Act to eliminate the prohibition that existed
prior to the BBA on the imposition cost-sharing by MCOs. Copayments for
services provided by MCOs, PIHPs, and PAHP, may now be imposed in the
same manner as copayments are applied under fee-for-service, as
discussed in Secs. 447.50 through 447.60.
Accordingly, State agencies must 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, PIHPs, and PAHPs. For example, State agencies would have the
option of establishing a standard copayment amount for managed care
services that is determined by applying the 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 statute from having
to pay copayments under fee-for-service would continue to be excluded
from any copayment responsibility for managed care services. These
beneficiary groups include children, pregnant women, and
institutionalized beneficiaries. Also prohibited are copayments for
emergency services and family planning services.
We also propose in Sec. 447.53(e) that no provider may deny
services to an individual who is eligible for the services on account
of the individual's inability to pay the cost sharing. This language
closely tracks the statutory language in section 1916(e) of the Act.
This proposed provision applies to services furnished by either an MCO
or under fee-for-service.
6. 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 PCCM 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 the Congress required MCOs and PCCMs to provide
coverage of

[[Page 43631]]

emergency services, 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 or State (as payer of a PCCM)
that pays for hospital services generally, must pay for the cost of
emergency services obtained by Medicaid enrollees. We interpret
coverage in the PCCM context to mean that the PCCM must allow direct
access to emergency services without prior authorization. We apply
different meanings to the word ``coverage'' because while PCCMs are
individuals paid on a fee-for-service basis, they receive a State
payment to manage an enrollee's care. Unlike MCOs, PCCMs 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 PCCM. Accordingly, in Sec. 438.114(c)(2), we propose to provide
that enrollees of PCCMs 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 these services under Medicaid that are
needed to evaluate or stabilize an emergency medical condition. An
``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 for 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).
In some cases, the ``emergency'' services required to diagnose or
treat an ``emergency medical condition'' may fall within the scope of
services that a PIHP, or even a PAHP, is required to cover under its
contract. In this case, we believe that enrollees should have the same
rights to have these services covered without delay, and ``out of
plan'' as in the case of services covered by an MCO or through a PCCM.
Accordingly, through our authority in section 1902(a)(4) of the Act, we
provide in proposed Sec. 438.114(f) that the requirements in
Sec. 438.114 apply to PIHPs and PAHPs to the extent that the services
required to treat the emergency medical condition, or the required
post-stabilization services in question, fall within the scope of the
services for which the PIHP or PAHP is responsible.
Proposed Sec. 438.114(b) requires that MCOs, PIHPs, PAHPs (to the
extent applicable), at-risk PCCMs, or the State agency 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(c)(1)(i) provides that an MCO or, to the
extent applicable, a PIHP or PAHP, must pay for emergency services
regardless of whether the entity that furnishes the services has a
contract with the MCO, PIHP, or PAHP. In proposed
Sec. 438.114(c)(1)(ii), MCOs, PIHPs, or PAHPs 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 have a
condition in which the absence of immediate medical care would have
resulted 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 or part. Likewise, the MCO, PIHP, PAHP, or PCCM cannot deny
payment if the enrollee obtained services based on instructions of a
practitioner or other representative of the MCO, PIHP, or PAHP.
Proposed Sec. 438.114(c)(2) provides that if a PCCM contract is a risk
contract that covers the services, a PCCM system must allow enrollees
to obtain emergency services outside of the PCCM system.
Proposed Sec. 438.114(d) further clarifies financial
responsibility. Proposed Sec. 438.114(d)(1) provides that MCOs, PIHPs
and PAHPs (to the extent applicable), at-risk PCCMs, or States may not
limit what constitutes an emergency medical condition through lists of
symptoms or final diagnoses/conditions and may not refuse to process a
claim because it does not contain the primary care provider's
authorization number. Proposed Sec. 438.114(d)(2) provides that an
enrollee who, based on the treating emergency provider's determination,
has an emergency medical condition, may not be held liable for payment
concerning the screening and treatment of that condition necessary to
stabilize the enrollee. Proposed Sec. 438.114(d)(3) 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, PIHP, or
PAHP for coverage purposes.
Section 1932(b)(2)(A)(ii) of the Act also provides MCO and PCCM
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 these rules apply to M+C
plans offered under Part C of Title XVIII. 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 Sec. 438.114(e), which references
Sec. 422.113(c) of the M+C final regulation. Post-stabilization care
means covered services, related to an emergency medical condition, that
are provided after an enrollee is stabilized in order to maintain the
stabilized condition, or under the circumstances described in paragraph
Sec. 422.113(c)(2)(iii), to improve or resolve the enrollee's
condition.
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

[[Page 43632]]

for non-emergency, but urgently needed services, while the Medicaid
statute does not contain any similar references. Second, the PCCM,
PIHP, and PAHP models are delivery systems unique to Medicaid; and
there is no Medicare counterpart to the special rules described above
that apply to PCCM enrollees.
7. 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 otherwise 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 these centers by the State agency. For further
clarification, the term ``control'' (for 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 will not be held liable
for the debts of the MCO in the case of its insolvency.
In accordance with our authority under section 1902(a)(4), we have
extended the new solvency requirements in section 1903(m)(1)(A) to
PIHPs and PAHPs, as the risks to enrollees from an insolvency apply
equally in these settings.

D. Quality Assessment and Performance Improvement (Subpart D)

1. Background
Before the passage of the BBA, Medicaid statute and regulations
included a number of disparate and incremental provisions addressing
quality. The statute focused specifically on services furnished by HMOs
under 1903(m) of the Act. Section 1902(a)(30)(C) of the Act required
State agencies to conduct on an annual basis, an independent, external
review of the quality of services furnished under each State contract
with an HMO.
Medicaid regulations contained several provisions that related to
quality. Specifically, the regulations required HMOs to have an
internal quality assurance plan that met limited requirements
(Sec. 434.34); required the State to conduct periodic medical audits of
HMOs to ensure that each organization furnished quality and accessible
care to all Medicaid enrollees (Sec. 434.53); provided that contracts
include provisions that identify the population covered under the
contract, and to specify the amount, duration, and scope of medical
services to be provided (Sec. 434.6(a)), required the State to obtain
proof from its contractor of its ability to provide services under the
contract efficiently, effectively, and economically (Sec. 434.50(b)),
and proof that the contractor furnished the health services required by
the enrolled recipients as promptly as is appropriate, meeting the
State agency's quality standards (Sec. 434.52). The State agency and
HHS were given discretion in the regulations to evaluate through
inspection or other means, the quality, appropriateness, and timeliness
of services performed under the contract (Sec. 434.6(a)(6)).
Other requirements that 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.
In addition to the above, Medicaid statute included several
indirect assurances related to quality, such as a requirement that
States contract with HMOs that met certain enrollment composition
requirements (specifically, at least 25 percent of a health plan's
enrollment was to consist of persons not covered by Medicare or
Medicaid), solvency standards for HMOs serving Medicaid beneficiaries,
and a requirement that the State ensure that access to and quality of
services provided under managed care are at least comparable to those
provided under the fee-for-service program. For the latter, neither the
statute nor the regulation specified the specific methods or standards
to support the access and quality assurances.
As illustrated above, a number of the statutory and regulatory
requirements before 1997 were duplicative (for example, periodic audits
of managed care plans by State agencies and external reviews of HMOs
from an agent of the State) or otherwise failed to allow for
improvements in technology of measuring and improving quality (for
example, use of performance measures and consumer surveys). As a
consequence, it was unclear to many stakeholders how the various
statutory and regulatory requirements worked together to effectively
and efficiently ensure, and improve where appropriate, the quality of
care delivered under managed care arrangements.
2. Overview
Under section 1932 (c)(1)(A) of the Act, as added by section
4705(a) of the BBA, each State that elects to furnish services to
Medicaid beneficiaries through an MCO must develop and implement a
quality assessment and performance improvement strategy that includes
access standards, other measures, monitoring procedures, and periodic
review. This statutory arrangement applies regardless of whether the
managed care arrangement is mandatory or voluntary. Further, this
strategy must be ``consistent with standards'' that we establish in
regulations (section 1932(c)(1)(B) of the Act).
Proposed subpart D of part 438 contains our proposed standards,
developed in accordance with the statute. The proposed standards,
discussed later in greater detail, would require a State's strategy to
include various access standards, structure and operation standards,
and measurement and improvement standards. Once developed, each State
would be required to review the strategy to ensure its overall
effectiveness in achieving its desired results.
Many of the requirements in this subpart would be imposed on
States. States in turn would impose these requirements on MCOs. As
previously discussed, we have proposed to add PIHPs as entities subject
to this subpart under our authority at section 1902(a)(4) of the Act.

[[Page 43633]]

Proposed Provisions of Subpart D

3. Scope (Sec. 438.200)
This section sets forth the scope of Subpart D.
4. State Responsibilities (Sec. 438.202)
This section sets forth the State responsibilities in implementing
its quality strategy. Specifically, proposed Sec. 438.202 would require
that each State contracting with an MCO or PIHP do the following:
Have a written strategy for assessing and improving the
quality of managed care services provided by the MCO and PIHP.
Have a means for obtaining input of recipients and other
stakeholders in the development of the strategy, including making the
strategy available for public comment before adopting it as final.
Ensure compliance with standards established by the State.
Conduct periodic reviews to evaluate the effectiveness of
the strategy and update the strategy, periodically, as needed.
Submit a copy of the initial strategy to CMS as well as a
revised strategy when significant changes are made.
Additionally, regular reports on the implementation and
effectiveness of the strategy would have to be submitted to us,
consistent with the State's periodic reviews.
5. Elements of State Quality Strategies (Sec. 438.204)
This section sets forth the minimum elements of a State's quality
strategy. We propose that these elements include the following:
MCO and PIHP contract provisions that incorporate the
standards in this subpart.
Procedures for accessing the quality and appropriateness
of care and services furnished to all Medicaid enrollees under the MCO
and PIHP contracts, including individuals with special health care
news. We suggest states reference the November 6, 2000 Report to the
Congress entities safeguards for individuals with special health care
needs enrolled in Medicaid managed care to determine what populations
to consider when determining individuals with special health care
needs. We also propose that the State strategy include procedures that
identify the race, ethnicity, and primary language spoken of each
Medicaid enrollee. We would require the latter information to be
provided to the MCO and PIHP at the time of enrollment.
Continuous monitoring and evaluation of MCO and PIHP
compliance with the standards.
Performance measures and levels, identified and developed
by CMS in consultation with States and other relevant stakeholders.
Arranging for annual, external independent reviews of
quality outcomes and timeliness of, and access to, the services covered
under the contract.
Appropriate use of intermediate sanctions that, at a
minimum, meet the requirements of subpart I of this part.
An information system that supports initial and ongoing
operation and review of the State's quality strategy.
Standards, at least as stringent as those in the following
sections of this subpart, for access to care, structure and operations,
and quality measurement and improvement.
In the development of the proposed rule, some stakeholders
expressed concern over any provision that would require States to
identify to MCOs and PIHPs the race, ethnicity, and primary language
spoken by MCO and PIHP enrollees. Some stakeholders expressed concern
that the requirement for ethnicity would require States to change their
information systems. They questioned whether the value of requiring
this information was worth the cost. In response to these concerns, we
believe that most States are currently collecting and reporting data on
race and ethnicity and, thus, should not have to expend significant
costs for systems changes. Based on this current practice, we believe
that States should not be unduly burdened by this provision of the
proposed rule. We invite comments on this issue.
We have included as an element of States quality strategies that
they must include ``performance measures and levels, certified and
developed by CMS in consultation with States and other relevant
stakeholders.'' We propose this requirement because of the increasing
interest in comparable information across health plans and States on
their performance in serving Medicaid enrollees. We invite public
comment on this proposal, including what would be an effective means to
provide State and other stakeholder input into the development of these
measures.
Access standards. The following sections are proposed in accordance
with statutory authority that 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 in a manner that
ensures continuity of care, adequate primary care, and specialized
services capacity (section 1932(c)(1)(A) of the Act, as added by
section 4704 of the BBA).
6. Availability of Services (Sec. 438.206)
Basic rule. Paragraph (a) of this section sets forth the
basic requirement for this section, which would require the State to
ensure, through its contracts, that all covered services are available
and accessible to enrollees.
Delivery Network. Paragraph (b) of this section would
require the State to ensure the following:

--Each MCO and PIHP 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.
(Each MCO and PIHP would have to consider the anticipated enrollment in
the MCO or PIHP, the expected utilization of services, considering
enrollee characteristics and health care needs, the number and types
(in terms of training, experience, and specialization) of providers
required to furnish the contracted services, the numbers of network
providers who are not accepting new Medicaid patients, and the
geographic location of providers and Medicaid enrollees, considering
distance, travel time, the means of transportation ordinarily used by
Medicaid enrollees, and whether the location provides physical access
for Medicaid enrollee with disabilities.)
--The MCO or PIHP provides female enrollees with direct access to a
women's health specialist within the network for covered care necessary
to provide women's routine and preventative health care services.
--The MCO or PIHP provides for a second opinion from a qualified health
care professional within the network, or arranges for the enrollee to
obtain one outside of the network, at no cost to the enrollee.
--If the network is unable to provide necessary medical services,
covered under the contract, to a particular enrollee, the MCO or PIHP
adequately and timely covers these services out of network for the
enrollee, for as long as the MCO or PIHP is unable to provide them.
--The MCO or PIHP requires the out-of-network providers to coordinate
with the MCO or PIHP with respect to payment and ensures that cost to
the enrollee is no greater than it would be if the services are
furnished within the network.
--The MCO or PIHP demonstrates that its providers are credentialed as
required by Sec. 438.214.

[[Page 43634]]

Furnishing of services. Paragraph (c) of this section
would require States to ensure that MCOs and PIHPs meet requirements
addressing the following:
--Timely access to services. Specifically, MCOs and PIHPs would have to
meet and require their providers to: meet State-established standards
for timely access to care, that would take into account the urgency of
need for services; ensure that the network providers offer hours of
operation that are no less than the hours of operation offered to
commercial enrollees or comparable to Medicaid fee-for-service, if the
provider serves only Medicaid enrollees; make services available 24
hours a day, 7 days a week, when medically necessary; establish
mechanisms to ensure compliance; monitor continuously to determine
compliance; and take corrective action if there is a failure to comply.
--Cultural considerations. In addition to timely access standards, we
believe that it is important for MCOs and PIHPs to address cultural
considerations. Therefore, we are proposing in paragraph (c)(2) of this
section that each MCO and PIHP participates in the State's efforts to
promote the delivery of services in a culturally competent manner to
all enrollees, including those with limited English proficiency and
diverse cultural and ethnic backgrounds.
7. Assurances of Adequate Capacity and Services (Sec. 438.207)
Apart from the statutory provisions addressing the State's quality
strategy, and the need to develop access standards under that strategy,
the statute specifically requires MCOs to provide to the State agency
and the Secretary adequate assurances that it has the capacity to serve
the expected enrollment in its service area (section 1932(b)(5) of the
Act, as added by section 4704(a) of the BBA). The statute provides that
the adequate assurances must be provided in a time and manner
determined by the Secretary, and must demonstrate that each MCO offers
an appropriate range of services and a sufficient number, mix, and
geographic distribution of providers of services.
The requirements in this section are proposed in accordance with
section 1932(b)(5) of the Act, described earlier. In order to avoid
confusion between proposed Sec. 438.206 and Sec. 438.207, we would
clarify that proposed Sec. 438.207 would address procedural
requirements for submitting assurances of adequate capacity and
services, while proposed Sec. 438.206 would address substantive
standards relating to the availability of services. Both sections are
related in the sense that we are requiring MCOs and PIHPs to submit
documentation to the State (which in turn will submit assurances to
CMS) addressing how the MCO or PIHP has met the access standards
proposed under Sec. 438.206. We believe this fulfills the intent of
Congress that MCOs submit assurances of adequate capacity and services,
in a form and manner determined by the Secretary. As previously
discussed, we added PIHPs as entities subject to this subpart under our
authority at 1902(a)(4) of the Act.
Basic Rule. Section 438.207(a) sets forth the basic
provision of this section. It would require the State to ensure,
through its contracts, that each MCO and each PIHP provides assurances
to the State that it has the capacity to serve the expected enrollment
in its service area in accordance with the State's standards for access
to care under this subpart.
Nature of assurances. Paragraph (b) of this section would
require each MCO and each PIHP to submit documentation to the State, in
a format specified by the State and acceptable to CMS, to demonstrate
that it complies with the following requirements:

--Offers an appropriate range of services, including preventive
services, primary care services and specialty services that is adequate
for the anticipated number of enrollees for the service area.
--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.
Timing of documentation. Paragraph (c) would require each
MCO and PIHP to submit the documentation described in paragraph (b) of
this section as specifies by the State, and specifically--
--At the time it enters into a contract with the State.
--At any time there has been a significant change (as defined by the
State) in the MCO's or PIHP's operations that would affect adequate
capacity and services. These include changes in the MCO or PIHP
services, benefits, geographic service area or payments, and enrollment
of a new population in the MCO or PIHP.
State review and submission to CMS. Paragraph (d) would
require the State, after it reviews the documentation submitted by the
MCO or PIHP, to certify to CMS that the MCO or PIHP has complied with
the State's requirements for availability of services, as set forth in
Sec. 438.206.
CMS's right to inspect documentation. Paragraph (e) would
ensure that the State makes available to CMS, upon request, all
documentation collected by the State from the MCO or PIHP.
8. Coordination and Continuity of Care (Sec. 438.208)
Basic Requirement. Paragraph (a) of this section sets forth the
basic requirement of this proposed section. We would require the State
to ensure, through its contracts, that MCOs and PIHPs, except as
otherwise specified in this section, meet the provisions outlined in
this section. This paragraph also acknowledges two exceptions: one for
PIHPs and another for MCOs that serve dually eligible enrollees. It
would permit a State to determine, based on the scope of the PIHP's
services, and the way the State has organized the delivery of managed
care services, whether a PIHP is required to perform the screenings and
assessments specified in paragraph (c) or required to meet the primary
care requirements of paragraph (e)(1). The second exception would
permit the State to determine to what extent an MCO that serves
enrollees who are also enrolled in a Medicare+Choice plan and receive
Medicare benefits, must meet the screening and assessment, referral and
treatment plan, and primary care and coordination requirements of
paragraphs (c), (d) and (e)(1) of this section, respectively.
We believe that the paragraphs of this section should apply to
PIHPs to the extent they are applicable to the services furnished by
the PIHP. Because some PIHPs provide services to the most vulnerable
Medicaid enrollees, many of whom have been diagnosed with chronic
conditions or who are determined to have long term care needs, it is
important that those PIHPs have mechanisms for timely screening and
assessment of enrollees requiring special attention. We acknowledge,
however, that the State might design a system that involves PIHPs for
which the screening and assessment function is performed by an acute
care MCO and imposing a similar requirement on the PIHP would be
duplicative (that is, a carve-out program for mental health services in
which the enrollee was referred by the MCO contracted to provide
physical health services). Likewise, some of the requirements of this
section might be duplicative for an MCO that serves dual eligible
enrollees who are also enrolled in a Medicare+Choice plan and receive
Medicare benefits. Accordingly, we drafted an exception that would
permit

[[Page 43635]]

a State to determine the application of these requirements to the MCOs,
based on the services the MCO is contracted to furnish. We invite
comments in this area.
State Responsibility To Identify Certain Enrollees with Special
Health Care Needs. This paragraph would require the State implement a
mechanism to identify to its enrollment broker, if applicable prior to
enrollment, and the MCO and PIHP, upon enrollment, individuals with
special health care needs, as specified by the state. This requirement
is proposed to facilitate the early identification and assessment of
enrollees with special health care needs. Although we do not define in
regulation the term ``special health care needs,'' our Report to the
Congress entitled, ``Safeguards for Individuals with Special Health
Care Needs Enrolled in Medicaid Managed Care'' (November 6, 2000),
identified certain groups of individuals at risk of having special
health care needs. We encourage States to consider those groups as they
establish their own definitions. We invite comment in this area.
Screening and Assessment. This paragraph sets forth the requirement
that the State (either through its own staff or its enrollment broker),
or at the State's discretion, each MCO or PIHP (through appropriate
health care professionals) must ensure a best effort is made to meet
the following standards:
The proposed requirements of this section permit States some
discretion to use their own staff or an enrollment broker to conduct
screening and assessment functions of individuals enrolling in MCOs or
PIHPs. It also permits States to require MCOs or PIHPs, as appropriate,
to perform the screening and assessment functions through appropriate
health care professionals. We acknowledge that 100 percent compliance
may not be achieved in the case of individuals who refuse to undergo a
screening or assessment, or for those the MCO or PIHP has tried to
contact on multiple occasions but has been unable to reach. In those
cases the MCO or PIHP, through appropriate health care professionals,
should ensure that this information is documented in the enrollee's
medical records explaining why the screening or assessment was not
performed.
Treatment plans. This paragraph proposes that the State ensures
that each MCO and PIHP has a mechanism in place for enrollees
determined through an assessment to have ongoing special conditions
that require a course of treatment or regular care monitoring as
follows:
The enrollee may directly access a specialist (for
example, through a standing referral or an approved number of visits)
as is appropriate for the enrollee's condition and identified needs.
A treatment plan, if required by the MCO or PIHP, is
developed by a specialist in consultation with the enrollees primary
care provider; is developed with enrollee participation; is approved by
the MCO or PIHP in a timely manner, if an approval is required; and is
in accordance with the State's quality assurance and utilization review
standards. We envision that for children with special healthcare needs,
enrollee participation would also encompass participation by the
family.
During the development of this proposed rule, some stakeholders
expressed concern that our requirements not be overly prescriptive and
burdensome with respect to screening, assessment, and treatment plans.
We believe the proposed rules set forth minimum requirements that are
critical to the success of managed care for persons with special health
care needs. We further believe that some level of prescription is
necessary to ensure that enrollees with ongoing special conditions who
are undergoing a course of treatment or requiring care coordination
from specialist can do so without having to receive a referral from
their primary care provider for each specialist visit or treatment. We
invite public comments in this area. Further treatment plans should be
updated when these are changes in the enrollee's condition, including
changes in developmental status and needs.
Primary care and coordination program. This paragraph
would require each MCO and each PIHP to implement a coordination
program that meets State requirements and achieves the following:
--Ensures that each enrollee has an ongoing source of primary care
appropriate to his or her needs and a person or entity formally
designated as primarily responsible for coordinating the health care
services furnished to the enrollee.
--Coordinates the services the MCO or PIHP furnishes to the enrollee
with the services the enrollee receives from any other MCOs and PIHPs.
--Shares with other MCOs and PIHPs serving the enrollee the results of
its screenings and assessments of the enrollee so that those activities
need not be duplicated.
--Ensures that in the process of coordinating care, each enrollee's
privacy is protected consistent with privacy rules at 45 CFR 160 and
164.
9. Coverage and Authorization of Services (Sec. 438.210)
Coverage. This paragraph sets forth proposed basic
coverage requirements. We are proposing that each contract with an MCO
or PIHP do the following:
--Identify, define, and specify each service that the MCO or PIHP is
required to offer.

--Require that the MCO or PIHP make available the services it is
required to furnish in no less than the amount, duration, and scope
that are specified in the State plan and that are sufficient to
reasonably be expected to achieve the purpose for which the services
are furnished.
--Provide that the MCO or PIHP may not arbitrarily deny or reduce the
amount, duration, or scope of a required service solely because of the
diagnosis, type of illness, or condition (although they may place
appropriate limits on services on the basis of criteria such as medical
necessity or utilization control, provided the services furnished can
reasonably be expected to achieve their purpose).
--Specify what constitutes ``medically necessary services'' in a manner
that is no more restrictive than the State Medicaid program as
indicated in State statutes and regulations, the State Plan, and other
State policy and procedures, and addresses the extent to which the MCO
or PIHP is responsible for covering services related to the prevention,
diagnosis, and treatment of health impairments, the ability to achieve
age-appropriate growth and development, and the ability to attain,
maintain, or regain functional capacity.
Processing of requests. In this paragraph, we are
proposing that, for the processing of requests for initial and
continuing authorizations of services, each contract must require the
following:

--The MCO or PIHP and its subcontractors have in place, and follow,
written policies and procedures.
--Any decision to deny a service authorization request or to authorize
a service in an amount, duration, or scope that is less than requested,
be made by a health care professional who has appropriate clinical
expertise in treating the enrollees's condition or disease. For the
review criteria, we propose that MCOs and PIHPs have in effect
mechanisms to ensure the consistent application of the review criteria
for authorization decision;

[[Page 43636]]

and consult with requesting providers when appropriate.
Notice of adverse action. In this paragraph, we are
proposing that each contract be required to provide for the MCO or PIHP
to notify the requesting provider, and give the enrollee written notice
of any decision by the MCO or PIHP to deny a service authorization
request, or a decision to authorize a service in an amount, duration,
or scope that is less than requested. We specify that the notice must
meet the requirements of Sec. 438.404, except that the notice to the
provider need not be in writing.
Timeframe for decisions. In this paragraph, we are
proposing that each MCO or PIHP contract provide for the following
decisions and notices for standard authorization decisions and
expedited authorization decisions. For standard authorization
decisions, the MCO or PIHP would provide notice as expeditiously as the
enrollee's health condition requires and within State-established
timeframes that may not exceed 14 calendar days following receipt of
the request for service (with a possible extension of up to 14
additional calendar days if the enrollee, or the provider, requests an
extension or the MCO or PIHP justifies (to the State agency upon
request) a need for additional information and how the extension is in
the enrollee's interest). For cases in which a provider indicates, or
the MCO or PIHP determines, that following the standard timeframe could
seriously jeopardize the enrollee's life or health or ability to
attain, maintain, or regain maximum function, the MCO or PIHP would be
required to make an expedited authorization decision, and provide
notice as expeditiously as the enrollee's health condition requires and
no later than 3 working days after receipt of the request for service.
We propose that the MCO or PIHP be permitted to extend the 3 working
days time period by up to 14 calendar days if the enrollee requests an
extension, or if the MCO or PIHP justifies that a need for additional
information is in the enrollee's interest.
Compensation for utilization management activities. This
paragraph would require each contract to provide that 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. The following sections are
proposed in accordance with statutory authority that requires State
agencies that contract with MCOs under section 1903(m) of the Act to
develop a quality assessment and improvement strategy that includes
examination of other aspects of care and service directly related to
the improvement of quality of care (Section 1932(c)(1)(A) of the Act,
as added by section 4704 of the BBA).
10. Provider Selection (Sec. 438.214)
General rules. This paragraph sets forth the proposed
rules for this section. The State would be required to ensure, through
its contracts, that MCOs and PIHPs implement written policies and
procedures for the selection and retention of providers and that those
policies and procedures include, at a minimum, the requirements
outlined in the following paragraphs.
Credentialing and recredentialing requirements. In this
paragraph, we propose that each MCO and PIHP would have to follow a
documented process for credentialing and recredentialing of providers
who have signed contracts or participation agreements with the MCO or
the PIHP.
Nondiscrimination. In this paragraph, we would require the
MCO and PIHP provider selection policies and procedures to be
consistent with the antidiscrimination requirements at Sec. 438.12 and
to not discriminate against particular providers that serve high risk
populations or specialize in conditions that require costly treatment.
Excluded providers. This proposed paragraph would provide
that MCOs or PIHPs may not employ or contract with providers excluded
from participation in Federal health care programs under either section
1128 or section 1128A of the Act.
State requirements. In this paragraph, we are proposing
that MCOs and PIHPs comply with any additional requirements established
by the State.
11. Enrollee Information (Sec. 438.218)
In this section, we propose to incorporate the information
requirements under Sec. 438.10 as part of the State's quality strategy.
12. Confidentiality (Sec. 438.224)
This section sets forth the requirement that States must ensure
MCOs and PIHPs meet privacy requirements at Subpart F of part 431 of
this chapter and 45 CFR 160 and 164.
13. Enrollment and Disenrollment (Sec. 438.226)
In this section, we propose to incorporate the enrollment and
disenrollment requirements in other parts of this rule as part of the
State's quality assessment and improvement strategy. We would require
the State to ensure that each MCO and PIHP contract complies with the
enrollment and disenrollment requirements and limitations set forth in
Sec. 438.56.
14. Grievance Systems (Sec. 438.228)
In this section, we propose to incorporate the requirements for a
grievance system as part of the State's quality assessment and
improvement strategy. Thus, we would require the State to ensure,
through its contracts, that each MCO and PIHP has in effect a grievance
system that meets the requirements of subpart F of this part. We also
require that if the State delegates to the MCO or PIHP responsibility
for notice of action under subpart E of part 431 of this chapter, the
State must conduct random reviews of each delegated MCO or PIHP and its
providers and subcontractors to ensure that they are notifying
enrollees in a timely manner.
15. Subcontractual Relationships and Delegation (Sec. 438.230)
In this section, we address subcontracting and delegation. We would
require the State to ensure, through its contracts, that each MCO and
PIHP oversees and is accountable for any functions and responsibilities
that it delegates to any subcontractor, and meets specific conditions.
The specific conditions require the following:
Before any delegation, each MCO and PIHP evaluates the
prospective subcontractor's ability to perform the activities to be
delegated.
There be a written agreement that specifies the activities
and report responsibilities delegated to the subcontractor and provides
for revoking delegation or imposing other sanctions if the
subcontractor's performance is inadequate.
The MCO or PIHP monitors the subcontractor's performance
on an ongoing basis and subjects it to formal review according to a
periodic schedule established by the State, consistent with industry
standards or State MCO laws and regulations.
If any MCO or PIHP identifies deficiencies or areas for
improvement, the MCO and the subcontractor take corrective action.
Measurement and Improvement Standards. The following sections are
proposed pursuant to statutory authority that requires State agencies
that contract with MCOs under section 1903(m) of the Act to develop a
quality assessment and improvement strategy that includes procedures
for monitoring and evaluating the quality and

[[Page 43637]]

appropriateness of care and services to enrollees (section
1932(c)(1)(A) of the Act, as added by section 4704 of the BBA).
16. Practice Guidelines (Sec. 438.236)
This section addresses the adoption, dissemination, and application
of practice guidelines. We propose that each MCO and PIHP adopts
practice guidelines that: (1) are based on valid and reliable clinical
evidence or a consensus of health care professionals in the particular
field; (2) consider the needs of the MCO's or PIHP's enrollees; (3) are
adopted in consultation with contracting health care professionals; and
(4) are reviewed and updated periodically as appropriate. We also
propose that MCOs and PIHPs disseminate the guidelines to all affected
providers and, upon request, to enrollees and potential enrollees.
Finally, we specify that decisions with respect to utilization
management, enrollee education, coverage of services, and other areas
to which the guidelines apply are consistent with the guidelines.
17. Quality Assessment and Performance Improvement Program
(Sec. 438.240)
General rules. This paragraph sets forth the proposed
general requirements of this section. We would require the State to
ensure, through its contracts, that each MCO and PIHP has an ongoing
quality assessment and performance improvement program for the services
it furnishes to its enrollees. In addition, we specify that CMS, in
consultation with States and other stakeholders, may specify
standardized quality measures, and topics for performance improvement
projects to be required by States in their contracts with MCOs and
PIHPs.
Basic elements of an MCO and PIHP quality assessment and
performance improvement programs. In this paragraph, we propose the
basic elements of an MCO and PIHP quality assessment and improvement
program. We propose that, at a minimum, the State must require that
each MCO and PIHP do the following:

--Conduct performance improvement projects as described in paragraph
(d) of this section.
--Have in effect mechanisms to detect both underutilization and
overutilization of services.
--Have in effect mechanisms to assess the quality and appropriateness
of care furnished to enrollees with special health care needs.
We specify that the performance improvement projects would have to
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.
Performance measurement and improvement. In this
paragraph, we propose that each MCO and PIHP annually measure its
performance, using standard measures required by the State consistent
with the requirements of Sec. 438.204(c), and report its performance to
the State.
Performance improvement projects. In this paragraph, we
propose the following:

--Each MCO and PIHP would be required to have an ongoing program of
performance improvement projects that focuses on clinical and non-
clinical areas.
--Each MCO and PIHP must report the status and results of each project
to the State as requested.

We envision States will establish quality indicators that are
objective, clearly and unambiguously defined, and based on current
clinical knowledge or health services research, and capable of
measuring outcomes such as changes in health status, functional status,
and enrollee satisfaction, or valid proxies of these outcomes. Further,
performance improvement projects must use objective quality indicators,
the implementation of system interventions to achieve improvement in
quality, evaluation of the effectiveness of the interventions, and
planning and initiation of activities for increasing or sustaining
improvement.
Finally, we specify that each performance improvement project must
be completed in a reasonable time period so as to generally allow
information on the success of performance improvement projects in the
aggregate to produce new information on quality of care every year.
In the development of this proposed rule, some stakeholders
expressed concern that we not mandate the number, type, or quantity of
quality improvement studies a State requires the MCO to undertake.
Stakeholders expressed concern that targets for improvement vary
greatly from State to State, and region to region within a State. Thus,
a national consensus would be difficult to achieve. Further,
stakeholders also expressed concern that we not set minimum levels for
performance measures, noting that by setting them at a level that all
plans could reasonably achieve, we might lower performance in the
aggregate. Moreover, our actions might undercut a State's negotiating
position. We are sympathetic to many the above concerns, and have
considered them in the development of this proposed rule. However, as
the art of quality improvement and measurement advances, we believe
that we should have the ability to specify standardized measures and
topics for improvement projects. We preserve this right in regulation
and clarify that, in exercising this right, we will consult with States
and other stakeholders to achieve consensus to the greatest extent
possible. We invite public comments in this area.
Program review by the State. In this paragraph, we propose
requirements for the State's review of the MCO and PIHP quality
assessment and improvement program. We would require the State to
review, at least annually, the impact and effectiveness of each MCO's
and PIHP's quality assessment and performance improvement program. We
also would require the State's review to address the MCO's and PIHP's
performance on the standard measures on which it is required to report,
and the results of the each MCO's and PIHP's performance improvement
projects. Finally, we specify that the State may require that an MCO or
PIHP have in effect a process for its own evaluation of the impact and
effectiveness of its quality assessment and performance improvement
program.
18. Health Information Systems (Sec. 438.242)
This section proposes requirements for health information systems.
We generally would require the State to ensure, through its contracts,
that the MCO and PIHP maintains a health information system that
collects, analyzes, integrates, and reports data and can achieve the
objectives of this subpart. We specify that the system should provide
information on areas including, but not limited to, utilization,
grievances, and disenrollments for other than loss of Medicaid
eligibility. At a minimum, the MCO and PIHP would be required to do the
following:
Collect data on enrollee and provider characteristics as
specified by the State, and on services furnished to enrollees through
an encounter data system or other methods as may be specified by the
State.
Ensure that data received from providers is accurate and
complete.
Make all collected data available to the State, and upon
request to CMS, as required in this subpart. In ensuring that the data
from providers is accurate and complete, we specify that the MCO and
PIHP must have mechanisms to verify

[[Page 43638]]

the accuracy and timeliness of reported data, screen the data for
completeness, logic, and consistency, and collect service information
in standardized formats to the extent feasible and appropriate.

E. Subpart E

We are proposing to reserve Subpart E.

F. Grievance Systems (Subpart F)

Proposed Subpart F is based on section 1902(a)(3) of the Act,
(which requires a State plan to provide an opportunity for a fair
hearing to any person whose request for assistance is denied or not
acted upon promptly), section 1902(a)(4) of the Act, which (authorizes
the Secretary to specify methods of administration that are
``necessary'' for ``proper and efficient administration''), and section
1932(b)(4) of the Act, (which requires that MCOs have an internal
grievance procedure under which a Medicaid enrollee, or a provider on
behalf of an enrollee, may challenge the denial of coverage of or
payment by the MCO).
In this subpart, we propose regulations that lay out the elements
of the grievance system required under section 1932(b)(4) of the Act,
and how it interfaces with the State fair hearing requirements in
section 1902(a)(3). We define terms, describe what constitutes a notice
of action, and address how grievances and appeals must be handled,
including timeframes for taking action. We include a process for
expedited resolution of appeals in specific circumstances; address the
requirement for continuation of benefits; and lay out the requirements
relating to record keeping, monitoring and effectuation of reversed
appeal resolutions.
1. Statutory Basis and Definitions (Sec. 438.400)
Definitions of terms used in proposed subpart F are found in
proposed Sec. 438.400 and would have the following meanings:
Action means, in the case of an MCO or PIHP or any of its
providers,
The denial or limited authorization of a requested
service, including the type or level of service;
The reduction, suspension, or termination of a previously
authorized service;
The denial, in whole or in part, of payment for a service;
or
For a resident of a rural area with only one MCO or PIHP,
the denial of a Medicaid enrollee's request to exercise his or her
right to obtain services outside the network.
Appeal means a request for review of an action, as ``action'' is
defined in this subpart.
Governing body means the MCO's or PIHP's Board of Directors, or a
designated committee of its senior management.
Grievance is defined as an expression of dissatisfaction about any
matter other than an action. This term can also be used to refer to the
overall system that includes grievances and appeals handled at the MCO
or PIHP level and access to the State Fair Hearing Process. Possible
subjects for grievances include, but are not limited to, the quality of
care or services provided, aspects of interpersonal relationships such
as rudeness of a provider or employee, or failure to respect the
enrollee's rights.
2. General Requirements (Proposed Sec. 438.402)
Proposed Sec. 438.402 would require that each MCO and PIHP must
have a grievance system in place for enrollees that includes a
grievance process, an appeal process, and access to the State's fair
hearing system.
Proposed Sec. 438.402(b)(1) would specify that an enrollee may file
a grievance or an MCO or PIHP level appeal, and may request a State
fair hearing. In addition, a provider, acting on behalf of an enrollee
and with the enrollee's written consent may file an appeal. However,
the provider cannot file a grievance or request a State fair hearing on
behalf of the enrollee.
Under Sec. 438.402(b)(2), we propose timeframes within which the
enrollee or provider may file an appeal. Our intent is to mirror the
filing timeframes for the State fair hearing, that is, a reasonable
amount of time up to 90 days. In addition, we have incorporated the
longstanding policy at section 2901.3 of the Medicaid Manual that
beneficiaries be given a minimum of 20 days to file an appeal. We
believe that this policy gives beneficiaries a reasonable amount of
time to file an appeal. Therefore, the proposed regulation requires
that the State specify a timeframe for filing an appeal that is no less
than 20 days and does not exceed 90 days from the date of the MCO's or
PIHP's notice of action. Within this timeframe, the enrollee or the
provider may file an appeal, and in a State that does not require
exhaustion of the MCO and PIHP level appeals, the enrollee may request
a State fair hearing.
In proposed Sec. 438.402(b)(3), we specify the manner in which
enrollees may file grievances, and enrollees or the provider may file
appeals. For grievances, the enrollee may file either orally or in
writing either to the State or with the MCO or PIHP, as determined by
the State. The enrollee or the provider may file an appeal either
orally or in writing, and unless he or she requests expedited
resolution, must follow an oral filing with a written, signed, appeal.
While enrollees may start the appeal clock with an oral request, they
must follow it with a written request as a written appeal best
documents the issue being appealed. In expedited situations, this
proposed rule provides that the enrollee is not required to place the
appeal in writing.
3. Notice of Action (Sec. 438.404)
We are proposing that the notice MCOs and PIHPs 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 or PIHP will or has taken action, such as
denying payment or denying, limiting, reducing, suspending or
terminating a service through a service authorization decision. We
propose that the notice must meet the language and format requirements
of proposed Sec. 438.10(c) and (d) of this chapter to ensure ease of
understanding. The notice would be required to include the elements
that are listed in proposed Sec. 438.404, as follows:
The action the MCO or PIHP or its contractor has taken or
intends to take.
The reasons for the action.
The enrollee's or the provider's right to file an MCO or
PIHP appeal.
If the State does not require the enrollee to exhaust the
MCO or PIHP level appeal procedures, the enrollee's right to request a
State fair hearing.
The procedures for exercising the rights specified in this
section.
The circumstances under which expedited resolution of an
appeal is available, and how to request it.
The enrollee's right to have benefits continue pending
resolution of the appeal how to request that benefits be continued and,
the circumstances under which the enrollee may be required to pay the
costs of these services.
In proposed Sec. 438.404(c) we specify the timeframes in which the
MCO and PIHP must mail the notices. Under proposed Sec. 438.404(c)(1),
timeframes for notices for the reduction, suspension, or termination of
previously authorized services are governed by the State fair hearing
regulations found in 42 CFR 431 Subpart E. While some MCOs and PIHPs
may find the advance notice requirement inappropriate, there are
exceptions to advance notice that allow notice to be given on the date
of the action (see Sec. 431.213). These exceptions would cover the
situation in which a

[[Page 43639]]

provider believes an immediate change in care is appropriate for the
health condition of the enrollee. For denial of payment, we propose
that notice be given at the time of any action affecting the claim.
Proposed Sec. 438.404(c)(3) and (c)(4) requires that for standard
service authorization decisions that deny or limit services, notice
must be given within the timeframes specified in Sec. 438.210(d).
Further, if the MCO or PIHP were to extend the timeframe in accordance
with proposed Sec. 438.210(d), it would have to give the enrollee
written notice of the reason for the decision to extend the timeframe,
inform the enrollee of the right to file a grievance if he or she
disagrees with that decision, and issue and carry out its determination
as expeditiously as the enrollee's health conditions requires and no
later than the date the extension expires. In situations where the
service authorization decision is not reached within specified
timeframes, we propose at Sec. 438.404(c)(5) that notice be mailed on
the date that the timeframe expires. Finally, for expedited service
authorization decisions, notice must be given within the timeframes
specified in proposed Sec. 438.210(e).
4. Handling of Grievances and Appeals (Sec. 438.406)
Section 438.406 proposes to set forth how grievances and appeals
must be handled. The general requirement for handling grievances and
appeals would require MCOs and PIHPs to do the following:
Give enrollees any reasonable assistance in completing
forms and taking other procedural steps.
Acknowledge receipt of each grievance and appeal.
Ensure that individuals who make decisions on grievances
and appeals are individuals who were not involved in any previous level
of review or decision making and who, if deciding an appeal of a denial
that is based on lack of medical necessity, a grievance regarding
denial of expedited resolution of an appeal, or a grievance or appeal
that involves clinical issues, are health care professionals who have
the appropriate clinical expertise in treating the enrollee's condition
or disease.
We would require the MCO and PIHP, at proposed Sec. 438.406(a)(1),
to give enrollees any reasonable assistance. We would also require that
MCOs and PIHPs make interpreter services available to enrollees, as
well as, toll free numbers that have adequate TTY/TTD and interpreter
capability. By including these as examples of types of assistance
required to meet certain needs, we do not intend that other reasonable
assistance need not be given. We believe, for example, that MCOs and
PIHPs are required by this provision to provide reasonable assistance
to meet other needs of enrollees, and assisting enrollees who have low-
literacy abilities.
Proposed Sec. 438.406(b) specifies the following requirements that
the appeals process would have to meet:
Provide that oral inquiries seeking to appeal an action
are treated as appeals and must be confirmed in writing, unless the
enrollee or the provider requests expedited resolution. This is
required in order to establish the earliest possible filing date for
the appeal;
Provide the enrollee a reasonable opportunity to present
evidence, and allegations of fact or law, in person as well as in
writing;
Provide the enrollee and his or her representative the
opportunity, before and during the appeals process, to examine the
enrollee's case file, including medical records, and any other
documents and records considered during the appeals process;
Include, as parties to the appeal, the enrollee and his or
her representative or the legal representative of a deceased enrollee's
estate.
5. Resolution and Notification: Grievances and Appeals (Sec. 438.408)
In Sec. 438.408(a) we propose to require that the MCO or PIHP must
dispose of each grievance and resolve each appeal, and provide notice,
as expeditiously as the enrollee's health condition requires. In
addition, this section proposes that the State must establish
timeframes for disposition of grievances and resolution of appeals, but
that they may not exceed the specific timeframes proposed in this
section.
While we are proposing timeframes to resolve appeals, we realize
that Congress, as part of proposals for a patient's bill of rights, is
considering several other timeframes for internal MCO appeals. Some of
these proposals would apply the timeframes to the Medicaid program. We
believe that uniform timeframes, across payers, are desirable in that
this will make the process more understandable to enrollees and ease
the burden on health plans of administering the internal appeals
system. Therefore, our intent, in this proposed rule, is to consider a
patient's bill of rights when enacted by the Congress.
Under proposed Sec. 438.408(b), we would establish the specific
timeframes for disposition of grievances and resolution of appeals. For
disposition of a grievance and notice to affected parties, the State
may establish a timeframe for disposition that may not exceed 90 days
from the day the MCO or PIHP receives the grievance. For standard
resolution of an appeal and notice to affected parties, we propose at
Sec. 438.408(b)(2) that the State establish a timeframe that is no
longer than 45 days from the day the MCO or PIHP receives the appeal.
However, we would allow this timeframe to be extended. Under proposed
Sec. 438.408(c) we specify that the MCO or PIHP may extend the
timeframe by up to 14 calendar days if the enrollee requests the
extension, or the MCO or PIHP shows (to the satisfaction of the State
agency, upon its request) that there is need for additional information
and how the delay is in the enrollee's interest.
Proposed Sec. 438.408(b)(3) would provide a maximum timeframe for
expedited resolution of appeals and notice to affected parties. We
propose that the State establish a timeframe that is no longer than 3
working days after the MCO or PIHP receives the appeal. We believe that
expedited resolution is necessary to ensure that appeals of situations
that potentially place an enrollee's heath in jeopardy are not delayed.
Although States have historically instituted different processes to
protect beneficiaries, we believe that a standardized expedited appeal
process is needed to protect beneficiaries in a capitated health care
delivery system. Further, this is an important beneficiary protection
and is necessary to ensure that the overall timeframe of 90 days for a
decision at the State fair hearing (excluding the time the beneficiary
takes to file for a State fair hearing) can be met in all cases.
However, similar to standard resolution of appeals, we propose that
this expedited timeframe can also be extended by 14 calendar days if
the enrollee requests extension or the MCO or PIHP shows (to the
satisfaction of the State agency, upon its request) that there is need
for additional information and how the delay is in the enrollee's
interest.
We do propose some parameters for the extension process. Under
proposed Sec. 438.408(c)(2), if the MCO or PIHP grants themselves an
extension, they would be required to notify the enrollee in writing of
the reason for the delay. In Sec. 438.408(d), we propose, that the
State must establish the method MCOs and PIHPs will use to notify an
enrollee of the disposition of a grievance. Under proposed
Sec. 438.408(e), we specify that written notice of the appeal
resolution must include the following:
The results of the resolution process and the date it was
completed.

[[Page 43640]]

For appeals not resolved in favor of the enrollee, the
enrollee's right to request a State fair hearing and how to do so, the
right to request to receive continuation of benefits, and that the
enrollee may be held liable for the cost of those continued benefits if
the State fair hearing decision upholds the MCO's or PIHP's action.
Finally at proposed Sec. 438.408(f) we outline the requirements for
State fair hearings. We propose that the State must permit the enrollee
to request a State fair hearing within a reasonable time period
specified by the State, but not less than 20 days or in excess of 90
days from the date of the MCO's or PIHP's notice of resolution (if the
State requires exhaustion of the MCO or PIHP level appeal procedures)
or from the date on the MCO's or PIHP's notice of action (if the State
does not require exhaustion and the enrollee appeals directly to the
State for a fair hearing). We also felt it was important to outline at
proposed Sec. 438.408(f)(2) that the parties to the State fair hearing
include the MCO or PIHP as well as the enrollee and his or her
representative or the representative of a deceased enrollee's estate.
6. Expedited Resolution of Appeals. (Sec. 438.410)
In proposed Sec. 438.410 we specify that each MCO and PIHP must
establish and maintain an expedited review process for appeals when the
MCO or PIHP determines or the provider indicates that taking the time
for a standard resolution could seriously jeopardize the enrollee's
life or health or ability to attain, maintain, or regain maximum
function. Further, the MCO or PIHP would be required to ensure that
punitive action is neither threatened nor taken against a provider who
requests an expedited resolution or supports an enrollee's appeal.
If the MCO or PIHP denies a request for expedited resolution of an
appeal, according to proposed Sec. 438.410(c), it would be required to
transfer the appeal to the timeframe for standard resolution in
accordance with Sec. 438.408(b)(2) and give the enrollee prompt oral
notice of the denial following within two calendar days with a written
notice.
7. Record Keeping and Reporting Requirements (Sec. 438.416)
Proposed Sec. 438.416 would require the State to require MCOs and
PIHPs to maintain records of grievances and appeals and review the
information as part of the State quality strategy.
8. Continuation of Benefits While the MCO or PIHP Appeal and the State
Fair Hearing are Pending (Sec. 438.420)
In Sec. 438.420, we propose that when the dispute involves the
termination, suspension, or reduction of a previously authorized course
of treatment, the MCO or PIHP must continue the enrollee's benefits
until issuance of the final appeal decision or State fair hearing
decision, if all of the following occur:
The enrollee or the provider files the appeal timely.
The services were ordered by an authorized provider.
The period covered by the authorization has not expired.
The enrollee requests extension of benefits.
We specify that timely filing means filing on or before the later
of either the expiration of the timeframe specified by the State (in
accordance with Sec. 438.404(c)(2)) and communicated in the notice of
action or the intended effective date of the MCO's or PIHP's proposed
action.
This provision would apply only when the MCO physician initially
authorized the services (that is, it would 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 an appeal or State fair hearing in a timely manner is not
sufficient for benefits to be continued). The continuation of benefits
provision would 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.
If the MCO or PIHP continues or reinstates the enrollee's benefits
while the appeal is pending, according to proposed Sec. 438.420(c), the
benefits must be continued until one of the following occurs:
The enrollee withdraws the appeal.
The MCO or PIHP resolves the appeal against the enrollee,
unless the enrollee has requested a State fair hearing with
continuation of benefits until a State fair hearing decision is
reached.
A State fair hearing office issues a hearing decision
adverse to the enrollee.
Beneficiaries who have received continuation of benefits while they
appeal to the MCO or PIHP are not obligated to pursue their appeal
further, through the State fair hearing process, if the MCO or PIHP
denies their appeal. It remains the beneficiaries' choice. It is
important to note, however, that enrollees who lose their appeal at
either the MCO, PIHP or State 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 a result, in
Sec. 438.420(d), we propose that if the final resolution of the appeal
is adverse to the enrollee (that is, it upholds the MCO's or PIHP's
action) the MCO or PIHP may recover the cost of the services furnished
to the enrollee while the appeal was pending, to the extent that they
were furnished solely because of the requirements of this section, and
in accordance with Sec. 431.230(b).
We 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. We determined that this option would have been
too burdensome and in many cases would result in forwarding unnecessary
paperwork to the State fair hearing office.
9. Effectuation of Reversed Appeal Resolutions (Sec. 438.424)
In Sec. 438.424 we propose that if the MCO, PIHP, or the State fair
hearing officer reverses a decision to deny, limit, or delay services
that were not furnished while the appeal was pending, the MCO or PIHP
must authorize or provide the disputed services promptly, and as
expeditiously as the enrollee's health condition requires. Furthermore,
if the MCO, PIHP, or the State fair hearing officer reverses a decision
to deny authorization of services, and the enrollee received the
disputed services while the appeal was pending, the MCO, PIHP, or the
State would be required to pay for those services, in accordance with
State policy and regulations.

G. Subpart G

We are proposing to reserve Subpart G.

H. Certifications and Program Integrity Protections (Subpart H)

Subpart H contains provisions pertaining to plan certification of
data, information, and material and general contract provisions.

[[Page 43641]]

Sections 1902(a)(4) and (a)(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 and PIHPs to certify
the accuracy, completeness, and truthfulness of any data, including but
not limited to, enrollment information, encounter data, data upon which
payment is based, and other information required by the State, that may
be submitted to determine the basis for payment from a State agency.
The certification must be made by the MCO's or PIHP's Chief Executive
Officer, Chief Operating Officer, or their delegate. Each MCO and PIHP
must certify that it is in substantial compliance with the contract and
provide additional certification as required by the State. Consistent
with the Medicare+Choice provisions, we propose to require that the
certifications be based on best knowledge, information, and belief.
We are also requiring, consistent with Medicare+Choice, that any
entity seeking to contract as an MCO or PIHP must have administrative
and management arrangements or procedures, including a mandatory
compliance plan, designed to guard against fraud and abuse. We specify
in Sec. 438.608 what those arrangements must include.

I. 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
States establish intermediate sanctions that the State may impose on an
MCO that commits one of six specified offenses: (1) Failing
substantially to provide medically necessary services; (2) imposing
premiums or charges in excess of those permitted; (3) discriminating
among enrollees based on health status or requirements for health care
services; (4) misrepresenting or falsifying information; (5) failing to
comply with physician incentive plan requirements; and (6) distributing
marketing materials that have not been approved or that contain false
or materially misleading information. In the case of the violation
related to marketing materials (number 6), the statute imposes
sanctions against PCCMs as well as MCOs. Proposed Sec. 438.700 contains
the above provisions from section 1932(e)(1) of the Act.
In section 1932(e)(2) of the Act, the Congress provided specific
sanction authority under which States may impose civil money penalties
in specified amounts for specified violations, take over temporary
control of an MCO, suspend enrollment or payment for new enrollees, or
authorize enrollees to disenroll without cause. These provisions are
reflected in proposed Sec. 438.702(a). Given the extraordinary nature
of the sanction of taking over management of an MCO, we propose in
Sec. 438.706 that this sanction be imposed only in the case of
``continued egregious behavior,'' in situations in which there is
``substantial risk'' to enrollee health, or when the sanction is
``necessary to ensure the health of enrollees.'' We also want to
clarify that States have the right and authority to terminate an MCO's
contract before temporary management would have to be imposed. We
recognize the burden associated with this sanction and realize that
most States would rather terminate a contract before having to impose
temporary management. We believe we have written the proposed rule to
allow this flexibility.
We have not applied the sanction provisions to PIHPs and PAHPs
because we do not believe that the statutory authority on which PIHPs
and PAHPs are based (section 1902(a)(4) of the Act) provides authority
to publish regulations that would authorize a State to impose civil
money penalties or other sanctions that are provided for by the
Congress only in the case of MCOs.
Although these sanctions are referenced in section 1932(e)(1) of
the Act as sanctions to be imposed on MCOs, and on PCCMs only in the
case of marketing violations, section 1932(e)(2)(C) of the Act refers
to a ``managed care entity,'' while paragraphs (D) and (E) that follow
refer to ``the entity'' and provide for suspension of enrollment or
suspension of payment after the date the Secretary notifies ``the
entity'' of a determination that it has violated ``section 1903(m) or *
* * section [1932].'' While only an MCO could violate section 1903(m)
of the Act, a PCCM could violate requirements of section 1932 of the
Act that apply to MCOs and PCCMs generally or to PCCMs specifically. In
proposed Sec. 438.700(d), we interpret the foregoing language to mean
that the sanctions in sections 1932(e)(2)(D) and (E) of the Act are
available in the case of a PCCM that violates ``any requirement'' in
section 1932 of the Act. The general intermediate sanction authority in
paragraphs (D) and (E) of section 1932(e)(2) of the Act is reflected in
proposed Sec. 438.700(d) for MCOs. In light of the foregoing
interpretation, paragraphs (a)(4) and (a)(5) of proposed Sec. 438.702
can be applied to MCOs or PCCMs rather than MCOs only, even though the
only ``determinations'' that apply to PCCMs are terminations under
proposed Sec. 438.700(c) (marketing violations) or the general
violations of section 1932 of the Act that are addressed in proposed
Sec. 438.700(d).
Section 1932(e)(3) of the Act requires that, for MCOs with chronic
violations, the State impose temporary management and allow
disenrollment without cause. This provision is implemented in proposed
Sec. 438.706.
Section 1932(e)(4) of the Act authorizes State agencies to
terminate the contract of any MCO or PCCM that fails to meet the
requirements in sections 1932, 1903(m), or 1905(t) of the Act. This
authority is implemented in proposed Sec. 438.708. Under section
1932(e)(4)(B) of the Act, before terminating a contract, the State is
required to provide a hearing. Proposed Sec. 438.710 sets forth this
hearing requirement as well as procedures for the hearing. Under
section 1932(e)(4)(C) of the Act, enrollees must be notified of their
right to disenroll immediately without cause in the case of any
enrollee subject to a termination hearing. Proposed Sec. 438.722
reflects this provision.
Section 1932(e)(5) of the Act contains a general requirement that
States provide ``notice'' and ``such other due process protections as
the State may provide'' in the case of sanctions other than
terminations, which are governed by section 1932(e)(4)(B) of the Act.
Section 1932(e)(5) of the Act also provides that ``a State may not
provide a managed care entity with a . . . hearing before imposing the
sanction'' of temporary management. Proposed Sec. 438.706(c) reflects
this statutory language.
In proposed Sec. 438.724, we propose that States be required to
notify CMS whenever they impose or lift a sanction.
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, CMS has authority to impose
sanctions when Medicaid-contracting MCOs commit offenses that are
essentially the same as those identified in section 1932(e)(1) of the
Act. In proposed Sec. 438.730, we retain the existing regulations
implementing section 1903(m)(5) of the Act, which is currently in
Sec. 434.67.

[[Page 43642]]

J. Conditions for Federal Financial Participation (Subpart J)

In subpart J, we propose to include both existing and new
regulations pertaining to State eligibility for FFP in payments under
managed care contracts. 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. The
requirements of this section of the Act include an entity meeting the
definition of MCO, payment on an actuarially sound basis, prior
approval by CMS 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 proposed under subpart D, the beneficiary protections in
subpart C, and the grievance requirements in subpart F. 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.
1. Basic Requirements (Sec. 438.802)
We propose in Sec. 438.802 that FFP is available in expenditures
for payments under an MCO contract only for periods during which the
contract meets the requirements of part 438 and is in effect. We also
propose that FFP is available only when the MCO and its subcontractors
are in substantial compliance with the physician incentive plan
requirements and the requirements of the MCO contract.
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 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 statute or regulations made for
monetary increases of the threshold amount in future years.
3. Exclusion of Entities (Sec. 438.808)
We propose to redesignate existing Sec. 434.80 as 438.808 to
describe entities that must be excluded.
4. 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 that entity or
provider, nor may the individual have been debarred by any Federal
agency or subject to civil penalties under the Act or be excluded from
participation under title XVIII or XIX of the Act. An enrollment broker
would not meet the test for independence if it is an MCO, PIHP, PAHP,
PCCM or other health care provider, or owns, or is owned by an MCO,
PIHP, PAHP, PCCM, or other health care provider in the State in which
the broker operates. This would include county eligibility employees
performing enrollment activities when the county also provides health
care services.
In addition, under our proposed rule, State agencies would be
required to submit to CMS all initial enrollment broker contracts or
Memoranda of Agreement (MOA) for approval. Contracts being renewed with
the same contractor would not be subject to 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
whether an enrollment broker arrangement meets the requirements for
FFP. We accordingly believe that it is ``necessary and proper'' for the
State agency to obtain approval of broker arrangements. CMS will review
contracts or MOAs to ensure that they meet the requirements for FFP.
5. Costs Under Risk and Nonrisk Contracts (Sec. 438.812)
Proposed Sec. 438.812 contains the rules on Federal matching rates
for medical services and administrative costs under risk and non-risk
contracts currently set forth in Secs. 434.74 and 434.75.
6. Limit on Payments in Excess of Capitation Rates (Sec. 483.814)
As discussed earlier in this preamble in regards to proposed
Sec. 438.6(c), we propose in Sec. 438.814 that FFP is not available in
expenditures for payments under risk corridors or incentive payments in
excess of 105 percent of the aggregate capitation payments made under
proposed Sec. 438.6(c). We are concerned that without any upper limit
on the amount that can be paid in incentive arrangements or risk-
sharing mechanisms, the potential exists for inefficiency or
inappropriate actions by the contractor to maximize funding. This
funding maximization may result in payments that bear no relationship
to the rates certified by actuaries and that are no longer
``actuarially sound.''

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

1. Revisions to Part 400
We propose at Sec. 400.203 to add the following definitions. We
propose specifying that PCCM stands for primary care case manager and
PCP stands for primary care physician. We believe it is important to
include these definitions early in the regulation text, as these are
commonly used terms that are used in numerous subparts.
We also propose to revise the definition of provider to mean either
of the following: (1) For the fee-for-service program, any individual
or entity furnishing Medicaid services under an agreement with the
State Medicaid agency; and (2) for managed care programs, any
individual or entity that is engaged in the delivery of health care
services and is legally authorized to do so by the State in which it
delivers the services. We believe that this definition is sufficiently
broad to allow State flexibility in designation of its providers.
2. Revisions to Part 430
We propose to add a new Sec. 430.5, containing two definitions that
currently appear in part 434 or elsewhere. We propose to revise the
definition of contractor to eliminate listed examples and apply it more

[[Page 43643]]

broadly to any contractor that meets the current introductory clause.
The definition, as proposed, would specify that a contractor means any
entity that contracts with the State agency, under the State plan and
in return for a payment, to process claims, to provide or pay for
medical services, or to enhance the State agency's capability for
effective administration of the program.
We also propose to include a definition of representative. This
term will have the meaning given by each State consistent with its
laws, regulations, and policies. We believe that this definition will
allow flexibility in determining who can serve as a Medicaid
beneficiary's representative and will not place any restrictions on
State definitions currently in use.
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 II.B.5. of this preamble, 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 earlier, we propose to revise part 434 to remove
provisions relating to managed care, which we have moved to part 438.
5. Revisions to Part 435
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 II.B.5. of this
preamble, 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.
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's option to guarantee
up to 6 months of eligibility in two ways: (1) it expands the types of
MCOs or PCCMs 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. For 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 that 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 section
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(k). 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'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
Technical and Conforming Changes. We propose to make technical and
conforming changes reflecting changes in terminology and other
revisions made by the BBA.
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 1903(m) of the Act, with
managed care organizations must provide that payment to affiliated
health care providers for items and services covered

[[Page 43644]]

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 the 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 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.
We also made conforming changes to Secs. 447.53 through 447.60.

III. 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. For purposes of this requirement, we
incorporated pertinent managed care data from the 2000 Medicaid
enrollment report. As of June, 2000, there were 339 managed care
organizations (MCOs) (this includes 3 HIOs that must adhere to the MCO
requirements of this regulation), 37 primary care case management
(PCCM) systems, 376 managed care entities (MCOs and PCCMs combined),
123 mental health and substance abuse prepaid health plans (PIHPs) and
34 dental, primary care and transportation prepaid health plans (PAHP),
all of which have previously been regulated as PHPs. There were a total
of 25,731,040 beneficiaries enrolled in these plans (some beneficiaries
are enrolled in more than one plan) in 48 States and the District of
Columbia (Wyoming and Alaska do not currently enroll beneficiaries in
any type of managed care).

A. Section 438.6 Contract Requirements

Section 438.6(c) Payments Under Risk Contracts
1. Requirement
Section 438.6(c) would modify the rules governing payments to MCOs,
PIHPs and PAHPs by doing the following: (1) Eliminates the upper limit
(UPL) requirements; (2) requires actuarial certification of capitation
rates; (3) specifies data elements that must be included in the
methodology used to set capitation rates; (4) requires States to
consider the costs for individuals with chronic illness, disability,
ongoing health care needs, or catastrophic claims in developing rates;
(5) requires States to provide explanations of risk sharing or
incentive methodologies; and (6) imposes special rules, including a
limitation on the amount that can be paid under FFP in some of these
arrangements.
2. Burden
We believe that the burden of providing additional information to
support the actuarial soundness of a State's capitation rates will be
offset by the elimination of the UPL requirement. States will no longer
be required to extract FFS data and manipulate the data by trending and
other adjustments in order to establish a FFS equivalent for purposes
of comparison to capitation rates. We invite comment on this burden
assumption.

B. Section 438.8 Provisions That Apply To PIHPs and PAHPs

Section 438.8(a) Contract Requirements
1. Requirement
This section specifies which of the contract requirements contained
in Sec. 438.6 apply to PIHPs and which apply to PAHPs. Requirements for
advance directives apply only to PIHPs, while physician incentive plan
requirements apply to both PIHPs and PAHPs.
2. Burden
PHPs (now designated as PIHPs and PAHPs) have not previously been
required to maintain written policies and procedures with respect to
advance directives. This rule requires the PIHPs to provide written
information to enrollees of their rights under this provision and the
PIHP's policies for the implementation of those rights. We project 8
hours for each of the 123 PIHPs to establish this policy and 2 minutes
per enrollee for provision of this information, and acceptance of this
right to each of approximately 6.3 million individuals enrolled in
PIHPs. The total time for this would be 210,984 hours.
Under the physician incentive plan provision, PIHPs and PAHPs, like
MCOs, will be required to provide descriptive information to States and
us to determine whether or not there is substantial financial risk in
their subcontracts. In addition, enrollees must be surveyed and
provided information on the risk arrangements when substantial risk
exists.
We are basing our projections of burden upon information published
in the Federal Register on March 27, 1996 and December 31, 1996 (61 FR
13445 and 61 FR 69049) that contained the original regulatory
provisions on physician incentive plans for Medicare and Medicaid HMOs.
Based on those assumptions, we believe no more than one third of the
approximately 157 PIHPs and PAHPs use incentive or risk payment
arrangements with their subcontracting providers. Affected PIHPs and
PAHPs would be required to provide detailed responses to State surveys
regarding their payment mechanisms and amounts. At the projected 100
hours per response for approximately 52 PIHPs and PAHPs the total
burden would be 5,200 hours. For those PIHPs and PAHPs with substantial
financial risk, there are other requirements such as stop loss
insurance and beneficiary surveys. We believe there would be minimal
additional burden as a result of these requirements (because many
already comply with these requirements) and that this would apply to no
more than one fourth of those PIHPs and PAHPs with risk or incentive
payments, or a total of 13. We estimate an additional 10 hours per plan
for a total of 113 hours. Altogether, we estimate 5,313 hours of burden
through imposition of this requirement on PIHPs and PAHPs.

[[Page 43645]]

C. Section 438.10 Information requirements

Section 438.10(e), (f), (g), and (h)
1. Requirement
In summary, Sec. 438.10 requires that each State or its contracted
representative, or at the option of the State, each MCO, PIHP, PAHP,
and PCCM furnish information to enrollees and potential enrollees to
meet the requirements of this section. Paragraph (c)(4) requires that
the State notify enrollees and potential enrollees, and require each
MCO, PIHP, and PAHP and PCCM to notify its enrollees and potential
enrollees that oral interpretation and written information are
available in languages other than English and how to access those
services. The basic information listed in paragraph (e) of this section
must be provided to each potential enrollee by the State, MCO, or PIHP.
The information listed paragraph (f) must be furnished to enrollees by
the MCO or PIHP within a reasonable time after it receives from the
State notice of the beneficiary's enrollment. The MCO or PIHP must
notify enrollees annually of their right to disenroll and receive the
information listed in paragraph (f)(6) and, if applicable, paragraph
(g). The information that must be provided includes the following:
2. Information for Potential Enrollees
General information must be provided about the basic features of
managed care, which populations are excluded from enrollment, subject
to mandatory enrollment, or free to enroll voluntarily in an MCO or
PIHP, and MCO, and PIHP responsibilities for coordination of enrollee
care.
Information specific to each MCO and PIHP serving an area that
encompasses the potential enrollee's service area must be provided in
summary form, or in more detail, upon request of the enrollee. This
includes information on benefits covered; cost sharing if any; service
area; names, locations, and telephone numbers of current network
providers, including at a minimum information on primary care
physicians, specialists, and hospitals, and identification of providers
that are not accepting new patients; and benefits that are available
under the State plan but are not covered under the contract, including
how and where the enrollee may obtain those benefits, any cost sharing,
and how transportation is provided.
3. Information for Enrollees
The State must notify enrollees of their disenrollment rights
annually. The State, or the MCO, PIHP, PAHP, and PCCM, if delegated
this responsibility by the State, must provide certain information to
new enrollees and notify enrollees annually of their right to request
additional information. The State must give each enrollee written
notice of any change (that the State defines as ``significant'') in the
information specified at least 30 days before the intended effective
date of the change and make a good faith effort to give written notice
of termination of a contracted provider, within 15 days after receipt
or issuance of the termination notice, to each enrollee who received
his or her primary care from, or was seen on a regular basis by, the
terminated provider.

Information Required for MCOs, PIHPs, PAHPs, and PCCMs

Names, locations, and telephone numbers of current network
providers, including information at least on primary care physicians,
specialists, and hospitals, and identification of providers that are
not accepting new patients.
Any restrictions on the enrollee's freedom of choice among
network providers.
Enrollee rights as specified in Sec. 438.100.
Kinds of benefits, and amount, duration, and scope of
benefits available under the contract.
Procedures for obtaining benefits, including authorization
requirements.
The extent to which, and how, enrollees may obtain
benefits, including family planning services, from out-of-network
providers.
The extent to which, and how, after-hours and emergency
coverage are provided.
The rules for emergency and post-stabilization services,
as set forth in Sec. 438.114.
Additional information that is available upon request, and
how to request that information.
Cost sharing, if any.
Any benefits that are available under the State plan but
are not covered under the contract, including how and where the
enrollee may obtain those benefits, and cost sharing, and how
transportation is provided. The State must furnish information about
how and where to obtain the service.
Additional Information Required of MCOs and PIHPs
Grievance, appeal, and fair hearing procedures and
timeframes, as provided in Sec. 438.400 through Sec. 438.424, in a
State-approved or State-developed description.
Advance directives, as set forth in Sec. 438.6(I)(2).
Physician incentive plans as set forth in
Sec. 438.70(a)(4).
Additional information that is available upon request,
including information on the structure and operations of the MCO or
PIHP.
Burden. We believe the burden placed on States, MCOs, PIHPs, PAHPs,
and PCCMs and enrollment brokers as a result of this requirement is the
time associated with 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 MCO, PIHP, PAHP, or PCCM to
modify existing information materials to conform with the requirement
above. We further estimate that there are approximately 533 MCOs,
PIHPs, PAHPs, and PCCMs equating to an initial modification burden of
approximately 6,396 hours. After the initial modification, we estimate
that it will take MCOs, PIHPs, PAHPs, and PCCMs approximately 4 hours
each to annually update the information materials, equating to an
annual total burden of approximately 2,132 hours.
We estimate that that it will take MCOs, PIHPs, PAHPs, and PCCMs 5
minutes to mail a packet of materials to potential enrollees and
enrollees. We estimate that each year approximately 15 percent of the
Medicaid managed care enrollee population are new enrollees. This
equates to approximately 3.9 million potential enrollees a year for a
total burden on the States of 65,000 hours. Mailing the annual packet
of information to the 25,731,040 enrollees, at 5 minutes a packet, will
result in a burden to the State, or the MCOs, PIHPs, PAHPs, and PCCMs,
if delegated this responsibility by the State, of 2,144,253 hours.
We similarly estimate that it will take 5 minutes for MCO, PIHPs,
PAHPs, and PCCM to supply information requested by potential enrollees
and enrollees. We estimate that 10 percent of potential enrollees and
enrollees will request information each year. For the 390,000 potential
enrollees requesting information, this results in a burden on States of
6,500 hours. For the 2,573,104 enrollees requesting information, this
results in a burden on States, or MCO, PIHPs, PAHP, and PCCMs if
delegated this responsibility by the State, of 214,425 hours.
Section 438.10(h)
1. Requirement
In summary, Sec. 438.10(h) states that if a State plan provides for
mandatory

[[Page 43646]]

MCO or PCCM enrollment under section 1932(a)(1)(A) of the Act, the
State or its contracted representative must provide information in a
comparative, chart-like format, to potential enrollees. The information
must include the MCO's or PCCM's service area, the benefits covered
under the contract, any cost sharing imposed by the MCOs or PCCMs and,
to the extent available, quality and performance indicators, including
but not limited to disenrollment rates and enrollee satisfaction.
2. Burden
We believe that the additional burden on States (that is, burden
not yet captured in the above provisions) is the length of time
associated with creating the comparative chart. We estimate that it
will take States approximately 4 hours each to create the comparative
chart. Currently 9 States per year have approved manage care under the
State Plan Option, for a total annual burden of approximately 36 hours.

D. Section 438.12 Provider Discrimination Prohibited

1. Requirement
This section requires that if an MCO, PIHP, or PAHP declines to
include individual or groups of providers in its network, it must give
the affected providers written notice of the reason for its decision.
2. Burden
The burden associated with this requirement is the time it takes
the MCO, PIHP, or PAHP to draft and furnish the providers with the
requisite notice. We estimate that it will take 1 hour to draft and
furnish any given notice. We estimate that on average each MCO, PIHP,
and PAHP will need to produce 10 notices per year for a total of 4,960
hours.

E. Section 438.50(b) State Plan Information

1. Requirements
Each State must have a process for the design and initial
implementation of the State plan that involves the public and have
methods in place to ensure ongoing public involvement once the State
plan has been implemented.
2. Burden
The burden associated with this section includes the time
associated with developing the process for public involvement,
including annual updates. We estimate that it will take 40 hours per
State to develop the process for involving, the public for a total
burden of 1,960 hours (48 States and D.C.). We estimate that ensuring
ongoing public involvement will take another 20 hours per State
annually for a total annual burden of 980 hours.

F. Section 438.56 Disenrollment: Requirements and Limitations

Section 438.56(b)
1. Requirement
All MCO, PIHP, PAHP, and PCCM contracts must:
(1) Specify the reasons for which the MCO, PIHP, PAHP, or PCCM may
request disenrollment of an enrollee;
(2) Provide that the MCO, PIHP, PAHP, or PCCM may not request
disenrollment because of a change in the enrollee's health status, or
because of the enrollee's utilization of medical services, diminished
mental capacity, or uncooperative or disruptive behavior resulting from
his or her special needs; and
(3) Specify the methods by which the MCO, PIHP, PAHP, or PCCM
ensures the agency that it does not request disenrollment for reasons
other than those permitted under the contract.
2. Burden
The burden of submitting this supporting documentation when MCOs,
PIHPs and PAHPs, or PCCMs request disenrollment of beneficiaries would
be 2 hours per request. We calculate that approximately one-tenth of
one percent of enrollees (25,731) would be affected, or 48 per MCO,
PIHP, PAHP, or PCCM annually. The total burden would be 51,462 hours,
or approximately 97 hours per MCO, PIHP, PAHP, or PCCM.
Section 438.56(d)(1)
1. Requirement
In order to disenroll, the beneficiary (or his or her
representative) must submit an oral or written request to the State
agency (or its agent) or to the MCO, PIHP, PAHP, or PCCM where
permitted.
2. 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, if they choose to use the written format. We
estimate that it will take approximately 10 minutes per enrollee to
generate a written disenrollment request. We estimate that
approximately 5 percent of MCO, PIHP, PAHP, and PCCM enrollees will
request that they be disenrolled from an MCO, PIHP, PAHP, or PCCM.
Approximately one-fourth of the enrollees will choose a written rather
than an oral request. This equates to an annual burden of approximately
10 minutes multiplied by 321,638 affected enrollees (one-fourth of the
1,286,552 enrollees requesting disenrollment), or approximately 53,606
hours.
Section 438.56(d)(3)
1. Requirement
When MCOs, PIHP, PAHP, or PCCMs are processing disenrollment
requests and do not act to approve them, they must submit written
notice to the State and then the State takes action. When a State is
acting on a for-cause disenrollment request, they may request written
information from the MCO, PIHP, PAHP, or PCCM to determine the outcome.
In addition, if the MCO, PIHP, PAHP, or PCCM approves the disenrollment
for cause, it must give the enrollee and the State agency written
notice of its determination.
2. Burden
We believe that the burden associated with this requirement is the
time taken for MCOs, PIHPs and PAHPs, or PCCMs to submit written notice
to the State and beneficiaries.
Of the 1,286,552 affected enrollees, we calculate that one-fifth
(257,310) will not be approved. If each notice takes 15 minutes to
produce, the total burden would be 64,328 hours. Of the 257,310
enrollees not approved, we calculate that three-fourths (192,983) will
involve the State requesting information from the MCO, PIHP, PAHP, or
PCCM justifying the denial. At 1 hour per request, the total burden on
MCOs, PIHPs, PAHPs, or PCCMs would be 192.983 hours.
We estimate that the MCOs, PIHPs, PAHPs, and PCCMs will need to
produce notices for the remaining four-fifths of enrollees whose
disenrollment (1,029,240) is approved. As this notice will probably be
a short form letter, with attachments as necessary, we believe that it
will take ten minutes per request to send out the notices, for an
annual burden of 171,540 hours.

G. 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 MCOs and PIHPs to cover, furnish, or
pay for a particular counseling or referral service if the MCO or PIHPs
objects to the provision of that service on moral or religious grounds;
and makes written information on these policies available to: (1)
prospective enrollees, before and during enrollment; and, (2) current

[[Page 43647]]

enrollees, within 90 days after adopting the policy for any particular
service.
2. Burden
The above information collection requirement is subject to the PRA.
However, we believe the burden associated with these requirements is
captured in the general information requirements in Sec. 438.10.

H. Section 438.114 Emergency Services

1. Requirement
Section 438.114(b) states that at the time of enrollment and at
least annually thereafter, each MCO, PIHP, PAHP, and State (for a PCCM)
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, PIHP, or PAHP
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 requirement is subject to the
PRA. However, we believe the burden associated with these requirements
is captured in the general information requirements in Sec. 438.10.

I. Section 438.202 State Responsibilities

1. Requirement
Each State contracting with an MCO or PIHP must have a written
strategy for assessing and improving the quality of managed care
services offered by the MCO or PIHP, make it available for public
comment before adopting it in final, and conduct periodic reviews to
evaluate the effectiveness of the strategy at least every 3 years. Each
State must also submit to us a copy of the initial strategy and a copy
of the revised strategy whenever significant changes are made. In
addition, States are required to submit to us regular reports on the
implementation and effectiveness of the strategy, consistent with the
State's own periodic review of its strategy's effectiveness.
2. Burden
The burden associated with this section is limited to those States
offering managed care through MCOs or PIHPs (41) and includes the time
associated with developing the proposed strategy, publicizing the
proposed strategy, incorporating public comments, submitting an initial
copy of the strategy to us prior to its implementation and whenever
significant changes are made, and submitting regular reports on the
implementation and effectiveness of the strategy. We estimate that it
will take 40 hours per State to develop the proposed strategy for a
total burden of 1640 hours. We estimate that publicizing the proposed
strategy will take 2 hours per State for a total burden of 82 hours. We
estimate that incorporating public comments for the final strategy will
take another 40 hours per State for a total burden of 1640 hours. We
estimate it will take 1 hour per State to submit an initial copy of the
strategy to us and whenever significant changes are made for a total of
41 hours. We estimate it will take 40 hours per State to create and
submit a report on the implementation and effectiveness of the strategy
and that these reports will be submitted at least every 3 years for a
total annual burden of 546 hours.

J. Section 438.204 Elements of State Quality Strategies

1. Requirement
In this proposed rule we require at Sec. 438.204(b)(1)(iii) that a
State identify the race, ethnicity, and primary language spoken by each
MCO and PIHP enrollee and report this information to each MCO and PIHP
in which each beneficiary enrolls at the time of their enrollment.
2. Burden
We believe that most States currently track race and ethnicity data
in their eligibility systems. If States do not, minor changes in their
software will be needed. With respect to primary language of enrollees,
there will likely be additional programming needed for all States. We
estimate that this would require 2 hours of programming for each of the
41 jurisdictions for a total of 82 hours.

K. Section 438.207 Assurances of Adequate Capacity and Services

1. Requirement
Section 438.207(b) requires that each MCO and PIHP must submit
documentation to the State, in a format specified by the State and
acceptable to us, to demonstrate that it has the capacity to
demonstrate that it complies with specified requirements and that it
has the capacity to serve the expected enrollment in its service area
in accordance with the State'standards for access to care and meets
specified requirements.
Section 438.207(c) requires that this documentation be submitted to
the State at least annually, and specifically at the time the MCO or
PIHP enters into a contract with the State and at any time there has
been a significant change (as defined both by the State and this
regulation) in the MCO's or PIHP's operations that would affect
adequate capacity and services.
Section 438.207(d) requires the State, after reviewing the MCO's or
PIHP's documentation, to certify to us that the MCO or PIHP has
complied with the State's requirements for availability of services, as
set forth at Sec. 438.206.
2. Burden
We believe that MCOs and PIHPs already collect and provide this
information to State agencies as part of their customary and usual
business practices and that the only additional burden on MCOs and
PIHPs is the length of time required for MCOs and PIHPs to compile this
information in the format specified by the State agency, and the length
of time for the MCOs and PIHPs to mail the information to the State and
to us. We estimate that it will take each MCO and PIHP approximately 20
hours to compile the information necessary to meet this requirement,
for a total of 20 hours multiplied by 462 MCOs and PIHPs, or
approximately 9,240 hours. In addition, we estimate that it will take
MCOs and PIHPs approximately 5 minutes each to mail the materials
associated with this burden to the State for an annual burden of
approximately 5 minutes multiplied by 462 MCOs and PIHPs, or
approximately 39 hours.
We estimate that obtaining information on: (1) The numbers and
types of persons with special health care needs that could be
anticipated to enroll in the MCO or PIHP; (2) the types of experienced
providers they would require; (3) the experience of the existing
providers in the MCOs or PIHPs network; and (4) the numbers and types
of additional experienced providers needed, would require an estimated
40 hours of work for each of the 462 MCOs and PIHP for a total
estimated burden of 18,480 hours.

L. Section 438.240 Quality Assessment and Performance Improvement
Program; Performance Improvement Projects

1. Requirement
Section 438.240(c) states that each MCO and PIHP must annually
measure

[[Page 43648]]

its performance using standard measures required by the State and
report its performance to the State. In addition to using and reporting
on measures of its performance, in Sec. 438.240(d)(1) States are to
ensure that each MCO and PIHP must have an ongoing program of
performance improvement projects. In Sec. 438.240(d)(2) each MCO and
PIHP is required to report the status and results of each project to
the State as requested.
2. Burden
This regulation would require States to require each MCO and PIHP
to have an ongoing program of performance improvement. Based on
discussions with the 17 States with the largest Medicaid managed care
enrollments, all 17 States are already have these programs. Because the
use of performance measures in managed care has become commonplace in
commercial, Medicare, and Medicaid managed care, we do not believe that
this regulatory provision imposes any new burden on MCOs, PIHPs, or
States.
For the requirements for an ongoing program performance improvement
projects in Sec. 438.240(d), we estimate that, in any given year, each
MCO and PIHP will complete two projects, and will have 4 others
underway. We further expect that States will request the status and
results of each MCOs and PIHPs projects annually. Accordingly, we
estimate that it will take each MCO and PIHP 5 hours to prepare its
report for each project, for an annual total burden of 30 hours per MCO
and PIHP. In aggregate, this burden equates to 30 hours multiplied by
an estimated 462 MCOs and PIHPs, or approximately 13,860 hours.

M. Section 438.242 Health Information Systems

1. Requirement
Section 438.242(b)(1) requires the State to require each MCO and
PIHP to collect data on enrollee and provider characteristics as
specified by the State, and on services furnished to enrollees, through
an encounter data system or other methods as may be specified by the
State.
2. Burden
The above information collection requirement is 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 be incurred by
persons in the normal course of their activities.

N. Section 438.402 General Requirements

1. Requirement
In summary, Sec. 438.402 requires each MCO and PIHP to have a
grievance system, sets out general requirements for the system, and
establishes filing requirements. It provides that grievances and
appeals may be filed either orally or in writing, but that oral appeals
(except those for expedited service authorization decisions) must be
followed by a written request.
2. Burden
We estimate that approximately 1 percent of 19 million MCO and PIHP
enrollees (190,000) annually will file a grievance with their MCO or
PIHP and that approximately .5 percent (95,000) annually will file an
appeal. For these cases, we estimate that the burden on the enrollee
filing a grievance or appeal is approximately 20 minutes per case. The
total annual burden on enrollees is 95,000 hours.

O. Section 438.404 Notice of Action

1. Requirement
In summary, Sec. 438.404 states that if an MCO or PIHP intends to
deny, limit, reduce, or terminate a service; deny payment; deny the
request of an enrollee in a rural area with one MCO or PIHP to go out
of network to obtain a service; or fails to furnish, arrange, provide,
or pay for a service in a timely manner, the MCO or PIHP must give the
enrollee timely written notice and sets forth the requirements of that
notice.
2. Burden
We estimate that the burden associated with this requirement is the
length of time it would take an MCO or PIHP to provide written notice
of an intended action. We estimate that it will take MCOs and PIHP 30
seconds per action to make this notification. We estimate that
approximately 5 percent (950,000) of the approximately 19 million MCO
and PIHP enrollees will receive one notice of intended action per year
from their MCO or PIHP (approximately 17 hours per MCO or PIHP) for a
total burden of approximately 7917 hours.

P. Section 438.406 Handling of Grievances and Appeals

1. Requirement
In summary, Sec. 438.406 states that each MCO and PIHP must
acknowledge receipt of each grievance and appeal.
2. Burden
The above information collection requirement is not subject to the
PRA. It is exempt under 5 CFR 1320.4(a) because it occurs as part of an
administrative action.

Q. Section 438.408 Resolution and Notification: Grievances and Appeals

1. Requirement
In summary, Sec. 438.408 states that for grievances filed in
writing, the MCO or PIHP must notify the enrollee in writing of its
decision within specified timeframes. The notice must also specify that
the enrollee has the right to seek further review by the State and how
to seek it. All decisions on appeals must be sent to the enrollee in
writing within specified timeframes and, for notice of expedited
resolution, the MCO or PIHP must also provide oral notice. The decision
notice must include the MCO or PIHP contact for the appeal and the
results of the process and the date it was completed. For an oral
grievance that does not relate to quality of care, the MCO or PIHP may
provide oral notice unless the enrollee requests that it be written.
2. Burden
The above information collection requirements are not subject to
the PRA. They are exempt under 5 CFR 1320.4(a) because they occur as
part of an administrative action.

R. Section 438.410 Expedited Resolution of Grievances

Paragraph (c)
1. Requirement
Paragraph (c), Action following denial of a request for expected
resolution, requires each MCO and PIHP to provide written notice to an
enrollee whose request for expedited resolution is denied.
2. Burden
The above information collection requirement is not subject to the
PRA. It is exempt under 5 CFR 1320.4(a) because it occurs as part of an
administrative action.

S. Section 438.416 Record Keeping and Reporting Requirements

1. Requirement
Section 438.416 paragraphs (a) and (c) state that each MCO and PIHP
must maintain records of grievances and appeals.
2. Burden
We estimate that approximately 95,000 (.5 percent) of the
approximately

[[Page 43649]]

19 million MCO and PIHP enrollees will file a grievance or appeal with
their MCO or PIHP (205 per MCO or PIHP). The recording and tracking
burden associated with each grievance is estimated to be 1 minute per
request (3.4 hours per MCO or PIHP), for a total burden of 1,583 hours
(1 minute multiplied by an estimated 95,000 enrollees who would file a
grievance or appeal).

T. Section 438.604 Data That Must Be Certified

1. Requirement
Each MCO and PIHP must certify that it is in substantial compliance
with its contract. Certification is required, as provided in
Sec. 438.606, for all documents specified by the State.
2. Burden
While the requirement for MCOs and PIHP to certify its compliance
with its contract and for all documents required by the State, the
burden associated with these requirements is captured during the
submission of the information. Therefore, we are assigning 1 token hour
of burden for this requirement. Submission of the certified information
and data occurs when the MCO or PIHP requests payment from the State
according to the terms of its contract. There is no burden assigned to
the submission as it is not required by this regulation, but rather by
terms of the MCO's or PIHP's contract with the State.

U. Section 438.710 Due Process: Notice of Sanction and Pre-termination
Hearing

Section 438.710(a) Due Process: Notice of Sanction and Pre-termination
Hearing
1. Requirement
Section 438.710(a) states that before imposing any of the sanctions
specified in this subpart, the State must give the affected MCO or PCCM
written notice that explains the basis and nature of the sanction.
2. Burden
The above information collection requirements are not subject to
the P.A. They are exempt under 5 CFR 1320.4(a) because they occur as
part of an administrative action.
Section 438.710 (b)(2) Due Process: Notice of Sanction and Pre-
termination Hearing
1. Requirement
Section 438.710(b)(2) states that before terminating an MCO's or
PCCM's contract, the State must:
(i) Give the MCO or PCCM written notice of its intent to terminate,
the reason for termination, the time and place of the hearing;
(ii) After the hearing, give the entity written notice of the
decision affirming or reversing the proposed termination of the
contract and, for an affirming decision, the effective date of
termination; and
(iii) For an affirming decision, give enrollees of the MCO or PCCM
notice of the termination and information, consistent with Sec. 438.10,
on their options for receiving Medicaid services following the
effective date of termination.
2. Burden
The above information collection requirement is not subject to the
PRA. It is exempt under 5 CFR 1320.4(a) because it occurs as part of an
administrative action.

V. Section 438.722 Disenrollment During Termination Hearing Process

1. Requirement
Section 438.722(a) states that after a State has notified an MCO or
PCCM of its intention to terminate the MCO or PCCM's contract, the
State may give the MCO's or PCCM's enrollees written notice of the
State's intent to terminate the MCO's or PCCM's contract.
2. Burden
States already have the authority to terminate MCO or PCCM
contracts according to State law and have been providing written notice
to the MCOs or PCCMs. States are now given, at their discretion, the
option of notifying the MCO's or PCCM's enrollees of the State's intent
to terminate the MCO's or PCCM's contract. While it is not possible to
gather an exact figure, we estimate that 12 States may terminate 1
contract per year. We estimate that it will take States 1 hour to
prepare the notice to enrollees, for a total burden of 12 hours. In
addition, we estimate that it will take States approximately 5 minutes
per beneficiary to notify them of the termination, equating to a burden
of 5 minutes multiplied by 12 States multiplied by 46,194 beneficiaries
per MCO or PCCM, for a burden of approximately 46,194 hours. The total
burden of preparing the notice and notifying enrollees is 46,206.

W. Section 438.724

1. Requirement
Section 438.724 requires that the State give our Regional Office
written notice whenever it imposes or lifts a sanction. The notice must
specify the affected MCO, the kind of sanction, and the reason for the
State's decision to impose or lift a sanction.
2. Burden
We anticipate that no more than 36 States would impose or lift a
sanction each year and that it would take each one 30 minutes to give
the regional office notice. Thus the annual burden would be 18 hours.

X. Section 438.810 Expenditures for Enrollment Broker Services

1. Requirement
Section 438.810(c) requires that a State contracting with an
enrollment broker must submit the contract or memorandum of agreement
(MOA) for services performed by the broker to us 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 to mail each contract to us for review. We estimate that
the burden associated with this requirement is 5 minutes per enrollment
broker contract, for a total annual burden of approximately 3 hours per
year (5 minutes multiplied by an estimated 35 enrollment broker
contracts in the States using brokers).
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.

BILLING CODE 4120-01-P

[[Page 43650]]

[GRAPHIC] [TIFF OMITTED] TP20AU01.000

BILLING CODE 4120-01-C

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IV. Regulatory Impact

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 in any 1 year). This rule meets the criteria of
being economically significant because the impact would be over $100
million.
The RFA requires agencies to analyze options for regulatory relief
of small entities. This rule implements Medicaid managed care
provisions as directed by BBA. The statute does not permit significant
alternatives to these regulatory provisions; however, we invite
comments on alternatives to provisions of this proposed rule that would
reduce burden on small entities.
This proposed rule primarily impacts beneficiaries, State agencies,
enrollment brokers, MCOs, PIHPs, PAHPs, and PCCMs. Small entities
include small business in the health care sector with receipts of less
than $5 million to $25 million, nonprofit organizations, and other
entities. (See 65 FR 69432). For purposes of the RFA, individuals and
State governments are not included in this definition. We estimate that
in 2000 there were 339 MCOs, 123 PIHPs, 34 PAHPs, and 37 PCCMs. We
believe that only a few of these entities qualify as small entities.
Specifically, we believe that the 37 PCCM systems are likely to be
small entities, as are approximately 12 of the PAHPs. We believe that
the 10 PAHPs that are at risk for ambulatory medical services only are
likely to be small businesses, as are two dental PAHPs. We believe that
the remaining PAHPs and all the MCOs and PIHPs have annual receipts
from Medicaid contacts and other business interests in excess of $25
million.
We do not believe that the impact of the new provisions of this
proposed regulation are great on the small entities that we have
identified. The most significant requirement relates to providing
information to enrollees. Specifically, PCCMs and PAHPs are required to
make written materials available in languages that are prevalent in its
service area (as determined by the State) and provide oral
interpretation services when needed. We do not believe that PCCMs or
PAHPs provide much written material to enrollees. In fact, in the
proposed regulation, we place the responsibility on States, rather than
PCCMs and PAHPs, to provide information to potential enrollees. The
regulation does provide that the State may require the PCCM or PAHP to
provide additional information to enrollees, at their request,
concerning the grievance procedures available to enrollees. However,
the State may take responsibility for this rather than require that it
be done by the PCCM or PAHP. In either case, we believe that States
will prepare this information so that the only burden on PCCMs and
PAHPs would be to distribute the information when it is requested by an
enrollee.
The regulation would require managed care entities, including PCCMs
and PAHPs, to make oral interpretation services available to each
potential enrollee or enrollee requesting them. We do not have
information on which to base an estimate of the burden of this
requirement. We invite comment on the burden of this provision and cost
data to help us develop estimates.
PCCMs and PAHPs also must meet certain contract requirements,
however, these are consistent with the nature of their business in
contracting with the State for the provision of services to Medicaid
enrollees. They, likewise, must meet requirements related to
disenrollment of enrollees for cause, including receipt and initial
processing of disenrollment requests if the State delegates this
function to the PCCM or PAHP. However, as all enrollees will have an
annual opportunity to disenroll, we believe that the number of
disenrollment requests for cause will be small. In addition, PCCMs and
PAHPs must submit marketing material to the State for review and
approval and must cover and pay for emergency services based on the
prudent layperson standard (this only applies to PCCMs if they have a
risk contract). We believe that only the two dental PAHPs are likely to
produce marketing material and that only the 10 PAHPs with a risk
contract will be subject to the emergency services provision.
PAHPs must meet two other requirements. First they may not
discriminate against providers seeking to participate in the plan. This
requirement imposes no burden. Second, they must meet solvency
standards to ensure that Medicaid enrollees will not be responsible for
any debt should the entity become insolvent. We believe that this
imposes little burden in addition to normal business requirements for
entities assuming risk.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis for any 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 100 beds.
We do not anticipate that the provisions in this proposed rule
would have a substantial economic impact on most hospitals, including
small rural hospitals. The BBA provisions include some new requirements
on States, MCOs, and PIHPs, but no new direct requirements on
individual hospitals. The impact on individual hospitals would vary
according to each hospital's current and future contractual
relationships with MCOs and PIHPs. Furthermore, the impact would also
vary according to each hospital's current procedures and level of
compliance with existing statute and regulation pertaining to Medicaid
managed care. For these reasons, this proposed rule is not expected to
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 expenditure in any 1 year by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $110 million or more (adjusted annually for
inflation). We have determined that this rule does not impose any
mandates on State, local, or tribal governments, or the private sector
that would result in an annual expenditure of $110 million or more.

B. Summary of the Proposed Rule

This proposed 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 regulation addresses pertinent areas
of concern between States and MCOs, PIHPs, and, for some provisions,
PAHPs and PCCMs.
Specific provisions of the regulation include the following:

[[Page 43652]]

Permitting States to require in their State plan that
Medicaid beneficiaries be enrolled in managed care.
Eliminating the requirement that no more than 75 percent
of enrollees in an MCO or PHP be Medicaid or Medicare enrollees.
Specifying a grievance and appeal procedure for MCO and
PIHP enrollees.
Providing for the types of information that must be given
to enrollees and potential enrollees, including requirements related to
language and format.
Requiring that MCOs and PIHPs document for the States that
they have adequate capacity to serve their enrollees and that States
certify this to us.
Specifying quality standards for States, MCOs, and PIHPs.
Increasing program integrity protections and requiring
certification of data by MCOs and PIHPs.
Increasing the threshold for prior approval of MCO
contracts from $100,000 to $1 million.
Permitting cost sharing for managed care enrollees under
the same circumstances as permitted in fee-for-service.
Expanding the managed care population for which States can
provide 6 months of guaranteed eligibility.
Revising the rules for setting capitation rates.
It would be extremely difficult to accurately quantify the overall
impact of this regulation on States, MCOs, PIHPs, PAHPs, and PCCMs
because there is enormous variation among States and these entities
regarding their current regulatory and contract requirements, as well
as organizational structure and capacity. Any generalization would mask
important variations in the impact by State or managed care program
type. The Lewin Group, under a contract with the Center for Health Care
Strategies, released a study of the cost impact of the original
proposed regulation published on September 29, 1998 the Federal
Register (63 FR 52022). Because this new proposed regulation addresses
the same areas as the September 29, 1998 proposed rule and includes
many similar provisions, the Lewin study remains the best information
we have available on the potential incremental impact of this proposed
regulation. However, the study did not analyze the original proposed
regulation in total, but focused on four areas within the original
proposed regulation: individual treatment plans, initial health
assessments, quality improvement programs, and grievance systems/State
fair hearings. While the study's focus is limited to selected
provisions of the previously proposed regulation, and some of the
details of the provisions in this proposed rule differ from the earlier
proposed rule, nevertheless, we believe that the overall cost
conclusions are relevant to this proposed rule. In addition to
examining the four regulatory requirements, the Lewin study cited the
need to evaluate both the incremental and aggregate effects of the
rule; the effect on different managed care environments (for example,
overall enrollment; the Medicare, commercial, and Medicaid mix;
geographic location); and differing regulatory requirements of the
State (for example, State patient rights laws, regulation of
noninsurance entities). The Lewin report also points out that many of
the BBA provisions were implemented through previous guidance to the
States, so the regulatory impact only captures a subset of the actual
impact of the totality of BBA requirements.
According to the MCOs included in the Lewin study, many of the
proposed provisions are not expected to have large incremental costs.
The study mainly focused on the assessment and treatment management
components of the regulation, as well as the quality improvement
projects. For example, they estimate the cost of an initial assessment
(called screening in this proposed regulation) as ranging from $0.17 to
$0.26 per member per month (PMPM), but for an MCO that currently
performs an initial assessment, the incremental cost is estimated as
$0.03 to $0.06 PMPM. Extrapolating these estimates to the population of
Medicaid managed care enrollees, if all enrollees were enrolled in
plans doing initial assessments, the total cost would range from $6.8
million to $13.5 million. If all enrollees were enrolled in plans that
did not perform initial assessments, the total cost would be $38
million to $58 million. Similarly, the costs of quality improvement
projects can vary from $60,000 to $100,000 in the first year (start-
up), $80,000 to $100,000 in the second and third years (the
intervention and improvement measurement cycle), and $40,000 to $50,000
for the fourth and subsequent years (ongoing performance measurement).
In summary, according to the Lewin Study, States and their
contracting managed care plans have already implemented many provisions
of the BBA. While there are incremental costs associated with these
proposed regulatory requirements, they would vary widely based on
characteristics of individual managed care plans and States. Finally,
the BBA requirements are being implemented in an increasingly
regulatory environment at the State level. Therefore, States, MCOs, and
PIHPs would likely face additional costs not related to these
regulatory requirements absent these new regulations. Thus, the
incremental impact of these requirements on costs to be incurred would
be difficult if not impossible to project.
We believe that the overall impact of this proposed rule would be
beneficial to Medicaid beneficiaries, MCOs, PIHPs PAHPs, PCCMs, States,
and us. Many of the BBA Medicaid managed care requirements merely
codify Federal statute standards widely in place in State law or in the
managed care industry. Some of the BBA provisions represent new
requirements for States, MCOs, PIHPs, PAHPs, and PCCMs but also provide
expanded opportunities for participation in Medicaid managed care.
It is clear that all State agencies would be affected by this
proposed Medicaid regulation but in varying degrees. Much of the burden
would be on MCOs, PIHPs, PAHPs, and PCCMs contracting with States, but
this would also vary by existing and continuing relationships between
State agencies and MCOs, PIHPs, PAHPs, and PCCMs. This regulation is
intended to provide States flexibility and minimize the compliance cost
to States, MCOs, PIHPs, PAHPs, and PCCMs to the extent possible
consistent with the detailed BBA requirements. We believe the proposed
provisions would result in improved patient care outcomes and
satisfaction over the long term.
Recognizing that a large number of entities, such as hospitals,
State agencies, MCOs, and PIHPs would 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. 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.

C. State Options to Use Managed Care

Managed Care Organizations
Under this provision, a State agency may amend its State plan to
require all Medicaid beneficiaries in the State to enroll in either an
MCO or PCCM 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,

[[Page 43653]]

Indians, and groups of children with special needs. Federal review
would be limited to a one-time State plan amendment approval, while
States would no longer need to request waiver renewals every 2 years
for section 1915(b) of the Act and 5 years for section 1115 of the Act
waivers. State agencies may include ``exempted'' populations as
voluntary enrollees in State plan managed care programs. Currently,
nine States use State plan amendments to require beneficiary enrollment
in MCOs and PCCMs. In short, the new State plan option provides State
agencies with a new choice of method to require participation in
managed care. The ability of States to require enrollment in managed
care through their State plans rather than through a waiver would not
alter the standards of care practiced by MCOs and health care providers
and, therefore, would not change the cost of providing care to managed
care enrollees.
Pursuing the State plan amendment option rather than a waiver under
section 1915(b) or 1115 of the Act waiver may reduce State
administrative costs because it would eliminate the need for States to
go through the waiver renewal process. Likewise, we would 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 Medicare would be small in relation to the
overall administrative requirements of the Medicaid program.

D. Elimination of 75/5 Rule

Before the passage of the BBA, nearly all MCOs, and PHPs
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, PIHPs, and PAHPs to
participate without meeting this requirement and eliminates the need
for States to monitor enrollment composition in contracting MCOs,
PIHPs, and PAHPs. This would broaden the number of MCOs, PIHPs, and
PAHPs available to States for contracting, leading to more choice for
beneficiaries.

E. 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 medical assistance or denials of
payment. Prior to the enactment of the BBA, the regulations at 42 CFR
434.59, required MCOs and PHPs to have an internal grievance procedure.
While the regulations have not specified a procedure for MCOs or PIHPs
to follow for their grievance process, we believe that these entities
have grievance systems that are similar in their processes to the
requirements of this proposed regulation. This belief is supported by
recent State surveys, such as the survey of 10 States conducted by the
National Academy for State Health Policy in 1999, and the survey of 13
States conducted by the American Public Human Services Association in
1997. Therefore, while this regulation would require uniform procedures
across MCOs and PIHPs, and would require MCOs and PIHPs to change their
procedures to conform to the regulation, the requirements of the
proposed regulation would not impose additional requirements on MCOs
and PIHPs over what is currently in place.
In the Collection of Information section of this preamble, we
assigned 7,917 burden hours to MCOs and PIHPs for the notice
requirements of the grievance system, and 1583 hours for the record
keeping requirements and summary reports to be prepared by MCOs and
PIHPs and submitted to the States. This results in 9,500 total burden
hours. Using the mean hourly wage for the health care service sector
(the Bureau of Labor Statistics, March 2001) of $16.34, this would
result in a total cost to MCOs and PIHPs of $155,230.

F. Provision of Information

In mandatory managed care programs, we have required that
beneficiaries be informed of the choices available to them when
enrolling with MCOs, PIHPs, PAHPs, and PCCMs. 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, PIHPs, PAHPs, and PCCMs 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, MCOs, PIHPs, PAHPs, and PCCMs for several reasons. We do not
have State-specific data on what information States currently provide,
or the manner in which they provide it. Variability among States
indicates that implementing or continuing enrollee information
requirements would represent different degrees of difficulty and
expense.
The information requirements for MCOs and PCCMs in the proposed
regulation are required under the BBA. In this proposed regulation,
however, we extend requirements to PIHPs and PAHPs. We welcome examples
of the current experience of PIHPs and PAHPs in providing information
to enrollees. This would assist us in more accurately estimating the
impact of these provisions.
As a requirement under the provision of information section, State
agencies opting to implement mandatory managed care programs under the
State plan amendment option are required to provide comparative
information on MCOs and PCCMs to potential enrollees. Currently only 9
States have exercised the option to use a State plan amendment to
require beneficiary enrollment in managed care. However, for States
that do select this option, we do not believe that providing the
comparative data in itself represents a burden, as these are elements
of information that most States currently provide. The regulation
specifies that the information must be presented in a comparative or
chart-like form that facilitates comparison among MCOs, and PCCMs. 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 use chart-like formats. Consequently, enrollees
would benefit from having better information for selecting MCOs, and
PCCMs. Only a few States have opted for State plan amendments so far,
but it is anticipated that more States will participate over the long
term. States that participate in the future will benefit from any
comparative tools developed by other States. We state in the Collection
of Information section of this preamble that 9 States availed
themselves of the State Plan option, and thereby will be required to
display information on a comparative chart. We are assuming it will
take 4 hours to create a chart, or 36 hours for 9 States. Using the
mean hourly wage for State employees (the Bureau of Labor Statistics,
March 2001) of $17.05, this would result in total costs to States of
$614.

G. Demonstration of Adequate Capacity and Services

The BBA requires Medicaid MCOs to provide the State and the
Secretary of HHS with assurances of adequate

[[Page 43654]]

capacity and services, including service coverage, within reasonable
timeframes. States currently require assurances of adequate capacity
and services as part of their existing contractual arrangements with
MCOs and PIHPs. However, certification of adequacy has not been
routinely provided to us in the past. Under this rule, each State
retains its authority to establish standards for adequate capacity and
services within MCO and PIHP contracts. This may be perceived as a
burden to MCOs and PIHPs, and for States that have not been required to
formally certify that an MCO or PIHP meets the States' capacity and
service requirements. However, certification to us would ensure an
important beneficiary protection while imposing only a minor burden on
States to issue a certification to us.
Quantifying the additional burden on States, MCOs, or PIHPs as a
result of implementing this regulation is not feasible for several
reasons. First, we do not have State-specific data on the types of
detailed information States currently require of their MCOs and PIHPs
to assure 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 assure
adequate capacity and services. This regulation contemplates that
States continue to have that flexibility.
Under this regulation, State agencies would determine and specify
both the detail and type of documentation to be submitted by the MCO or
PIHP to assure 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, PIHPs, State agencies, and us, Medicaid beneficiaries
would receive continued protections in access to health care under both
State and Federal statute. For purposes of the Collection of
Information section of this preamble, we assume that it would take 20
hours per MCO or PIHP to complete this requirement. For the 462 MCOs
and PIHPs, this requirement would take 9,240 hours to complete
annually.

H. New Quality Standards

The BBA requires that each State agency have an ongoing quality
assessment and improvement strategy for its Medicaid managed care
contracting program. The strategy, 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 and adequate capacity of primary care and specialized services
providers; (2) examination of other aspects of care and service
directly related to quality of care, including grievance procedures,
marketing, and information standards; (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 State's quality strategy.
The provisions of this regulation propose requirements for State
quality strategies and requirements for MCOs and PIHPs that States are
to incorporate as part of their quality strategy. These MCO and PIHP
requirements address: (1) MCO and PIHP structure and operations; (2)
Medicaid enrollees' access to care; and (3) MCO and PIHP
responsibilities for measuring and improving quality. While these new
Medicaid requirements are a significant increase in Medicaid regulatory
requirements in comparison to the regulatory requirements that existed
before the BBA, we believe the increases are appropriate because many
of the requirements are either identical to or consistent with quality
requirements placed on MCOs by private sector purchasers, the Medicare
program, State licensing agencies, and private sector accreditation
organizations. While these new requirements also would have
implications for State Medicaid agencies that would be responsible for
monitoring for compliance with the new requirements, we believe that a
number of recent statutory, regulatory, and private sector developments
would enable State Medicaid agencies to more easily monitor for
compliance than in the past at potentially less cost to the State.
First, the BBA included provisions addressing how States are to fulfill
the statutory requirement for an annual, external quality review (EQR)
of each Medicaid-contracting MCO and PIHP. (These provisions are
addressed in a separate rule). Prior to the BBA, 75 percent Federal
financial participation in the cost of these activities was available
to States only if the State used a narrowly defined list of entities to
perform the quality review. The BBA opened up the possibility for use
of a much wider array of entities to perform this function. Further, in
our proposed rule to implement these EQR provisions published in the
Federal Register on December 1, 1999 (64 FR 67223), we specified that
the 75 percent Federal match would be available to EQR organizations
that performed activities necessary for monitoring compliance with
these BBA quality requirements for MCOs and PIHPs. The BBA also
provided that States could exercise an option whereby MCOs that were
accredited by a private accrediting organization under certain
conditions could be determined to meet certain quality requirements
specified in this rule, thereby avoiding costs to the State of directly
monitoring for compliance with these requirements. In response to this,
private accrediting organizations such as the National Committee for
Quality Assurance have developed Medicaid accreditation product lines.
In addition, prior to issuance of that proposed rule, we worked
closely with State Technical Advisory Groups (TAGs) in developing the
managed care quality regulations and standards. Requirements under this
proposed regulation build on a variety of initiatives of State Medicaid
agencies and us 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 for Medicare and Medicaid that reduces duplicate 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
agency monitoring, and Federal oversight. This guidance emphasizes
quality standards developed in conjunction with all system
participants, such as managed care contractors, State regulators,
Medicaid beneficiaries or their representatives, and external review
organizations.
Further, we have built on efforts in other sectors in developing
these quality 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 Accreditation Healthcare Commission
(AAHC), or other independent bodies. Many also require that
organizations report their performance using Health Plan Employer Data
& Information Set

[[Page 43655]]

(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 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.
While we anticipate that many organizations would 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, MCOs, and PIHPs across
the country exhibit varying capabilities in meeting these standards.
These new quality requirements would present administrative challenges
for some State agencies, MCOs, and PIHPs. However, States have
significant latitude in how these requirements would be implemented.
Acknowledging that there likely would be some degree of burden on
States, MCOs, and PIHPs, we also believe that the long-term benefits of
greater accountability and improved quality in care delivery would
outweigh the costs of implementing and maintaining these processes over
time.

I. Administration

1. Certifications and Program Integrity Protections
Sections 1902(a)(4) and (19) of BBA require that States 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, States, and us.
Section 438.602 of the proposed regulation addresses the importance
of reliable data that are submitted to States and requires MCOs and
PIHPs to certify the accuracy of these data to the State. These data
include enrollment information, encounter data, or other information
that is used for payment determination. Even if States do not use
encounter data to set capitation rates for MCOs and PIHPs, these data,
along with provider and enrollment data, are useful for States in
measuring quality performance and other monitoring of health plans. The
provision of the proposed regulation that would require plans to attest
to the validity of data presents an additional step in the process of
data submission. MCOs and PHPs have historically worked closely with
States when reporting Medicaid data in order to affirm that the data
are accurate and complete. Submitting a certification of validity of
data submitted does not represent a significant burden to health plans.
Section 438.606 would require MCOs and PIHPs to have effective
operational capabilities to guard against fraud and abuse. As a result,
MCOs and PIHPs would uncover information about possible violations of
law that they would be required to report to the State. We do not
believe that these would be frequent or large in number and, therefore,
would not result in burdens to the MCOs and PIHPs beyond what is usual
in the course of business.
2. Change in Threshold from $100,000 to $1 Million
Before the passage of the BBA, the Secretary's prior approval was
required for all HMO contracts involving expenditures of $100,000 or
more. Under the BBA, the threshold amount is increased to $1 million.
This change in threshold would 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 million. Therefore, this proposed provision would not
affect a significant number of plans or States.

J. Permitting Same Copayments in Managed Care as in FFP

Under section 4708(c) of the BBA, States 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 achieve some savings. However, applying
copayments to Medicaid enrollees may cause States and MCOs to incur
administrative costs that more than offset these savings. This is due
to several factors. First, the amount of copayments allowed by statute
are significantly lower than typical commercial copayments. Second, it
is difficult to ensure compliance with these payments, especially given
that the enrollees have limited income. Third, to achieve maximum
compliance, collection efforts would be necessary on the part of MCOs
or PHPs. It is also possible that, if State agencies take advantage of
this option, Medicaid managed care enrollees may defer receipt of
health care services, their health conditions may deteriorate, and the
costs of medical treatment may be greater over the long term. For these
reasons, it is difficult to predict how many States would take
advantage of this option or of the net costs or savings that would
result.

K. Six-Month Guaranteed Eligibility

The legislation expanded the States' option to guarantee up to 6
months eligibility in two ways. First, it expands the types of MCOs
whose members may have guaranteed eligibility, in that it now 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 PCCM as defined in section
1905(t) of the Act. These changes were effective October 1, 1997. To
the extent that State agencies choose this option, we expect MCOs,
PIHPs, PAHPs, and PCCMs in those States to support the use of this
provision since it affords health plans with assurance of membership
for a specified period of time. Likewise, beneficiaries would gain from
this coverage expansion, and continuity of care would 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
[Dollars in millions rounded to the nearest $5 million]
----------------------------------------------------------------------------------------------------------------
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005
----------------------------------------------------------------------------------------------------------------
Federal.................................................. 55 80 115 165 230
State.................................................... 45 60 90 125 175
----------------------------------------------------------------------------------------------------------------

[[Page 43656]]

Total................................................ 100 140 205 290 405
----------------------------------------------------------------------------------------------------------------

Because this provision was effective shortly after enactment of the
BBA, the estimates of Federal costs have been reflected in our Medicaid
budget since FY 1998. The estimates assume that half of the current
Medicaid population is enrolled in managed care and that this
proportion would increase to about two-thirds by 2003. We also assume
that 15 percent of managed care enrollees were covered by guaranteed
eligibility under rules in effect prior to enactment of the BBA and
that the effect of the expanded option under section 4709 of the BBA
would 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 would have access to increased continuity of
care, which should result in better health care management and improved
clinical outcomes.

L. Financial Impact of Revised Rules for Setting Capitation Payments

This rule proposes to replace the current UPL requirement at
447.361 with new rate-setting rules incorporating an expanded
requirement for actuarial soundness of capitation rates as described in
detail in proposed 438.6(c). In general, we would not expect a major
budget impact from the use of these proposed rate setting rules. While
the rate setting rules may provide some states additional flexibility
in setting higher capitation rates than what would have been allowed
under current rules, we believe that the requirements for actuarial
certification of rates, along with budgetary considerations by state
policy makers, would serve to limit increases to within reasonable
amounts. Moreover, the Secretary would retain the authority to look
behind rates that appear questionable and disapprove any that did not
comply with the proposed rate setting requirements.

M. Costs to States and Providers of Provisions Assigned Burden Hours

The preceding section on Collection of Information Requirements
includes estimates of the number of hours it will take States,
providers, and enrollees to provide information required under this
regulation. For States, the total hours are estimated to be 42,342,191.
To estimate the cost impact of these requirements on States, we assume
the total cost of these requirements to be the sum of the estimated
hours times the mean hourly wage for State employees of $17.05 (the
Bureau of Labor Statistics, March, 2001), or $21,171,095. Because the
Federal government shares the general administrative costs of the
Medicaid program with the States, we estimate the total cost of these
requirements to States to be approximately $10.5 million annually.
For MCOs, PIHPs, PAHPs, and PCCMs, we estimate that the Collection
and Information Requirements will take 761,217 hours annually to
complete. To estimate the cost impact of these requirements on
providers, we multiplied these hours by the mean hourly wage for health
care service workers of $16.34 (the Bureau of Labor Statistics, March,
2001) to estimate the cost of these requirements to be approximately
$12.5 million.

N. Administrative Costs

This proposed regulation would require States to include certain
specifications in their contracts with MCOs, PIHPs, PAHPs, and PCCMs
and to monitor compliance with those contract provisions. It also
requires States to take a proactive role in monitoring the quality of
their managed care program. These requirements would add some
administrative burden and costs to States. The amount of additional
administrative cost would vary by State depending on how inclusive
current practice is of the new requirements. In addition, for those
States not using like requirements at present, we believe that most
would be adopting similar requirements on their own in the future
absent this proposed regulation.
The proposed regulation would also increase Federal
responsibilities for monitoring State performance in managing their
managed care programs. However, no new Federal costs are expected as we
plan to use existing staff to monitor these new requirements.

O. Alternatives Considered

We considered allowing the January 19, 2001 final rule with comment
to become effective as published, after the two 60-day delays in
effective date for Department review. However, the serious concerns
raised by some key stakeholders, especially regarding changes made to
the final rule that had not been included in the proposed rule, led us
to decide to develop a new proposed rule.

P. Conclusion

This BBA managed care proposed regulation would affect States,
MCOs, PIHPs, PAHPs, PCCMs, providers, beneficiaries, and us in
different ways. The initial investments that are needed by State
agencies and MCOs, PIHPs, PAHPs, and PCCMs would result in improved and
more consistent standards for the delivery of health care to Medicaid
beneficiaries. Greater consumer safeguards would result from new
quality improvement and protection provisions. Consequently, long term
savings would derive from more consistent standards across States,
MCOs, PIHPs, PAHPs, and PCCMs and increased opportunities for provider
and beneficiary involvement in improved access, outcomes, and
satisfaction.

Q. Federalism

Under Executive Order 13132, we are required to adhere to certain
criteria regarding Federalism in developing regulations. We have
determined that this proposed rule would not significantly affect
States rights, roles, and responsibilities. This regulation, when
published in final, would supersede existing State laws regulating
managed care, unless State laws are more restrictive.
The BBA requires States that contract with organizations under
section 1903(m) of the Act to have certain

[[Page 43657]]

beneficiary protections in place when mandating managed care
enrollment. This rule proposes to implement those BBA provisions in
accordance with the Administrative Procedure Act. This rule also
proposes to eliminate certain requirements viewed by States as
impediments to the growth of managed care programs, such as
disenrollment without cause at any time and the inability to require
enrollment in managed care without a waiver. We also propose to apply
many of these requirements to prepaid health plans that provide for
inpatient hospital and institutional services. We believe this is
consistent with the intent of the Congress in enacting the quality and
beneficiary protection provisions of the BBA. We worked with States in
developing this proposed regulation. In 1997-1998, when we were
developing the original proposed rule, we consulted with State Medicaid
agency representatives in order to understand the potential impacts of
the provisions of the regulations then being considered. In November,
1997 we met with the Executive Board of the National Association of
State Medicaid Directors (NASMD) and discussed the process for
providing initial guidance to States about the Medicaid provisions of
the BBA. We provided this guidance in a series of over 50 letters to
State Medicaid Directors. Much of the policy included in this proposed
regulation relating to the State plan option provision was included in
these letters. In May 1998, we briefed the Executive Committee of NASMD
on the general content of the proposed regulation. More specific State
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, we explored with State agencies their preferences
regarding policy issues and the feasibility and practicality of
implementing policy under consideration. We also invited public
comments as part of the rulemaking process and received comments from
over 300 individuals and organizations. Most of the commenters had
substantial comments that addressed many provisions of the regulation.
Following publication of the final rule on January 19, 2001, the
new Administration delayed the effective date of the rule to provide it
an opportunity to conduct its own review of the regulation. Following
the announcement of the delay, we received additional comments from the
APHSA, individual States, provider organizations, and advocates for
beneficiaries. We considered those comments when developing this
proposed rule. To provide an opportunity for comment by the public, we
are now soliciting comments on this proposed rule. We will consider and
respond to all comments received in the preamble to the final rule.
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.
For the reasons set forth in the preamble, 42 CFR Chapter IV is
proposed to 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. In Sec. 400.203, the following definitions for ``PCCM'' and
``PCP'' are added, in alphabetical order, and the definition of
``provider'' is revised to read as follows:

Sec. 400.203 Definitions specific to Medicaid.

* * * * *
PCCM stands for primary care case manager.
PCP stands for primary care physician.
Provider means either of the following:
(1) For the fee-for-service program, any individual or entity
furnishing Medicaid services under an agreement with the Medicaid
agency.
(2) For the managed care program, any individual or entity that is
engaged in the delivery of health care services and is legally
authorized to do so by the State in which it delivers the services.
* * * * *

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. New Sec. 430.5 is added to read as follows:

Sec. 430.5 Definitions.

As used in this subchapter, unless the context indicates
otherwise--
Contractor means any entity that contracts with the State agency,
under the State plan and in return for a payment, to process claims, to
provide or pay for medical services, or to enhance the State agency's
capability for effective administration of the program.
Representative has the meaning given the term by each State
consistent with its laws, regulations, and policies.

[[Page 43658]]

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, the phrase ``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 primary care case management system or 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 enrollee who,
while completing a minimum enrollment period, is deemed eligible only
for services furnished by or through the MCO or PCCM, may, as an
exception to the deemed limitation, seek family planning services from
any qualified provider.
(6) Section 1932(a) of the Act permits a State to restrict the
freedom of choice required by section 1902(a)(23), under specified
circumstances, for all services except family planning services.
* * * * *

Sec. 431.55 [Amended]

3. In Sec. 431.55, a sentence is added at the end of paragraph
(c)(1)(i), to read as follows:

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 PIHP takes 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 any person who--
(1) Is subject to a proposed transfer or discharge from a nursing
facility; or
(2) Is adversely affected by the pre-admission screening or the
annual resident review that are required by section 1919(e)(7) of the
Act.
5. In Sec. 431.201, the following definition is added in
alphabetical order:

Sec. 431.201 Definitions.

* * * * *
Service authorization request means a managed care enrollee's
request for the provision of a service.
* * * * *
6. In Sec. 431.220, the introductory text of paragraph (a) is
revised, the semicolons after paragraphs (a)(1), (a)(2), and (a)(3) and
the ``and'' after the third semicolon are removed and periods are
inserted in their place, 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 the
following:
* * *
(5) Any MCO or PIHP enrollee who is entitled to a hearing under
subpart F of part 438 of this chapter.
7. In Sec. 431.244, paragraph (f) is revised to read as follows:

Sec. 431.244 Hearing decisions.

* * * * *
(f) The agency must take final administrative action as follows:
(1) Ordinarily, within 90 days from the earlier of the following:
(i) The date the enrollee files an MCO or PIHP appeal.
(ii) The date the enrollee files a request for State fair hearing.
(2) As expeditiously as the enrollee's health condition requires,
but no later than 72 hours after the agency receives, from the MCO or
PIHP, the case file and information for any appeal of a denial of a
service that, as indicated by the MCO or PIHP--
(i) Meets the criteria for expedited resolution as set forth in
Sec. 438.410(c)(2) of this chapter, but was not resolved within the
timeframe for expedited resolution; or
(ii) Was resolved within the timeframe for expedited resolution,
but reached a decision wholly or partially adverse to the enrollee.
(3) As expeditiously as the enrollee's health condition requires,
but no later than 72 hours after the agency receives, directly from an
MCO or PIHP enrollee, a fair hearing request on a decision to deny a
service that it determines meets the criteria for expedited resolution,
as set forth in Sec. 438.410(a) 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).

Sec. 434.1 [Amended]

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 (PHP)
``provisional status HMO'', and ``risk or underwriting risk'' are
removed.

Sec. 434.6 [Amended]

4. In paragraph (a)(1), the term, ``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.

[[Page 43659]]

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. CMS 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 section heading and the introductory text is revised to read
as follows:

Sec. 435.212 Individuals who would be ineligible if they were not
enrolled in an MCO or PCCM .

The State agency may provide that a recipient who is enrolled in an
MCO or PCCM 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 MCO or PCCM.

If the agency provides Medicaid to the categorically needy under
Sec. 435.212, it may provide it under the same rules to medically needy
recipients who are enrolled in MCOs or PCCMs.

Sec. 435.1002 [Amended]

4. In Sec. 435.1002, in paragraph (a), ``Secs. 435.1007 and
435.1008'' is revised to read ``Secs. 435.1007, 435.1008, and 438.814
of this chapter.''
5. A new part 438 is added to chapter IV to read as follows:

PART 438--MANAGED CARE

Subpart A--General Provisions

Sec.
438.1 Basis and scope.
438.2 Definitions.
438.6 Contract requirements.
438.8 Provisions that apply to PIHPs and PAHPs.
438.10 Information requirements.
438.12 Provider discrimination prohibited.
Subpart B--State Responsibilities
438.50 State Plan requirements.
438.52 Choice of MCOs, PIHPs, PAHPs, and PCCMs.
438.56 Disenrollment: Requirements and limitations
438.58 Conflict of interest safeguards.
438.60 Limit on payment to other providers.
438.62 Continued services to recipients.
438.66 Monitoring procedures.
Subpart C--Enrollee Rights and Protections
438.100 Enrollee rights.
438.102 Provider-enrollee communications.
438.104 Marketing activities.
438.106 Liability for payment.
438.108 Cost sharing.
438.114 Emergency and post-stabilization services.
438.116 Solvency standards.
Subpart D--Quality Assessment and Performance Improvement
438.200 Scope.
438.202 State responsibilities.
438.204 Elements of State quality strategies.

Access Standards

438.206 Availability of services.
438.207 Assurances of adequate capacity and services.
438.208 Coordination and continuity of care.
438.210 Coverage and authorization of services.

Structure and Operation Standards

438.214 Provider selection.
438.218 Enrollee information.
438.224 Confidentiality.
438.226 Enrollment and disenrollment.
438.228 Grievance systems.
438.230 Subcontractual relationships and delegation.

Measurement and Improvement Standards

438.236 Practice guidelines.
438.240 Quality assessment and performance improvement program.
438.242 Health information systems.
Subpart E--[Reserved]
Subpart F--Grievance System
438.400 Statutory basis and definitions.
438.402 General requirements.
438.404 Notice of action.
438.406 Handling of grievances and appeals.
438.408 Resolution and notification: Grievances and appeals.
438.410 Expedited resolution of appeals.
438.414 Information about the grievance system to providers and
subcontractors.
438.416 Recordkeeping and reporting requirements.
438.420 Continuation of benefits while the MCO or PIHP appeal and
the State Fair Hearing are pending.
438.424 Effectuation of reversed appeal resolutions.
Subpart G--[Reserved]
Subpart H--Certifications and Program Integrity
438.600 Statutory basis.
438.602 Basic rule.
438.604 Data that must be certified.
438.606 Source, content, and timing of certification.
438.608 Program integrity requirements.
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 Termination of an MCO or PCCM contract.
438.710 Due process: Notice of sanction and pre-termination
hearing.
438.722 Disenrollment during termination hearing process.
438.724 Notice to CMS.
438.726 State plan requirement.
438.730 Sanction by CMS: Special rules for MCOs with risk
contracts.
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.
438.814 Limit on payments in excess of capitation rates.

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 of the State plan. The application of the
requirements of this part to PIHPs and PAHPs that do not meet the
statutory definition of an MCO or a PCCM is under the authority in
section 1902(a)(4).
(2) Section 1903(m) contains requirements that apply to
comprehensive risk contracts.

[[Page 43660]]

(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 MCO or PCCM if that MCO or PCCM still has
a contract with the State.
(4) Section 1905(t) contains requirements that apply to PCCMs.
(5) Section 1932--
(i) Provides that, with specified exceptions, a State may require
Medicaid recipients to enroll in MCOs or PCCMs;
(ii) Establishes the rules that MCOs, PCCMs , 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;
(iii) Establishes protections for enrollees of MCOs and PCCMs ;
(iv) Requires States to develop a quality assessment and
performance improvement strategy;
(v) Specifies certain prohibitions aimed at the prevention of fraud
and abuse;
(vi) Provides that a State may not enter into contracts with MCOs
unless it has established intermediate sanctions that it may impose on
an MCO that fails to comply with specified requirements; and
(vii) Makes other minor changes in the Medicaid program.
(b) Scope. This part sets forth requirements, prohibitions, and
procedures for the provision of Medicaid services through MCOs, PIHPs
and PAHPs, and PCCMs. 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--
Capitation payment means a payment the State agency makes
periodically to a contractor on behalf of each recipient enrolled under
a contract for the provision of medical services under the State plan.
The State agency makes the payment regardless of whether the particular
recipient receives services during the period covered by the payment.
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.
Federally qualified HMO means an HMO that CMS has determined is a
qualified HMO under section 1310(d) of the PHS Act.
Health insuring organization (HIO) means an entity that in exchange
for capitation payments, covers services for recipients--
(1) Through payments to, or arrangements with, providers; and
(2) Under a risk contract with the State.
Managed care organization (MCO) means an entity that has, or is
seeking to qualify for, a comprehensive risk contract under this part,
and that is--
(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:
(i) 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.
(ii) Meets the solvency standards of Sec. 438.116.
Nonrisk contract means a contract under which the contractor--
(1) Is not at financial risk for changes in utilization or for
costs incurred under the contract that do not exceed the upper payment
limits specified in Sec. 447.362 of this chapter; and
(2) May be reimbursed by the State at the end of the contract
period on the basis of the incurred costs, subject to the specified
limits.
Prepaid ambulatory health plan (PAHP) means an entity that--
(1) Provides medical services to enrollees under contract with the
State agency, and on the basis of prepaid capitation payments, or other
payment arrangements that do not use State plan payment rates;
(2) Does not provide or arrange for, and is not otherwise
responsible for the provision of any inpatient hospital or
institutional services for its enrollees; and
(3) Does not have a comprehensive risk contract.
Prepaid inpatient health plan (PIHP) means an entity that--
(1) Provides medical services to enrollees under contract with the
State agency, and on the basis of prepaid capitation payments, or other
payment arrangements that do not use State plan payment rates;
(2) Provides, arranges for, or otherwise has responsibility for the
provision of any inpatient hospital or institutional services for its
enrollees; and
(3) Does not have a comprehensive risk contract.
Primary care means all health care services and laboratory services
customarily furnished by or through a general practitioner, family
physician, internal medicine physician, obstetrician/gynecologist, or
pediatrician, to the extent the furnishing of those services is legally
authorized in the State in which the practitioner furnishes them.
Primary care case management means a system under which a PCCM
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 (PCCM) 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, any
of the following:
(1) A physician assistant.
(2) A nurse practitioner.
(3) A certified nurse-midwife.
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 the
payments under the contract.

Sec. 438.6 Contract requirements.

(a) Regional office review. The CMS Regional Office must review and
approve all MCO, PIHP, and PAHP contracts, including those risk and
nonrisk contracts that, on the basis of their value, are not subject to
the prior approval requirement in Sec. 438.806.
(b) 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) Community, Migrant, and Appalachian Health Centers identified
in section 1903(m)(2)(G) of the Act. Unless they qualify for a total
exemption under section 1903(m)(2)(B)

[[Page 43661]]

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).
(c) Payments under risk contracts--(1) Terminology. As used in this
paragraph, the following terms have the indicated meanings:
(i) Actuarially sound capitation rates means capitation rates
that--
(A) Have been developed in accordance with generally accepted
actuarial principles and practices;
(B) Are appropriate for the populations to be covered, and the
services to be furnished under the contract; and
(C) Have been certified, as meeting the requirements of this
paragraph (c), by actuaries who meet the qualification standards
established by the American Academy of Actuaries and follow the
practice standards established by the Actuarial Standards Board.
(ii) Adjustments to smooth data means adjustments made, by cost-
neutral methods, across rate cells, to compensate for distortions in
costs, utilization, or the number of eligibles.
(2) Basic requirements. (i) All capitation rates paid under risk
contracts and all risk-sharing mechanisms in contracts must be
actuarially sound.
(ii) The contract must specify the payment rates and any risk-
sharing mechanisms, and the actuarial basis for computation of those
rates and mechanisms.
(3) Requirements for actuarially sound rates. In setting
actuarially sound capitation rates, the State must apply the following
elements, or explain why they are not applicable:
(i) Base utilization and cost data that are derived from the
Medicaid population, or if not, are adjusted to make them comparable to
the Medicaid population.
(ii) Adjustments made to smooth data and adjustments to account for
factors such as inflation, an MCO, PIHP, or PAHP administration
(subject to the limits in paragraph (c)(4)(ii) of this section), and
utilization;
(iii) Rate cells specific to the enrolled population, by:
(A) Eligibility category;
(B) Age;
(C) Gender;
(D) Locality/region; and
(E) Risk adjustments based on diagnosis or health status (if used).
(iv) Other payment mechanisms and utilization and cost assumptions
that are appropriate for individuals with chronic illness, disability,
ongoing health care needs, or catastrophic claims, using risk
adjustment, risk sharing, or other appropriate cost-neutral methods.
(4) Documentation. The State must provide the following
documentation:
(i) The actuarial certification of the capitation rates.
(ii) An assurance (in accordance with paragraph (c)(3) of this
section) that all payment rates are based only upon services covered
under the State plan and to be provided under the contract to Medicaid-
eligible individuals.
(iii) Its projection of expenditures under its previous year's
contract (or under its FFS program if it did not have a contract in the
previous year) compared to those projected under the proposed contract.
(iv) An explanation of any incentive arrangements, or stop-loss,
reinsurance, or any other risk-sharing methodologies under the
contract.
(5) Special contract provisions. (i) Contract provisions for
reinsurance, stop-loss limits or other risk-sharing methodologies
(other than risk corridors) must be computed on an actuarially sound
basis.
(ii) If risk corridors or incentive arrangements result in payments
that exceed the approved capitation rates, the FFP limitation of
Sec. 438.814 applies.
(iii) For all incentive arrangements, the contract must provide
that the arrangement is--
(A) For a fixed period of time;
(B) Not to be renewed automatically;
(C) Designed to include withholds or other payment penalties if the
contractor does not perform the specified activities or does not meet
the specified targets;
(D) Made available to both public and private contractors;
(E) Not conditioned on intergovernmental transfer agreements; and
(F) Necessary for the specified activities and targets.
(d) Enrollment discrimination prohibited. Contracts with MCOs,
PIHPs and PAHPs, and PCCMs must provide as follows:
(1) The MCO, PIHP, PAHP, or PCCM 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 in the case of mandatory
enrollment programs that meet the conditions set forth in
Sec. 438.50(a).
(3) The MCO, PIHP, PAHP, or PCCM will not, on the basis of health
status or need for health care services, discriminate against
individuals eligible to enroll.
(4) The MCO, PIHP, PAHP, or PCCM will not discriminate against
individuals eligible to enroll on the basis of race, color, or national
origin, and will not use any policy or practice that has the effect of
discriminating on the basis of race, color, or national origin.
(e) Services that may be covered. An MCO, PIHP, or PAHP, contract
may cover, for enrollees, services that are in addition to those
covered under the State plan.
(f) Compliance with contracting rules. All contracts under this
subpart must:
(1) Comply with all applicable Federal and State laws and
regulations including Title VI of the Civil Rights Act of 1964; Title
IX of the Education Amendments of 1972 (regarding education programs
and activities); the Age Discrimination Act of 1975; the Rehabilitation
Act of 1973; and the Americans with Disabilities Act; and
(2) Meet all the requirements of this section.
(g) 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.
(h) Physician incentive plans. (1) MCO, PIHP, and PAHP 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'', ``CMS'', and ``Medicare
beneficiaries'' must be read as references to ``MCO, PIHP, or PAHP'',
``State agency'' and ``Medicaid recipients'', respectively.
(i) Advance directives. (1) All MCO and PIHP contracts must provide
for compliance with the requirements of Sec. 422.128 of this chapter
for maintaining written policies and procedures for advance directives.
(2) The MCO or PIHP must provide adult enrollees with 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.
(j) 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

[[Page 43662]]

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.
(k) Additional rules for contracts with PCCMs. A PCCM 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 disenroll from their
PCCM in accordance with Sec. 438.56.
(l) Subcontracts. All subcontracts must fulfill the requirements of
this part that are appropriate to the service or activity delegated
under the subcontract.
(m) Choice of health professional. The contract must allow each
enrollee to choose his or her health professional in the MCO to the
extent possible and appropriate.

Sec. 438.8 Provisions that apply to PIHPs and PAHPs.

(a) The following requirements and options apply to PIHPs, PIHP
contracts, and States with respect to PIHPs, to the same extent that
they apply to MCOs, MCO contracts, and States for MCOs.
(1) The contract requirements of Sec. 438.6, except for
requirements that pertain to HIOs.
(2) The information requirements in Sec. 438.10.
(3) The provision against provider discrimination in Sec. 438.12.
(4) The State responsibility provisions of subpart B except
Sec. 438.50.
(5) The enrollee rights and protection provisions in subpart C of
this part.
(6) The quality assessment and performance improvement provisions
in subpart D of this part to the extent that they are applicable to
services furnished by the PIHP.
(7) The grievance system provisions in subpart F of this part.
(8) The certification and program integrity protection provisions
set forth in subpart H of this part.
(b) The following requirements and options apply to PAHPs, PAHP
contracts, and States for PAHPs.
(1) The contract requirements of Sec. 438.6, except for
requirements for advance directives and those that pertain to HIOs.
(2) Designated portions of the information requirements in
Sec. 438.10.
(3) The provision against provider discrimination in Sec. 438.12.
(4) The State responsibility provisions of subpart B except
Sec. 438.50.
(5) Designated portions of subpart C on enrollee rights and
protections.
(6) Section 438.206(a) on availability of services.

Sec. 438.10 Information requirements.

(a) Terminology. As used in this section, the following terms have
the indicated meanings:
Potential enrollee means a Medicaid recipient who is subject to
mandatory enrollment or may voluntarily elect to enroll in a given
managed care program, but is not yet an enrollee of a specific in a
MCO, PIHP, PAHP, or PCCM.
Enrollee means a Medicaid recipient who is currently enrolled in an
MCO, PIHP, PAHP, or PCCM in a given managed care program.
(b) Basic rule. Each State, enrollment broker, MCO, PIHP, PAHP, and
PCCM must provide all enrollment notices, informational materials, and
instructional materials relating to enrollees and potential enrollees
in a manner and format that may be easily understood.
(c) Language. The State must:
(1) Establish a methodology for identifying the prevalent non-
English languages spoken by enrollees and potential enrollees
throughout the State. ``Prevalent'' means a non-English language spoken
by a significant number or percentage of potential enrollees and
enrollees in the State.
(2) Provide written information in each prevalent non-English
language.
(3) Require each MCO, PIHP, PAHP, and PCCM to make its written
information available in the prevalent non-English languages in its
particular service area.
(4) Make oral interpretation services available and require each
MCO, PIHP, PAHP, and PCCM to make those services available free of
charge to the each potential enrollee and enrollee. This applies to all
non-English languages, not just those that the State identifies as
prevalent.
(5) Notify enrollees and potential enrollees, and require each MCO,
PIHP, PAHP, and PCCM to notify its enrollees--
(i) That oral interpretation is available for any language and
written information is available in prevalent languages; and
(ii) How to access those services.
(d) Format. (1) Written material must--
(i) Use easily understood language and format;
(ii) Be available in alternative formats and in an appropriate
manner that takes into consideration the special needs of those who,
for example, are visually limited or have limited reading proficiency.
(2) All enrollees and potential enrollees must be informed that
information is available in alternative formats and how to access those
formats.
(e) Information for potential enrollees. (1) The State or its
contracted representative must provide the information specified in
paragraph (e)(2) of this section to each potential enrollee as follows:
(i) At the time the potential enrollee first becomes eligible to
enroll in a voluntary program, or is first required to enroll in a
mandatory enrollment program; and
(ii) Within a timeframe that enables the potential enrollee to use
the information in choosing among available MCOs, PIHP, PAHPs, or
PCCMs.
(2) The information for potential enrollees must include the
following:
(i) General information about--
(A) The basic features of managed care;
(B) Which populations are excluded from enrollment, subject to
mandatory enrollment, or free to enroll voluntarily in the program; and
(C) MCO, PIHP, PAHP, and PCCM responsibilities for coordination of
enrollee care;
(ii) Information specific to each MCO, PIHP, PAHP, or PCCM program
operating in potential enrollee's service area. A summary of the
following information is sufficient, but the State must provide more
detailed information upon request:
(A) Benefits covered;
(B) Cost sharing, if any;
(C) Service area;
(D) Names, locations, telephone numbers of, and non-English
language spoken by current contracted providers, and including
identification of providers that are not accepting new patients. For
MCOs, PIHPs, and PAHPs, this includes at a minimum information

[[Page 43663]]

on primary care physicians, specialists, and hospitals.
(E) Benefits that are available under the State plan but are not
covered under the contract, including how and where the enrollee may
obtain those benefits, any cost sharing, and how transportation is
provided. For a counseling or referral service that the MCO, PIHP,
PAHP, or PCCM does not cover because of moral or religious objections,
the State must furnish information about where and how to obtain the
service.
(f) General Information for all enrollees of MCOs, PIHPs, PAHPs,
and PCCMs. Information must be made available to MCO, PIHP, PAHP, and
PCCM enrollees as follows:
(1) The State must notify all enrollees of their disenrollment
rights at least annually, and no less than 60 days before the start of
each enrollment period.
(2) The State, its contracted representative, or the MCO, PIHP,
PAHP, or PCCM must notify all enrollees of their right to request and
obtain the information listed in paragraph (f)(6) of this section, (and
(g) of this section if applicable) at least once a year.
(3) The State, its contracted representative, or the MCO, PIHP,
PAHP, or PCCM must furnish to each of its enrollees the information
specified in paragraph (f)(6) of this section, (and (g) of this section
if applicable) within a reasonable time after the MCO, PIHP, PAHP, or
PCCM receives, from the State or its contracted representative, notice
of the recipient's enrollment.
(4) The MCO, PIHP, PAHP, or PCCM must give each enrollee written
notice of any change (that the State defines as ``significant'') in the
information specified in paragraph (f)(6) of this section, at least 30
days before the intended effective date of the change.
(5) The MCO, PIHP, and where appropriate, the PAHP or PCCM, must
make a good faith effort to give written notice of termination of a
contracted provider, within 15 days after receipt or issuance of the
termination notice, to each enrollee who received his or her primary
care from, or was seen on a regular basis by, the terminated provider.
(6) The following information must also be provided to all
enrollees:
(i) Names, locations, telephone numbers of, and non-English
languages spoken by current network providers, including information at
least on primary care physicians, specialists, and hospitals, and
identification of providers that are not accepting new patients.
(ii) Any restrictions on the enrollee's freedom of choice among
network providers.
(iii) Enrollee rights and responsibilities, as specified in
Sec. 438.100.
(iv) Information on grievance and fair hearing procedures, and for
MCO and PIHP enrollees, the information specified in Sec. 438.10(g)(i).
(v) The amount, duration, and scope of benefits available under the
contract in sufficient detail to ensure that enrollees understand the
benefits to which they are entitled.
(vi) Procedures for obtaining benefits, including authorization
requirements.
(vii) The extent to which, and how, enrollees may obtain benefits,
including family planning services, from out-of-network providers.
(viii) The extent to which, and how, after-hours and emergency
coverage are provided, including:
(A) What constitutes emergency medical condition, emergency
services, and post-stabilization services, with reference to the
definitions in Sec. 438.114 (a).
(B) The fact that prior authorization is not required for emergency
services.
(C) The process and procedures for obtaining emergency services,
including use of the 911 telephone system or its local equivalent.
(D) The locations of any emergency settings and other locations at
which providers and hospitals furnish emergency services and post-
stabilization services covered under the contract.
(E) The fact that, subject to the provisions of this section, the
enrollee has a right to use any hospital or other setting for emergency
care.
(ix) The post-stabilization care services rules set forth at
Sec. 422.113(c) of this chapter.
(x) Policy on referrals for specialty care and for other benefits
not furnished by the enrollee's primary care provider.
(xi) Cost sharing, if any.
(xii) How and where to access any benefits that are available under
the State plan but are not covered under the contract, including any
cost sharing, and how transportation is provided. For a counseling or
referral service that the MCO, PIHP, PAHP, or PCCM does not cover
because of moral or religious objections, the MCO, PIHP, PAHP, or PCCM
need not furnish information on how and where to obtain the service.
The State must furnish information about how and where to obtain the
service.
(g) Specific Information Requirements for enrollees of MCOs and
PIHPs. In addition to the requirements in Sec. 438.10(e), MCOs and
PIHPs must provide the following information to their enrollees:
(1) Grievance, appeal, and fair hearing procedures and timeframes,
as provided in Secs. 438.400 through 438.424, in a State-developed or
State-approved description, that must include:
(i) For State fair hearing--
(A) The right to hearing;
(B) The method for obtaining a hearing; and
(C) The rules that govern representation at the hearing.
(ii) The right to file grievances and appeals
(iii) The requirements and timeframes for filing a grievance or
appeal.
(iv) The availability of assistance in the filing process.
(v) The toll-free numbers that the enrollee can use to file a
grievance or an appeal by phone.
(vi) The fact that, when requested by the enrollee--
(A) Benefits will continue if the enrollee files an appeal or a
request for State fair hearing within the timeframes specified for
filing; and
(B) The enrollee may be required to pay the cost of services
furnished while the appeal is pending, if the final decision is adverse
to the enrollee.
(vii) Any appeal rights that the State chooses to make available to
providers to challenge the failure of the organization to cover a
service.
(2) Advance directives, as set forth in Sec. 438.6(i)(2).
(3) Physician incentive plans as set forth in Sec. 434.70(a)(4) of
this chapter.
(4) Additional information that is available upon request,
including information on the structure and operation of the MCO or
PIHP.
(h) Special rules: States with mandatory enrollment under state
plan authority.--(1) Basic rule. If the State plan provides for
mandatory enrollment under Sec. 438.50, the State or its contracted
representative must provide information on MCOs, and PCCMs (as
specified in paragraph (g)(3) of this section), either directly or
through the MCO or PCCM.
(2) When and how the information must be furnished. The information
must be furnished to all potential enrollees--
(i) At least once a year; and
(ii) In a comparative, chart-like format.
(3) Required information. Some of the information is the same as
the information required for potential enrollees under paragraph (d) of
this section. However, all of the information in this paragraph is
subject to the timeframe and format requirements of

[[Page 43664]]

paragraph (g)(2) of this section, and includes the following for each
contracting MCO or PCCM:
(i) The MCO's or PCCM's service area.
(ii) The benefits covered under the contract.
(iii) Any cost sharing imposed by the MCO or PCCM.
(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 prohibited.

(a) General rules. (1) An MCO, PIHP, or PAHP may not discriminate
for 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. If an MCO, PIHP, or PAHP declines to include
individual or groups of providers in its network, it must give the
affected providers written notice of the reason for its decision.
(2) In all contracts with health care professionals an MCO, PIHP,
or PAHP must comply with the requirements specified in Sec. 438.214.
(b) Construction. Paragraph (a) of this section may not be
construed to--
(1) Require the MCO, PIHP, or PAHP to contract with providers
beyond the number necessary to meet the needs of its enrollees;
(2) Preclude the MCO, PIHP, or PAHP from using different
reimbursement amounts for different specialties or for different
practitioners in the same specialty; or
(3) Preclude the MCO, PIHP, or PAHP from establishing measures that
are designed to maintain quality of services and control costs and are
consistent with its responsibilities to enrollees.

Subpart B--State Responsibilities

Sec. 438.50 State Plan requirements.

(a) General rule. A State plan that provides for requiring Medicaid
recipients to enroll in managed care entities must comply with the
provisions of this section, except when the State imposes the
requirement--
(1) As part of a demonstration project under section 1115 of the
Act; or
(2) Under a waiver granted under section 1915(b) of the Act.
(b) State plan information. The plan must specify--
(1) The types of entities with which the State contracts;
(2) The payment method it uses (for example, whether fee-for-
service or capitation);
(3) Whether it contracts on a comprehensive risk basis; and
(4) The process the State uses to involve the public in both design
and initial implementation of the program and the methods it uses to
ensure ongoing public involvement once the State plan has been
implemented.
(c) State plan assurances. The plan must provide assurances that
the State meets applicable requirements of the following statute and
regulations:
(1) Section 1903(m) of the Act, for MCOs and MCO contracts.
(2) Section 1905(t) of the Act, for PCCMs and PCCM contracts.
(3) Section 1932(a)(1)(A) of the Act, for the State's option to
limit freedom of choice by requiring recipients to receive their
benefits through managed care entities.
(4) This part, for MCOs and PCCMs.
(5) Part 434 of this chapter, for all contracts.
(6) Section 438.6(c), for payments under any risk contracts, and
Sec. 447.362 of this chapter for payments under any nonrisk contracts.
(d) 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 MCO or PCCM:
(1) Recipients who are also eligible for Medicare.
(2) Indians who are members of Federally recognized tribes, except
when the MCO or PCCM is--
(i) The Indian Health Service; or
(ii) An Indian health program or Urban Indian 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.
(e) Priority for enrollment. The State must have an enrollment
system under which recipients already enrolled in an MCO or PCCM are
given priority to continue that enrollment if the MCO or PCCM does not
have the capacity to accept all those seeking enrollment under the
program.
(f) Enrollment by default. (1) For recipients who do not choose an
MCO or PCCM during their enrollment period, the State must have a
default enrollment process for assigning those recipients to
contracting MCOs and PCCMs.
(2) The process must seek to preserve existing 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 MCOs and PCCMs
available to enroll them, excluding those that are subject to the
intermediate sanction described in Sec. 438.702(a)(4).
(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 Medicaid
population.

Sec. 438.52 Choice of MCOs, PIHPs, PAHPs, and PCCMs.

(a) General rule. Except as specified in paragraphs (b) and (c) of
this section, a State that requires Medicaid recipients to enroll in an
MCO, PIHP, PAHP, or PCCM must give those recipients a choice of at
least two entities.
(b) Exception for rural area residents. (1) Under any of the
following programs, and subject to the requirements of paragraph (b)(2)
of this section, a State may limit a rural area resident to a single
MCO, PIHP, PAHP, or PCCM system:
(i) A program authorized by a plan amendment under section 1932(a)
of the Act.
(ii) A waiver under section 1115 of the Act.
(iii) A waiver under section 1915(b) of the Act.
(2) A State that elects the option provided under paragraph (b)(1)
of this section, must permit the recipient--
(i) To choose from at least two physicians or case managers; and
(ii) To obtain services from any other provider under any of the
following circumstances:
(A) The service or type of provider (in terms of training,
experience, and specialization) is not available within the MCO, PIHP,
PAHP, or PCCM network.
(B) The provider is not part of the network, but is the main source
of a service to the recipient, provided that--

[[Page 43665]]

(1) The provider is given the opportunity to become a participating
provider under the same requirements for participation in the MCO,
PIHP, PAHP, or PCCM network as other network providers of that type.
(2) If the provider chooses not to join the network, or does not
meet the necessary qualification requirements to join, the enrollee
will be transitioned to a participating provider within 60 days (after
being given an opportunity to select a provider who participates).
(C) The only plan or provider available to the recipient does not,
because of moral or religious objections, provide the service the
enrollee seeks.
(D) The recipient's primary care provider or other provider
determines that the recipient needs related services that would subject
the recipient to unnecessary risk if received separately (for example,
a cesarean section and a tubal ligation) and not all of the related
services are available within the network.
(E) The State determines that other circumstances warrant out-of-
network treatment.
(3) As used in this paragraph, ``rural area'' is any area other
than an ``urban area'' as defined in Sec. 412.62(f)(1)(ii) of this
chapter.
(c) 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;
(2) The recipient who enrolls in the HIO has a choice of at least
two primary care providers within the entity.
(d) Limitations on changes between primary care providers. For an
enrollee of a single MCO, PIHP, PAHP, or HIO under paragraph (b)(2) or
(b)(3) of this section, any limitation the State imposes on his or her
freedom to change between primary care providers may be no more
restrictive than the limitations on disenrollment under Sec. 438.56(c).

Sec. 438.56 Disenrollment: Requirements and limitations.

(a) Applicability. The provisions of this section apply to all
managed care arrangements whether enrollment is mandatory or voluntary
and whether the contract is with an MCO, a PIHP, PAHP, or a PCCM.
(b) Disenrollment requested by the MCO, PIHP, PAHP or PCCM. All
MCO, PIHP, PAHP, and PCCM contracts must--(1) Specify the reasons for
which the MCO, PIHP, PAHP or PCCM may request disenrollment of an
enrollee;
(2) Provide that the MCO, PIHP, PAHP or PCCM may not request
disenrollment because of a change in the enrollee's health status, or
because of the enrollee's utilization of medical services, diminished
mental capacity, or uncooperative or disruptive behavior resulting from
his or her special needs (except where his or her continued enrollment
in the MCO, PIHP, PAHP or PCCM seriously impairs the entity's ability
to furnish services to either this particular enrollee or other
enrollees); and
(3) Specify the methods by which the MCO, PIHP, PAHP or PCCM
assures the agency that it does not request disenrollment for reasons
other than those permitted under the contract.
(c) Disenrollment requested by the enrollee. If the State chooses
to limit disenrollment, its MCO, PIHP, PAHP, and PCCM contracts must
provide that a recipient may request disenrollment as follows:
(1) For cause, at any time.
(2) Without cause, at the following times:
(i) During the 90 days following the date of the recipient's
initial enrollment with the MCO, PIHP, PAHP or PCCM, or the date the
State sends the recipient notice of the enrollment, whichever is later.
(ii) At least once every 12 months thereafter.
(iii) Upon automatic reenrollment under paragraph (g) of this
section, if the temporary loss of Medicaid eligibility has caused the
recipient to miss the annual disenrollment opportunity.
(iv) When the State imposes the intermediate sanction specified in
Sec. 438.702(a)(3).
(d) Procedures for disenrollment. (1) Request for disenrollment.
The recipient (or his or her representative) must submit an oral or
written request--
(i) To the State agency (or its agent); or
(ii) To the MCO, PIHP, PAHP or PCCM, if the State permits MCOs,
PIHP, PAHPs, and PCCMs to process disenrollment requests.
(2) Cause for disenrollment. The following are cause for
disenrollment:
(i) The enrollee moves out of the MCO's, PIHP's, PAHP's or PCCM's
service area.
(ii) The plan does not, because of moral or religious objections,
cover the service the enrollee seeks.
(iii) The enrollee needs related services (for example a cesarean
section and a tubal ligation) to be performed at the same time; not all
related services are available within the network; and the enrollee's
primary care provider or another provider determines that receiving the
services separately would subject the enrollee to unnecessary risk.
(iv) Other reasons, including but not limited to, poor quality of
care, lack of access to services covered under the contract, or lack of
access to providers experienced in dealing with the enrollee's health
care needs.
(3) MCO, PIHP, PAHP or PCCM action on request. (i) An MCO, PIHP,
PAHP or PCCM may either approve a request for disenrollment or refer
the request to the State.
(ii) If the MCO, PIHP, PAHP, PCCM, or State agency (whichever is
responsible) fails to make a disenrollment determination so that the
recipient can be disenrolled within the timeframes specified in
paragraph (e)(1) of this section, the disenrollment is considered
approved.
(4) State agency action on request. For a request received directly
from the recipient, or one referred by the MCO, PIHP, PAHP or PCCM, the
State agency must take action to approve or disapprove the request
based on the following:
(i) Reasons cited in the request.
(ii) Information provided by the MCO, PIHP, PAHP or the PCCM at the
agency's request.
(iii) Any of the reasons specified in paragraph (d)(2) of this
section.
(5) Use of the MCO, PIHP, PAHP, or PCCM grievance procedures. (i)
The State agency may require that the enrollee seek redress through the
MCO, PIHP, PAHP, or PCCM's grievance system before making a
determination on the enrollee's request.
(ii) The grievance process, if used, must be completed in time to
permit the disenrollment (if approved) to be effective in accordance
with the timeframe specified in Sec. 438.56(e)(1).
(iii) If, as a result of the grievance process, the MCO, PIHP,
PAHP, or PCCM approves the disenrollment, the State agency is not
required to make a determination.
(e) Timeframe for disenrollment determinations. (1) Regardless of
the procedures followed, the effective date of an approved
disenrollment must be no later than the first day of the second month
following the month in which the enrollee or the MCO, PIHP, PAHP or
PCCM files the request.
(2) If the MCO, PIHP, PAHP or PCCM or the State agency (whichever
is responsible) fails to make the determination within the timeframes
specified in paragraphs (e)(1) and (e)(2) of this section, the
disenrollment is considered approved.
(f) Notice and appeals. A State that restricts disenrollment under
this section must take the following actions:
(1) Provide that enrollees and their representatives are given
written notice of disenrollment rights at least 60 days

[[Page 43666]]

before the start of each enrollment period.
(2) Ensure access to State fair hearing for any enrollee
dissatisfied with a State agency determination that there is not good
cause for disenrollment.
(g) Automatic reenrollment: Contract requirement. If the State plan
so specifies, the contract must provide for automatic reenrollment of a
recipient who is disenrolled solely because he or she loses Medicaid
eligibility for a period of 2 months or less.

Sec. 438.58 Conflict of interest safeguards.

(a) As a condition for contracting with MCOs, PIHPs, or PAHPs, 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 the MCO, PIHP, or PAHP
contracts or the default enrollment process specified in
Sec. 438.50(f).
(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.

The State agency must ensure that no payment is made to a provider
other than the MCO, PIHP, or PAHP for services available under the
contract between the State and the MCO, PIHP, or PAHP, except where
these payments are provided for in title XIX of the Act or in 42 CFR.

Sec. 438.62 Continued services to recipients.

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

Sec. 438.66 Monitoring procedures.

The State agency must have in effect procedures for monitoring the
MCO's, PIHP's, or PAHP's operations, including, at a minimum,
operations related to:
(a) Recipient enrollment and disenrollment.
(b) Processing of grievances and appeals.
(c) Violations subject to intermediate sanctions, as set forth in
subpart I of this part.
(d) Violations of the conditions for FFP, as set forth in subpart J
of this part.
(e) All other provisions of the contract, as appropriate.

Subpart C--Enrollee Rights and Protections

Sec. 438.100 Enrollee rights.

(a) General rule. The State must ensure that--
(1) Each MCO and each PIHP has written policies regarding the
enrollee rights specified in this section; and
(2) Each MCO, PIHP, PAHP, and PCCM complies with any applicable
Federal and State laws that pertain to enrollee rights, and ensures
that its staff and affiliated providers take those rights into account
when furnishing services to enrollees.
(b) Specific rights. (1) Basic requirement. The State must ensure
that each managed care enrollee is guaranteed the rights as specified
in paragraphs (b)(2) and (b)(3) of this section.
(2) An enrollee of an MCO, PIHP, PAHP, or PCCM has the following
rights: The right to--
(i) Receive information in accordance with Sec. 438.10.
(ii) Be treated with respect and with due consideration for his or
her dignity and privacy.
(iii) Receive information on available treatment options and
alternatives, presented in a manner appropriate to the enrollee's
condition and ability to understand. (The information requirements for
services that are not covered under the contract because of moral or
religious objections are set forth in Sec. 438.10(e).)
(iv) Participate in decisions regarding his or her health care,
including the right to refuse treatment.
(v) Be free from any form of restraint or seclusion used as a means
of coercion, discipline, convenience, or retaliation, as specified in
other Federal regulations on the use of restraints and seclusion.
(3) An enrollee of an MCO or a PIHP also has the right to--
(i) Be furnished health care services in accordance with
Secs. 438.206 through 438.210.
(ii) Obtain a second opinion from an appropriately qualified health
care professional in accordance with Sec. 438.206(b)(3).
(iii) Request and receive a copy of his or her medical records, and
to request that they be amended or corrected, as specified in 45 CFR
part 164.
(c) Free exercise of rights. The State must ensure that each
enrollee is free to exercise his or her rights, and that the exercise
of those rights does not adversely affect the way the MCO, PIHP, PAHP,
or PCCM and its providers or the State agency treat the enrollee.
(d) Compliance with other Federal and State laws. The State must
ensure that each MCO, PIHP, PAHP, and PCCM complies with any other
applicable Federal and State laws (such as: Title VI of the Civil
Rights Act of 1964 as implemented by regulations at 45 CFR part 80; the
Age Discrimination Act of 1975 as implemented by regulations at 45 CFR
part 91; the Rehabilitation Act of 1973; and Titles II and III of the
Americans with Disabilities Act and other laws regarding privacy and
confidentiality).

Sec. 438.102 Provider-enrollee communications.

(a) Health care professional defined. As used in this subpart,
``health care professional'' means a physician or any of the following:
a podiatrist, optometrist, chiropractor, psychologist, dentist,
physician assistant, physical or occupational therapist, therapist
assistant, speech-language pathologist, audiologist, registered or
practical nurse (including nurse practitioner, clinical nurse
specialist, certified registered nurse anesthetist, and certified nurse
midwife), licensed certified social worker, registered respiratory
therapist, and certified respiratory therapy technician.
(b) General rules. (1) An MCO, PIHP, or PAHP may not prohibit, or
otherwise restrict a health care professional acting within the lawful
scope of practice, from advising or advocating on behalf of an enrollee
who is his or her patient, for the following:
(i) The enrollee's health status, medical care, or treatment
options, including any alternative treatment that may be self-
administered.
(ii) Any information the enrollee needs in order to decide among
all relevant treatment options.
(iii) The risks, benefits, and consequences of treatment or non-
treatment.
(iv) The enrollee's right to participate in decisions regarding his
or her health care, including the right to refuse treatment, and to
express preferences about future treatment decisions.
(2) Subject to the information requirements of paragraph (c) of
this section, an MCO, PIHP, or PAHP that would otherwise be required to
provide, reimburse for, or provide coverage of, a counseling or
referral service because of the requirement in paragraph (b)(1) of this
section is not required to do so if the MCO, PIHP, or PAHP objects to
the service on moral or religious grounds.
(c) Information requirements: MCO, PIHP, and PAHP responsibility.
(1) An MCO, PIHP, or PAHP that elects the option provided in paragraph
(b)(3) of this section must furnish information

[[Page 43667]]

about the services it does not cover as follows:
(i) To the State--
(A) With its application for a Medicaid contract; and
(B) Whenever it adopts the policy during the term of the contract.
(ii) Consistent with the provisions of Sec. 438.10--
(A) To potential enrollees, before and during enrollment; and
(B) To enrollees, within 90 days after adopting the policy with
respect to any particular service. (Although this timeframe would be
sufficient to entitle the MCO, PIHP, or PAHP to the option provided in
paragraph (b)(3) of this section, the overriding rule in
Sec. 438.10(f)(4) requires the MCO, PIHP, or PAHP to furnish the
information at least 30 days before the effective date of the policy.)
(2) As specified in Sec. 438.10(d) and (e), the information that
MCOs, PIHPs, and PAHPs must furnish to enrollees and potential
enrollees does not include how and where to obtain the service excluded
under paragraph (b)(3) of this section.
(d) Information requirements: State responsibility. For each
service excluded by an MCO, PIHP, or PAHP under paragraph (b)(2) of
this section, the State must provide information on how and where to
obtain the service, as specified in Sec. 438.10(e)(2)(ii)(E).
(e) Sanction. An MCO that violates the prohibition of paragraph
(b)(1) of this section is subject to intermediate sanctions under
subpart I of this part.

Sec. 438.104 Marketing activities.

(a) Terminology. As used in this section, the following terms have
the indicated meanings:
Cold-call marketing means any unsolicited personal contact by the
MCO, PIHP, PAHP, or PCCM with a potential enrollee for the purpose of
marketing as defined in this paragraph.
Marketing means any communication, from an MCO, PIHP, PAHP, or PCCM
to a Medicaid recipient who is not enrolled in that entity, that can
reasonably be interpreted as intended to influence the recipient to
enroll in that particular MCO's, PIHP's, PAHP's, or PCCM's Medicaid
product, or either to not enroll in, or to disenroll from, another
MCO's, PIHP's, PAHP's, or PCCM's Medicaid product.
Marketing materials means materials that--
(1) Are produced in any medium, by or on behalf of an MCO, PIHP,
PAHP, or PCCM; and
(2) Can reasonably be interpreted as intended to market to
potential enrollees.
MCO, PIHP, PAHP, or PCCM include any of the entity's employees,
affiliated providers, agents, or contractors.
(b) Contract requirements. Each contract with an MCO, PIHP, PAHP,
or PCCM must comply with the following requirements:
(1) 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 as
indicated in the contract;
(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 or offering of any other insurance; and
(v) Does not, directly or indirectly, engage in door-to-door,
telephone, or other cold-call marketing activities.
(2) Specify the methods by which the entity assures the State
agency that marketing, including plans and materials, is accurate and
does not mislead, confuse, or defraud the recipients or the State
agency. Statements that will be considered inaccurate, false, or
misleading include, but are not limited to, any assertion or statement
(whether written or oral) that--
(i) The recipient must enroll in the MCO, PIHP, PAHP, or PCCM in
order to obtain benefits or in order to not lose benefits; or
(ii) The MCO, PIHP, PAHP, or PCCM is endorsed by CMS, the Federal
or State government, or similar entity.
(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, PIHP, and PAHP must provide that its Medicaid enrollees
are not held liable for any of the following:
(a) The MCO's, PIHP's, or PAHP's debts, in the event of the
entity's insolvency.
(b) Covered services provided to the enrollee, for which--
(1) The State does not pay the MCO, PIHP, or PAHP, or
(2) The State, or the MCO, PIHP, or PAHP does not pay the
individual or health care provider that furnishes the services under a
contractual, referral, or other arrangement.
(c) Payments for covered 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, PIHP,
or PAHP 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 447.60 of this
chapter.

Sec. 438.114 Emergency and post-stabilization services.

(a) Definitions. As used in this section--
Emergency medical condition has the meaning given the term in
Sec. 422.113(b) of this chapter.
Emergency services has the meaning given the term in
Sec. 422.113(b) of this chapter.
Post-stabilization care services has the meaning given the term in
Sec. 422.113(c) of this chapter.
(b) Coverage and payment: General rule. The following entities are
responsible for coverage and payment of emergency services and post-
stabilization care services.
(1) The MCO, PIHP, or PAHP.
(2) The PCCM that has a risk contract that covers these services.
(3) The State, in the case of a PCCM that has a fee-for-service
contract.
(c) Coverage and payment: Emergency services. (1) The entities
identified in paragraph (c) of this section--
(i) Must cover and pay for emergency services regardless of whether
the entity that furnishes the services has a contract with the MCO,
PIHP, PAHP, or PCCM; and
(ii) May not deny payment for treatment obtained under either of
the following circumstances:
(A) 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 (b)(1)(i)(A), (B), and (C) of the
definition of emergency medical condition in Sec. 422.113 of this
chapter.
(B) A representative of the MCO, PIHP, PAHP, or PCCM instructs the
enrollee to seek emergency services.
(2) A PCCM 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 provider that furnishes the
services; and
(ii) Pay for the services if the manager's contract is a risk
contract that covers those services.

[[Page 43668]]

(d) Additional rules for emergency services. (1) The entities
specified in paragraph (c) of this section may not--
(i) Limit what constitutes an emergency medical condition with
reference to paragraph (a) of this section, on the basis of lists of
diagnoses or symptoms; and
(ii) Refuse to process any claim because it does not contain the
primary care provider's authorization number.
(2) An enrollee who has an emergency medical condition may not be
held liable for payment of subsequent screening and treatment needed to
diagnose the specific condition or stabilize the patient.
(3) The attending emergency physician, or the provider actually
treating the enrollee, is responsible for determining when the enrollee
is sufficiently stabilized for transfer or discharge, and that
determination is binding on the entities identified in paragraph (c) of
this section as responsible for coverage and payment.
(e) Coverage and payment: Post-stabilization care services. Post-
stabilization care services are covered and paid for in accordance with
provisions set forth at Sec. 422.113 (c) of this chapter. In applying
those provisions, reference to ``M+C organization'' must be read as
reference to the entities responsible for Medicaid payment, as
specified in paragraph (b) of this section.
(f) Applicability to PIHPs and PAHPs. To the extent that services
required to treat an emergency medical condition fall within the scope
of the services for which the PIHP or PAHP is responsible, the rules
under this section apply.

Sec. 438.116 Solvency standards.

(a) Requirement for assurances (1) Each MCO, PIHP, and PAHP that is
not a Federally qualified HMO (as defined in section 1310 of the Public
Health Service Act) must provide assurances satisfactory to the State
showing that its provision against the risk of insolvency is adequate
to ensure that its Medicaid enrollees will not be liable for the MCO's,
PIHP's, or PAHP's debts if the entity becomes insolvent.
(2) Federally qualified HMOs, as defined in section 1310 of the
Public Health Service Act, are exempt from this requirement.
(b) Other requirements--(1) General rule. Except as provided in
paragraph (b)(2) of this section, an MCO, PIHP, and PAHP must meet the
solvency standards established by the State for private health
maintenance organizations, or be licensed or certified by the State as
a risk-bearing entity.
(2) Exception. Paragraph (b)(1) of this section does not apply to
an MCO, PIHP, or PAHP that meets any of the following conditions:
(i) Does not provide both inpatient hospital services and physician
services.
(ii) Is a public entity.
(iii) Is (or is controlled by) one or more Federally qualified
health centers and meets the solvency standards established by the
State for those centers.
(iv) Has its solvency guaranteed by the State.

Subpart D--Quality Assessment and Performance Improvement

Sec. 438.200 Scope.

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

Sec. 438.202 State responsibilities.

Each State contracting with an MCO or PIHP must--
(a) Have a written strategy for assessing and improving the quality
of managed care services offered by all MCOs and PIHPs:
(b) Provide for the input of recipients and other stake-holders in
the development of the strategy, including making the strategy
available for public comment before adopting it in final;
(c) Ensure compliance with standards established by the State,
consistent with this subpart; and
(d) Conduct periodic reviews to evaluate the effectiveness of the
strategy, and update the strategy periodically, as needed.
(e) Submit to CMS the following:
(1) A copy of the initial strategy, and a copy of the revised
strategy whenever significant changes are made.
(2) Regular reports on the implementation and effectiveness of the
strategy.

Sec. 438.204 Elements of State quality strategies.

At a minimum, State strategies must include the following--
(a) The MCO and PIHP contract provisions that incorporate the
standards specified in this subpart.
(b) Procedures that--
(1) Assess the quality and appropriateness of care and services
furnished to all Medicaid enrollees under the MCO and PIHP contracts,
including individuals with special health care needs.
(2) Identify the race, ethnicity, and primary language spoken of
each Medicaid enrollee. States must provide this information to the MCO
and PIHP for each Medicaid enrollee at the time of enrollment.
(3) Continuously monitor and evaluate the MCO and PIHP compliance
with the standards.
(c) Performance measures and levels identified and developed by CMS
in consultation with States and other relevant stakeholders.
(d) Arrangments for annual, external independent reviews of the
quality outcomes and timeliness of, and access to, the services covered
under each MCO and PIHP contract.
(e) Appropriate use of intermediate sanctions that, at a minimum,
meet the requirements of subpart I of this part.
(f) An information system that supports initial and ongoing
operation and review of the State's quality strategy.
(g) Standards, at least as stringent as those in the following
sections of this subpart, for access to care, structure and operations,
and quality measurement and improvement.

Access Standards

Sec. 438.206 Availability of services.

(a) Basic rule. Each State must ensure that all covered services
are available and accessible to enrollees.
(b) Delivery network. The State must ensure, through its contracts,
that each MCO, and each PIHP consistent with the scope of PHIP's
contracted services, meets the following requirements.
(1) 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, each MCO and PIHP must
consider the following:
(i) The anticipated Medicaid enrollment.
(ii) The expected utilization of services, considering Medicaid
enrollee characteristics and health care needs.
(iii) The numbers and types (in terms of training, experience, and
specialization) of providers required to furnish the contracted
Medicaid services.
(iv) The numbers of network providers who are not accepting new
Medicaid patients.
(v) The geographic location of providers and Medicaid enrollees,
considering distance, travel time, the means of transportation
ordinarily used by Medicaid enrollees, and whether the location
provides physical access for Medicaid enrollees with disabilities.

[[Page 43669]]

(2) Provides female enrollees with direct access to a women's
health specialist within the network for covered care necessary to
provide women's routine and preventive health care services. This is in
addition to the enrollee's designated source of primary care if that
source is not a women's health specialist.
(3) Provides for a second opinion from a qualified health care
professional within the network, or arranges for the enrollee to obtain
one outside the network, at no cost to the enrollee.
(4) If the network is unable to provide necessary medical services,
covered under the contract, to a particular enrollee, the MCO or PIHP
must adequately and timely cover these services out of network for the
enrollee, for as long as the MCO or PIHP is unable to provide them.
(5) Requires out-of-network providers to coordinate with the MCO or
PIHP with respect to payment and ensures that cost to the enrollee is
no greater than it would be if the services were furnished within the
network.
(6) Demonstrates that its providers are credentialed as required by
Sec. 438.214.
(c) Furnishing of services. The State must ensure that each MCO and
PHIP contract complies with the requirements of this paragraph.
(1) Timely access. Each MCO and each PIHP must--
(i) Meet and require its providers to meet State standards for
timely access to care and services, taking into account the urgency of
need for services.
(ii) Ensure that the network providers offer hours of operation
that are no less than the hours of operation offered to commercial
enrollees or comparable to Medicaid fee-for-service, if the provider
serves only Medicaid enrollees.
(iii) Make services available 24 hours a day, 7 days a week, when
medically necessary.
(iv) Establish mechanisms to ensure compliance.
(v) Monitor continuously to determine compliance.
(vi) Take corrective action if there is a failure to comply.
(2) Cultural considerations. Each MCO and each PIHP participates in
the State's efforts to promote the delivery of services in a culturally
competent manner to all enrollees, including those with limited English
proficiency and diverse cultural and ethnic backgrounds.

Sec. 438.207 Assurances of adequate capacity and services.

(a) Basic rule. The State must ensure, through its contracts, that
each MCO and each PIHP gives assurances to the State that it has the
capacity to serve the expected enrollment in its service area in
accordance with the State's standards for access to care under this
subpart.
(b) Nature of assurances. Each MCO and each PIHP must submit
documentation to the State, in a format specified by the State and
acceptable to CMS, to demonstrate that it complies with the following
requirements:
(1) Offers an appropriate range of services, including preventive
services, primary care services and specialty services that is adequate
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.
(c) Timing of documentation. Each MCO and each PIHP must submit the
documentation described in paragraph (b) of this section as specified
by the State, and specifically--
(1) At the time it enters into a contract with the State; and
(2) At any time there has been a significant change (as defined by
the State) in the MCO's or PIHP's operations that would affect adequate
capacity and services, including--
(i) Changes in MCO or PIHP services, benefits, geographic service
area or payments, or;
(ii) Enrollment of a new population in the MCO or PIHP.
(d) State review and submission to CMS. After the State reviews the
documentation submitted by the MCO or PIHP, the State must certify to
CMS that the MCO or PIHP has complied with the State's requirements for
availability of services, as set forth in Sec. 438.206.
(e) CMS' right to inspect documentation. The State must make
available to CMS, upon request, all documentation collected by the
State from the MCO or PIHP.

Sec. 438.208 Coordination and continuity of care.

(a) Basic requirement. (1) General rule. Except as specified in
paragraphs (a)(2) and (a)(3) of this section, the State must ensure
through its contracts, that each MCO and PIHPs complies with the
requirements of this section.
(2) PIHP exception. For PIHPs, the State determines, based on the
scope of the entity's services, and on the way the State has organized
the delivery of managed care services, whether a particular PIHP is
required--
(i) To implement mechanisms for the screenings and assessments
specified in paragraphs (c) of this section; and
(ii) To meet the primary care requirement of paragraph (e)(1) of
this section.
(3) Exception for MCOs that serve dually eligible enrollees. (i)
For an MCO that serves enrollees who are also enrolled in a
Medicare+Choice plan and also receive Medicare benefits, the State
determines to what extent that an MCO must meet the screening and
assessment, referral and treatment plan and primary care and
coordination provisions of paragraphs (c), (d), and (e)(1) of this
section.
(ii) The State bases its determination on the services it requires
the MCO to furnish to dually eligible enrollees.
(b) State responsibility to identify certain enrollees with special
health care needs. The State must implement mechanisms to identify to
its enrollment broker, if applicable prior to enrollment, and the MCO
and PIHP, upon enrollment, individuals with special health care needs,
as specified by the State.
(c) Screening and assessment. The State (either through its own
staff or its enrollment broker) or at the State's discretion each MCO
or PIHP (through appropriate health care professionals) must implement
mechanisms for the identification and assessment of persons with
special health care needs as defined by the State. These mechanisms
should be identified in the State's quality improvement strategy in
Sec. 438.202.
(d) Referrals and treatment plans. The state must ensure that each
MCO and PIHP has a mechanism in place for enrollees determined to have
ongoing special conditions that require a course of treatment or
regular care monitoring that:
(1) The enrollee may directly access a specialist (for example,
through a standing referral or an approved number of visits) as is
appropriate for the enrollee's condition and identified needs.
(2) A treatment plan, if required by the MCO or PIHP is developed
by the specialist in consultation with the enrollee's primary care
provider, and
(i) Is developed with enrollee participation.
(ii) Is approved by the MCO or PIHP in a timely manner, if this
approval is required,
(iii) Is in accordance with the State's quality assurance and
utilization review standards.
(e) Primary care and coordination program. Each MCO and each PIHP
must implement a coordination program that meets State requirements and
achieves the following:

[[Page 43670]]

(1) Ensures that each enrollee has an ongoing source of primary
care appropriate to his or her needs and a person or entity formally
designated as primarily responsible for coordinating the health care
services furnished to the enrollee.
(2) Coordinates the services the MCO or PIHP furnishes to the
enrollee with the services the enrollee receives from any other MCOs
and PIHPs;
(3) Shares with other MCOs and PIHPs serving the enrollee the
results of its screenings and assessments of the enrollee so that those
activities need not be duplicated.
(4) Ensures that in the process of coordinating care, each
enrollee's privacy is protected consistent with the confidentiality
requirements in 45 CFR parts 160 and 164.

Sec. 438.210 Coverage and authorization of services.

(a) Coverage. Each contract with an MCO or PIHP must:
(1) Identify, define, and specify each service that the MCO or PIHP
is required to offer.
(2) Require that the MCO or PIHP make available the services it is
required to furnish in no less than the amount, duration, and scope
that are specified in the State plan and are sufficient to reasonably
be expected to achieve the purpose for which the services are
furnished.
(3) Provide that the MCO or PIHP--
(i) May not arbitrarily deny or reduce the amount, duration, or
scope of a required service solely because of the diagnosis, type of
illness, or condition; and
(ii) May place appropriate limits on a service--
(A) On the basis of criteria such as medical necessity; or
(B) For the purpose of utilization control, provided the services
furnished can reasonably be expected to achieve their purpose, as
required in paragraph (a)(2) of this section; and
(4) Specify what constitutes ``medically necessary services'' in a
manner that--
(i) Is no more restrictive than the State Medicaid program as
indicated in State statutes and regulations, the State Plan, and other
State policy and procedures; and
(ii) Addresses the extent to which the MCO or PIHP is responsible
for covering services related to the following:
(A) The prevention, diagnosis, and treatment of health impairments.
(B) The ability to achieve age-appropriate growth and development.
(C) The ability to attain, maintain, or regain functional capacity.
(b) Processing of requests. For the processing of requests for
initial and continuing authorizations of services, each contract must
require--
(1) That the MCO or PIHP and its subcontractors have in place, and
follow, written policies and procedures.
(2) That the MCO or PIHP--
(i) Have in effect mechanisms to ensure consistent application of
review criteria for authorization decisions; and
(ii) Consult with the requesting provider when appropriate.
(3) That any decision to deny a service authorization request or to
authorize a service in an amount, duration, or scope that is less than
requested, be made by a health care professional who has appropriate
clinical expertise in treating the enrollees's condition or disease.
(c) Notice of adverse action. Each contract must provide for the
MCO or PIHP to notify the requesting provider, and give the enrollee
written notice of any decision by the MCO or PIHP to deny a service
authorization request, or to authorize a service in an amount,
duration, or scope that is less than requested. The notice must meet
the requirements of Sec. 438.404, except that the notice to the
provider need not be in writing.
(d) Timeframe for decisions. Each MCO or PIHP contract must provide
for the following decisions and notices:
(1) Standard authorization decisions. For standard authorization
decisions, provide notice as expeditiously as the enrollee's health
condition requires and within State-established timeframes that may not
exceed 14 calendar days following receipt of the request for service,
with a possible extension of up to 14 additional calendar days, if--
(i) The enrollee, or the provider, requests extension; or
(ii) The MCO or the PIHP justifies (to the State agency upon
request) a need for additional information and how the extension is in
the enrollee's interest.
(2) Expedited authorization decisions. (i) For cases in which a
provider indicates, or the MCO or PIHP determines, that following the
standard timeframe could seriously jeopardize the enrollee's life or
health or ability to attain, maintain, or regain maximum function, the
MCO or PIHP must make an expedited authorization decision and provide
notice as expeditiously as the enrollee's health condition requires and
no later than 3 working days after receipt of the request for service.
(ii) The MCO or PIHP may extend the 3 working days time period by
up to 14 calendar days if the enrollee requests an extension, or if the
MCO or PIHP 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. 438.214 Provider selection.

(a) General rules. The State must ensure, through its contracts,
that each MCO and PIHP implements written policies and procedures for
selection and retention of providers and that those policies and
procedures include, at a minimum, the requirements of this section.
(b) Credentialing and recredentialing requirements. Each MCO and
PIHP must follow a documented process for credentialing and
recredentialing of providers who have signed contracts or participation
agreements with the MCO or the PIHP.
(c) Nondiscrimination. MCO and PIHP provider selection policies and
procedures, consistent with Sec. 438.12, do not discriminate against
particular providers that serve high risk populations or specialize in
conditions that require costly treatment.
(d) Excluded providers. MCOs or PIHPs may not employ or contract
with providers excluded from participation in Federal health care
programs under either section 1128 or section 1128A of the Act.
(e) State requirements. Each MCO and PIHP must comply with any
additional requirements established by the State.

Sec. 438.218 Enrollee information.

The requirements that States must meet under Sec. 438.10 constitute
part of the State's quality strategy at Sec. 438.204.

Sec. 438.224 Confidentiality.

The State must ensure, through its contracts, that (consistent with
subpart F of part 431 of this chapter), for medical records and any
other health and enrollment information that identifies a particular
enrollee, each MCO and PIHP establishes and implements procedures
consistent with confidentiality requirements in 45 CFR parts 160 and
164.

Sec. 438.226 Enrollment and disenrollment.

The State must ensure that each MCO and PIHP contract complies with
the

[[Page 43671]]

enrollment and disenrollment requirements and limitations set forth in
Sec. 438.56.

Sec. 438.228 Grievance systems.

(a) The State must ensure, through its contracts, that each MCO and
PIHP has in effect a grievance system that meets the requirements of
subpart F of this part.
(b) If the State delegates to the MCO or PIHP responsibility for
notice of action under subpart E of part 431 of this chapter, the State
must conduct random reviews of each delegated MCO or PIHP and its
providers and subcontractors to ensure that they are notifying
enrollees in a timely manner.

Sec. 438.230 Subcontractual relationships and delegation.

(a) General rule. The State must ensure, through its contracts,
that each MCO and PIHP--
(1) Oversees and is accountable for any functions and
responsibilities that it delegates to any subcontractor; and
(2) Meets the conditions of paragraph (b) of this section.
(b) Specific conditions. (1) Before any delegation, each MCO and
PIHP evaluates the prospective subcontractor's ability to perform the
activities to be delegated.
(2) There is a written agreement that--
(i) Specifies the activities and report responsibilities delegated
to the subcontractor; and
(ii) Provides for revoking delegation or imposing other sanctions
if the subcontractor's performance is inadequate.
(3) The MCO or PIHP monitors the subcontractor's performance on an
ongoing basis and subjects it to formal review according to a periodic
schedule established by the State, consistent with industry standards
or State MCO laws and regulations.
(4) If any MCO or PIHP identifies deficiencies or areas for
improvement, the MCO and the subcontractor take corrective action.

Measurement and Improvement Standards

Sec. 438.236 Practice guidelines.

(a) Basic rule. The State must ensure, through its contracts, that
each MCO and PIHP meets the requirements of this section.
(b) Adoption of practice guidelines. Each MCO and PIHP adopts
practice guidelines that meet the following requirements:
(1) Are based on valid and reliable clinical evidence or a
consensus of health care professionals in the particular field;
(2) Consider the needs of the MCO's or PIHP's enrollees;
(3) Are adopted in consultation with contracting health care
professionals; and
(4) Are reviewed and updated periodically as appropriate.
(c) Dissemination of guidelines. Each MCO and PIHP disseminates the
guidelines to all affected providers and, upon request, to enrollees
and potential enrollees.
(d) Application of guidelines. Decisions for utilization
management, enrollee education, coverage of services, and other areas
to which the guidelines apply are consistent with the guidelines.

Sec. 438.240 Quality assessment and performance improvement program.

(a) General rules. (1) The State must require, through its
contracts, that each MCO and PIHP have an ongoing quality assessment
and performance improvement program for the services it furnishes to
its enrollees.
(2) CMS, in consultation with States and other stakeholders, may
specify standardized quality measures and topics for performance
improvement projects to be required by States in their contracts with
MCOs and PIHPs.
(b) Basic elements of MCO and PIHP quality assessment and
performance improvement programs. At a minimum, the State must require
that each MCO and PIHP comply with the following requirements:
(1) 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 are expected to have a favorable effect on health
outcomes and enrollee satisfaction;
(2) Have in effect mechanisms to detect both underutilization and
overutilization of services; and
(3) Have in effect mechanisms to assess the quality and
appropriateness of care furnished to enrollees with special health care
needs.
(c) Performance measurement and improvement. Each MCO and PIHP must
annually measure its performance, using standard measures required by
the State, consistent with the requirements of Sec. 438.204(c), and
report its performance to the State.
(d) Performance improvement projects. (1) MCOs and PIHPs must have
an ongoing program of performance improvement projects 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 MCO and PIHP must report the status and results of each
project to the State as requested. Each performance improvement project
must be completed in a reasonable time period so as to generally allow
information on the success of performance improvement projects in the
aggregate to produce new information on quality of care every year.
(e) Program review by the State. (1) The State must review, at
least annually, the impact and effectiveness of each MCO's and PIHP's
quality assessment and performance improvement program. The review must
include--
(i) The MCO's and PIHP's performance on the standard measures on
which it is required to report; and
(ii) The results of the each MCO's and PIHP's performance
improvement projects.
(2) The State may require that an MCO or PIHP have in effect a
process for its own evaluation of the impact and effectiveness of its
quality assessment and performance improvement program.

Sec. 438.242 Health information systems.

(a) General rule. The State must ensure, through its contracts,
that each MCO and PIHP maintains a health information system that
collects, analyzes, integrates, and reports data and can achieve the
objectives of this subpart. The system must provide information on
areas including, but not limited to, utilization, grievances, and
disenrollments for other than loss of Medicaid eligibility.
(b) Basic elements of a health information system. The State must
require, at a minimum, that each MCO and PIHP 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 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

[[Page 43672]]

(iii) Collecting service information in standardized formats to the
extent feasible and appropriate.
(3) Make all collected data available to the State and upon request
to CMS, as required in this subpart.

Subpart E--[Reserved]

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 the
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:
Action means--
(1) In the case of an MCO or PIHP or any of its providers--
(i) The denial or limited authorization of a requested service,
including the type or level of service;
(ii) The reduction, suspension, or termination of a previously
authorized service;
(iii) The denial, in whole or in part, of payment for a service;
(iv) For a resident of a rural area with only one MCO or PIHP, the
denial of a Medicaid enrollee's request to exercise his or her right to
obtain services outside the network; or
Appeal means a request for review of an action, as ``action'' is
defined in this section.
Governing body means the MCO's or PIHP's Board of Directors, or a
designated committee of its senior management.
Grievance means an expression of dissatisfaction about any matter
other than an action, as ``action'' is defined in this section. The
term is also used to refer to the overall system that includes
grievances and appeals handled at the MCO or PIHP level and access to
the State Fair Hearing process. (Possible subjects for grievances
include, but are not limited to, the quality of care or services
provided, and aspects of interpersonal relationships such as rudeness
of a provider or employee, or failure to respect the enrollee's
rights.)

Sec. 438.402 General requirements.

(a) The grievance system. Each MCO and PIHP must have a system in
place for enrollees that includes a grievance process, an appeal
process, and access to the State's fair hearing system.
(b) Filing requirements--(1) Authority to file. (i) An enrollee may
file a grievance and an MCO or PIHP level appeal, and may request a
State fair hearing.
(ii) A provider, acting on behalf of the enrollee and with the
enrollee's written consent, may file an appeal. A provider may not file
a grievance or request a State fair hearing.
(2) Timing. The State specifies a reasonable timeframe that may be
no less than 20 days and not to exceed 90 days from the date on the
MCO's or PIHP's notice of action. Within that timeframe--
(i) The enrollee or the provider may file an appeal; and
(ii) In a State that does not require exhaustion of MCO and PIHP
level appeals, the enrollee may request a State fair hearing.
(3) Procedures. (i) The enrollee may file a grievance either orally
or in writing and, as determined by the State, either with the State or
with the MCO or the PIHP.
(ii) The enrollee or the provider may file an appeal either orally
or in writing, and unless he or she requests expedited resolution, must
follow an oral filing with a written, signed, appeal.

Sec. 438.404 Notice of action.

(a) Language and format requirements. The notice must be in writing
and must meet the language and format requirements of Sec. 438.10(c)
and (d) of this chapter to ensure ease of understanding.
(b) Content of notice. The notice must explain the following:
(1) The action the MCO or PIHP or its contractor has taken or
intends to take.
(2) The reasons for the action.
(3) The enrollee's or the provider's right to file an MCO or PIHP
appeal.
(4) If the State does not require the enrollee to exhaust the MCO
or PIHP level appeal procedures, the enrollee's right to request a
State fair hearing.
(5) The procedures for exercising the rights specified in this
paragraph.
(6) The circumstances under which expedited resolution is available
and how to request it.
(7) The enrollee's right to have benefits continue pending
resolution of the appeal, how to request that benefits be continued
and, the circumstances under which the enrollee may be required to pay
the costs of these services.
(c) Timing of notice. The MCO or PIHP must mail the notice within
the following timeframes:
(1) For termination, suspension, or reduction of previously
authorized Medicaid-covered services, within the timeframes specified
in Secs. 431.211, 431.213, and 431.214 of this chapter.
(2) For denial of payment, at the time of any action affecting the
claim.
(3) For standard service authorization decisions that deny or limit
services, within the timeframe specified in Sec. 438.210(d)
(4) If the MCO or PIHP extends the timeframe in accordance with
Sec. 438.210(d), it must--
(i) Give the enrollee written notice of the reason for the decision
to extend the timeframe and inform the enrollee of the right to file a
grievance if he or she disagrees with that decision; and
(ii) Issue and carry out its determination as expeditiously as the
enrollee's health condition requires and no later than the date the
extension expires.
(5) For service authorization decisions not reached within the
timeframes specified in Sec. 438.210(d) (which constitutes a denial and
is thus an adverse action), on the date that the timeframes expire.
(6) For expedited service authorization decisions, within the
timeframes specified in Sec. 438.210(e).

Sec. 438.406 Handling of grievances and appeals.

(a) General requirements. In handling grievances and appeals, each
MCO and each PIHP must meet the following requirements:
(1) Give enrollees any reasonable assistance in completing forms
and taking other procedural steps. This includes providing interpreter
services and toll-free numbers that have adequate TTY/TTD and
interpreter capability.
(2) Acknowledge receipt of each grievance and appeal.
(3) Ensure that the individuals who make decisions on grievances
and appeals are individuals--
(i) Who were not involved in any previous level of review or
decision-making; and
(ii) Who, if deciding any of the following, are health care
professionals who have the appropriate clinical expertise in treating
the enrollee's condition or disease.
(A) An appeal of a denial that is based on lack of medical
necessity.

[[Page 43673]]

(B) A grievance regarding denial of expedited resolution of an
appeal.
(C) A grievance or appeal that involves clinical issues.
(b) Special requirements for appeals. The process for appeals must:
(1) Provide that oral inquiries seeking to appeal an action are
treated as appeals (to establish the earliest possible filing date for
the appeal) and must be confirmed in writing, unless the enrollee or
the provider requests expedited resolution.
(2) Provide the enrollee a reasonable opportunity to present
evidence, and allegations of fact or law, in person as well as in
writing. (The MCO or PIHP must inform the enrollee of the limited time
available for this in the case of expedited resolution.)
(3) Provide the enrollee and his or her representative opportunity,
before and during the appeals process, to examine the enrollee's case
file, including medical records, and any other documents and records
considered during the appeals process.
(4) Include, as parties to the appeal--
(i) The enrollee and his or her representative; or
(ii) The legal representative of a deceased enrollee's estate.

Sec. 438.408 Resolution and notification: Grievances and appeals.

(a) Basic rule. The MCO or PIHP must dispose of each grievance and
resolve each appeal, and provide notice, as expeditiously as the
enrollee's health condition requires, within State-established
timeframes that may not exceed the timeframes specified in this
section.
(b) Specific timeframes. (1) Standard disposition of grievances.
For standard disposition of a grievance and notice to the affected
parties, the timeframe is established by the State but may not exceed
90 days from the day the MCO or PIHP receives the grievance.
(2) Standard resolution of appeals. For standard resolution of an
appeal and notice to the affected parties, the State must establish a
timeframe that is no longer than 45 days from the day the MCO or PIHP
receives the appeal. This timeframe may be extended under paragraph (d)
of this section.
(3) Expedited resolution of appeals. For expedited resolution of an
appeal and notice to affected parties, the State must establish a
timeframe that is no longer than 3 working days after the MCO or PIHP
receives the appeal. This timeframe may be extended under paragraph (c)
of this section.
(c) Extension of timeframes. (1) The MCO or PIHP may extend the
timeframes from paragraph (b) of this section by up to 14 calendar days
if--
(i) The enrollee requests the extension; or
(ii) The MCO or PIHP shows (to the satisfaction of the State
agency, upon its request) that there is need for additional information
and how the delay is in the enrollee's interest.
(2) Requirements following extension. If the MCO or PIHP extends
the timeframes, it must--For any extension not requested by the
enrollee, give the enrollee written notice of the reason for the delay.
(d) Format of notice. (1) Grievances. The State must establish the
method MCOs and PIHPs will use to notify an enrollee of the disposition
of a grievance.
(2) Appeals. (i) For all appeals, the MCO or PIHP must provide
written notice of disposition.
(ii) For notice of expedited resolution, the MCO or PIHP must also
provide oral notice.
(e) Content of notice of appeal resolution. The written notice of
the resolution must include the following:
(1) The results of the resolution process and the date it was
completed.
(2) For appeals not resolved wholly in favor of the enrollees--
(i) The right to request a State Fair Hearing, and how to do so;
(ii) The right to request to receive benefits while the hearing is
pending, and how to make the request; and
(iii) That the enrollee may be held liable for the cost of those
benefits if the hearing decision upholds the MCO's or PIHP's action.
(c) Requirements for State fair hearings.--(1) Availability. The
State must permit the enrollee to request a State fair hearing within a
reasonable time period specified by the State, but not less than 20 or
in excess of 90 days from whichever of the following dates applies--
(i) If the State requires exhaustion of the MCO or PIHP level
appeal procedures, from the date of the MCO's or PIHP's notice of
resolution; and
(ii) If the State does not require exhaustion of the MCO or PIHP
level appeal procedures and the enrollee appeals directly to the State
for a fair hearing, from the date on the MCO's or PIHP's notice of
action.
(2) Parties. The parties to the State fair hearing include the MCO
or PIHP as well as the enrollee and his or her representative or the
representative of a deceased enrollee's estate.

Sec. 438.410 Expedited resolution of appeals.

(a) General rule. Each MCO and PIHP must establish and maintain an
expedited review process for appeals, when the MCO or PIHP determines
(for a request from the enrollee) or the provider indicates (in making
the request on the enrollee's behalf or supporting the enrollee's
request) that taking the time for a standard resolution could seriously
jeopardize the enrollee's life or health or ability to attain,
maintain, or regain maximum function;
(b) Punitive Action. The MCO or PIHP must ensure that punitive
action is neither taken against a provider who requests an expedited
resolution or supports an enrollee's appeal.
(c) Action following denial of a request for expedited resolution.
If the MCO or PIHP denies a request for expedited resolution of an
appeal, it must--
(1) Transfer the appeal to the timeframe for standard resolution in
accordance with Sec. 438.408(b)(2);
(2) Give the enrollee prompt oral notice of the denial, and follow
up within two calendar days with a written notice.

Sec. 438.414 Information about the grievance system to providers and
subcontractors.

The MCO or PIHP must provide the information specified at
Sec. 438.10(g)(1) about the grievance system to all providers and
subcontractors at the time they enter into a contract.

Sec. 438.416 Record keeping and reporting requirements.

The State must require MCOs and PIHPs to maintain records of
grievances and appeals and must review the information as part of the
state quality strategy.

Sec. 438.420 Continuation of benefits while the MCO or PIHP appeal and
the State Fair Hearing are pending.

(a) Terminology. As used in this section, ``timely'' filing means
filing on or before the later of the following:
(1) The expiration of the timeframe specified by the State (in
accordance with Sec. 438.402(b)(2)) and communicated in the notice of
action.
(2) The intended effective date of the MCO's or PIHP's proposed
action.
(b) Continuation of benefits. The MCO or PIHP must continue the
enrollee's benefits if--
(1) The enrollee or the provider files the appeal timely;
(2) The appeal involves the termination, suspension, or reduction
of a previously authorized course of treatment;
(3) The services were ordered by an authorized provider;
(4) The period covered by the authorization has not expired; and
(5) The enrollee requests extension of benefits.
(c) Duration of continued or reinstated benefits. If, at the
enrollee's

[[Page 43674]]

request, the MCO or PIHP continues or reinstates the enrollee's
benefits while the appeal is pending, the benefits must be continued
until one of following occurs:
(1) The enrollee withdraws the appeal.
(2) The MCO or PIHP resolves the appeal against the enrollee,
unless the enrollee has requested a State fair hearing with
continuation of benefits until a State fair hearing decision is
reached.
(3) A State Fair Hearing Office issues a hearing decision adverse
to the enrollee.
(d) Enrollee responsibility for services furnished while the appeal
is pending. If the final resolution of the appeal is adverse to the
enrollee, that is, upholds the MCO's or PIHP's action, the MCO or PIHP
may recover the cost of the services furnished to the enrollee while
the appeal is pending, to the extent that they were furnished solely
because of the requirements of this section, and in accordance with the
policy set forth in Sec. 431.230(b) of this chapter.

Sec. 438.424 Effectuation of reversed appeal resolutions.

(a) Services not furnished while the appeal is pending. If the MCO
or PIHP, or the State fair hearing officer reverses a decision to deny,
limit, or delay services that were not furnished while the appeal was
pending, the MCO or PIHP must authorize or provide the disputed
services promptly, and as expeditiously as the enrollee's health
condition requires.
(b) Services furnished while the appeal is pending. If the MCO or
PIHP, or the State fair hearing officer reverses a decision to deny
authorization of services, and the enrollee received the disputed
services while the appeal was pending, the MCO or the PIHP or the State
must pay for those services, in accordance with State policy and
regulations.

Subpart G--[Reserved]

Subpart H--Certifications and Program Integrity Provisions

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 is determined and
services are provided in a manner consistent with simplicity of
administration and the best interests of the recipients.

Sec. 438.602 Basic rule.

As a condition for contracting and for receiving payment under the
Medicaid managed care program, an MCO or PIHP must comply with the
certification and program integrity requirements of this section.

Sec. 438.604 Data that must be certified.

(a) Data certifications. When State payments to the MCO or PIHP are
based on data submitted by the MCO or PIHP, the State must require
certification of the data as provided in Sec. 438.606. The data that
must be certified includes, but is not limited to, enrollment
information, encounter data, and other information required by the
State and contained in contracts, proposals, and related documents.
(b) Certification of substantial compliance with contract.
Regardless of whether payment is based on data, each MCO and PIHP must
certify that it is in substantial compliance with its contract.
(c) Additional certifications. Certification is required, as
provided in Sec. 438.606, for all documents specified by the State.

Sec. 438.606 Source, content, and timing of certification.

(a) Source of certification. For the data specified in
Sec. 438.604, the MCO or PIHP must require that one of the following
certify the data the MCO or PIHP submits to the State:
(1) The MCO's or PIHP's Chief Executive Officer.
(2) The MCO's or PIHP's Chief Financial Officer.
(3) An individual who has delegated authority to sign for, and who
reports directly to, the MCO's or PIHP's Chief Executive Officer or
Chief Financial Officer.
(b) Content of certification. The certification must attest, based
on best knowledge, information, and belief, as follows:
(1) To the accuracy, completeness and truthfulness of data.
(2) That the MCO or PIHP is in substantial compliance with its
contract.
(3) To the accuracy, completeness and truthfulness of documents
specified by the State.
(c) Timing of certification. The MCO or PIHP must submit the
certification concurrently with the certified data or, in the case of
compliance with the terms of the contract, when requesting payment.

Sec. 438.608 Program integrity requirements.

(a) General requirement. The MCO or PIHP must have administrative
and management arrangements or procedures, including a mandatory
compliance plan, that are designed to guard against fraud and abuse.
(b) Specific requirements. The arrangements or procedures must
include the following:
(1) Written policies, procedures, and standards of conduct that
articulate the organization's commitment to comply with all applicable
Federal and State standards.
(2) The designation of a compliance officer and a compliance
committee that are accountable to senior management.
(3) Effective training and education for the compliance officer and
the organization's employees.
(4) Effective lines of communication between the compliance officer
and the organization's employees.
(5) Enforcement of standards through well-publicized disciplinary
guidelines.
(6) Provision of internal monitoring and auditing.
(7) Provision for prompt response to detected offenses, and for
development of corrective action initiatives relating to the MCO's or
PIHP's contract.

Subpart I--Sanctions

Sec. 438.700 Basis for imposition of sanctions.

(a) Each State that contracts with a MCO must, and each State that
contracts with a PCCM may, establish intermediate sanctions, as
specified in Sec. 438.702, that it may impose if it makes any of the
determinations specified in paragraphs (b) through (d) of this section.
The State's determination may be based on findings from onsite survey,
enrollee or other complaints, financial status, or any other source.
(b) A 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 need 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

[[Page 43675]]

need for substantial future medical services.
(4) Misrepresents or falsifies information that it furnishes to CMS
or to the State.
(5) Misrepresents or falsifies information that it furnishes to an
enrollee, potential enrollee, or health care provider.
(6) Fails to comply with the requirements for physician incentive
plans, as set forth (for Medicare) in Secs. 422.208 and 422.210 of this
chapter.
(c) A MCO or a PCCM distributes directly, or indirectly through any
agent or independent contractor, marketing materials that have not been
approved by the State or that contain false or materially misleading
information.
(d) A MCO violates any of the requirements in section 1903(m) of
the Act and implementing regulations, or a MCO or a PCCM violates any
of the requirements of section 1932 of the Act and implementing
regulations. (For these violations, only the sanctions specified in
Sec. 438.702(a)(4) and (a)(5) may be imposed.)

Sec. 438.702 Types of intermediate sanctions.

(a) The types of intermediate sanctions that a State may impose
under this subpart include 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 PCCM.)
(3) Granting enrollees the right to terminate enrollment without
cause. (The State must notify the affected enrollees of their right to
disenroll.)
(4) Suspension of all new enrollment, including default enrollment,
after the effective date of the sanction.
(5) Suspension of payment for recipients enrolled after the
effective date of the sanction and until CMS or the State is satisfied
that the reason for imposition of the sanction no longer exists and is
not likely to recur.
(b) State agencies retain authority to impose additional sanctions
under State statutes or State regulations that address areas of
noncompliance specified in Sec. 438.700, as well as additional areas of
noncompliance. Nothing in this subpart prevents State agencies from
exercising that authority.

Sec. 438.704 Amounts of civil money penalties.

(a) General rule. The limit on, or specific amount of, a civil
money penalty the State may impose varies depending on the nature of
the MCO's or PCCM's action or failure to act, as provided in this
section.
(b) Specific limits. (1) The limit is $25,000 for each
determination under the following paragraphs of Sec. 438.700:
(i) Paragraph (b)(1) (Failure to provide services).
(ii) Paragraph (b)(5) (Misrepresentation or false statements to
enrollees, potential enrollees, or health care providers).
(iii) Paragraph (b)(6) (Failure to comply with physician incentive
plan requirements).
(iv) Paragraph (c) (Marketing violations).
(2) The limit is $100,000 for each determination under paragraph
(b)(3) (discrimination) or (b)(4) (Misrepresentation or false
statements to CMS or the State) of Sec. 438.700.
(3) The limit is $15,000 for each recipient the State determines
was not enrolled because of a discriminatory practice under paragraph
(b)(3) of Sec. 438.700. (This is subject to the overall limit of
$100,000 under paragraph (b)(2) of this section).
(c) Specific amount. For premiums or charges in excess of the
amounts permitted under the Medicaid program, the amount of the penalty
is $25,000 or double the amount of the excess charges, whichever is
greater. The State must deduct from the penalty the amount of
overcharge and return it to the affected enrollees.

Sec. 438.706 Special rules for temporary management.

(a) Optional 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 that is
contrary to any requirements of sections 1903(m) and 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) Required imposition of sanction. The State must impose
temporary management (regardless of any other sanction that may be
imposed) if it finds that an MCO has repeatedly failed to meet
substantive requirements in section 1903(m) or section 1932 of the Act,
or this subpart. The State must also grant enrollees the right to
terminate enrollment without cause, as described in Sec. 438.702(a)(3).
(c) Hearing. The State may not delay imposition of temporary
management to provide a hearing before imposing this sanction.
(d) 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.

Sec. 438.708 Termination of an MCO or PCCM contract.

A State has the authority to terminate an MCO or PCCM contract and
enroll that entity's enrollees in other MCOs or PCCMs, or provide their
Medicaid benefits through other options included in the State plan, if
the State determines that the MCO or PCCM has failed to do either of
the following:
(a) Carry out the substantive terms of its contract; or
(b) Meet applicable requirements in sections 1932, 1903(m), and
1905(t) of the Act.

Sec. 438.710 Due process: Notice of sanction and pre-termination
hearing.

(a) Notice of sanction. Before imposing any of the alternative
sanctions specified in this subpart, the State must give the affected
entity timely written notice that explains the following:
(1) The basis and nature of the sanction.
(2) Any other due process protections that the State elects to
provide.
(b) Pre-termination hearing. (1) General rule. Before terminating
an MCO or PCCM contract under Sec. 438.708, the State must provide the
entity a pre-termination hearing.
(2) Procedures. The State must do the following:
(i) Give the MCO or PCCM written notice of its intent to terminate,
the reason for termination, and the time and place of the hearing;
(ii) After the hearing, give the entity written notice of the
decision affirming or reversing the proposed termination of the
contract and, for an affirming decision, the effective date of
termination; and
(iii) For an affirming decision, give enrollees of the MCO or PCCM
notice of the termination and information, consistent with Sec. 438.10,
on their options for receiving Medicaid services following the
effective date of termination.

Sec. 438.722 Disenrollment during termination hearing process.

After a State notifies an MCO or PCCM that it intends to terminate
the contract, the State may do the following:

[[Page 43676]]

(a) Give the entity's enrollees written notice of the State's
intent to terminate the contract.
(b) Allow enrollees to disenroll immediately without cause.

Sec. 438.724 Notice to CMS.

(a) The State must give the CMS 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
a sanction; and
(2) Specify the affected MCO, the kind of sanction, and the reason
for the State's decision to impose or lift a sanction.

Sec. 438.726 State plan requirement.

The State plan must provide for the State to monitor for violations
that involve the actions and failures to act specified in this part and
to implement the provisions of this part.

Sec. 438.730 Sanction by CMS: Special rules for MCOs with risk
contracts.

(a) Basis for sanction. (1) A State agency may recommend that CMS
impose the denial of payment sanction on an MCO with a comprehensive
risk contract if the MCO acts or fails to act as specified in
Sec. 438.700(b)(1) through (b)(6).
(2) The State agency's recommendation becomes CMS's recommendation
unless CMS rejects it within 15 days of receipt.
(b) Notice of sanction. If CMS accepts the recommendation, the
State agency and CMS take the following actions:
(1) 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 initial 15-day period for an additional 15
days if, before the end of the initial 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 CMS determines that the MCO's
conduct poses a threat to an enrollee's health or safety.
(2) CMS conveys the determination to the OIG for consideration of
possible imposition of civil money penalties under section
1903(m)(5)(A) of the Act and part 1003 of this title. In accordance
with the provisions of part 1003, the OIG may impose civil money
penalties in addition to, or in place of, the sanctions that may be
imposed under this section.
(c) Informal reconsideration. (1) If the MCO submits a timely
response to the notice of sanction, the State agency--
(i) Conducts an informal reconsideration that includes review of
the evidence by a State agency official who did not participate in the
original recommendation; and
(ii) Gives the MCO a concise written decision setting forth the
factual and legal basis for the decision.
(2) The State agency decision under paragraph (c)(1) of this
section, forwarded to CMS, becomes CMS's decision unless CMS reverses
or modifies the decision within 15 days from date of receipt.
(3) If CMS reverses or modifies the State agency decision, the
agency sends the MCO a copy of CMS's decision.
(d) 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 (b) of this section.
(2) If the MCO seeks reconsideration, the following rules apply:
(i) Except as specified in paragraph (d)(2)(ii) of this section,
the sanction is effective on the date specified in CMS's
reconsideration notice.
(ii) If CMS, in consultation with the State agency, determines that
the MCO's conduct poses a serious threat to an enrollee's health or
safety, CMS may make the sanction effective earlier than the date of
CMS's reconsideration decision under paragraph (c) of this section.
(e) CMS's role. CMS retains the right to independently perform the
functions assigned to the State agency under this section.

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 substantial 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 substantial 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 CMS 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 CMS 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 the 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) of this chapter, 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 participation in Federal
health care programs under either section 1128 or section 1128A 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.

(a) Terminology. As used in this section--
Choice counseling means activities such as answering questions and
providing information (in an unbiased manner) on available MCO, PIHP's
or PCCM delivery system options, and advising on what factors to
consider when choosing among them and in selecting a primary care
provider;

[[Page 43677]]

Enrollment activities means activities such as distributing,
collecting, and processing enrollment materials and taking enrollments
by phone or in person; and
Enrollment broker means an individual or entity that performs
choice counseling or enrollment activities, or both.
Enrollment services means choice counseling, or enrollment
activities, or both.
(b) Conditions that enrollment brokers must meet. State
expenditures for the use of enrollment brokers are considered necessary
for the proper and efficient operation of the State plan and thus
eligible for FFP only if the broker and its subcontractors meet the
following conditions:
(1) Independence. The broker and its subcontractors are independent
of any MCO, PIHP, PAHP, PCCM, or other health care provider in the
State in which they provide enrollment services. A broker or
subcontractor is not considered ``independent'' if it--
(i) Is an MCO, PIHP, PAHP, PCCM or other health care provider in
the State;
(ii) Is owned or controlled by an MCO, PIHP, PAHP, PCCM, or other
health care provider in the State; or
(iii) Owns or controls an MCO, PIHP, PAHP, PCCM or other health
care provider in the State.
(2) Freedom from conflict of interest. The broker and its
subcontractor are free from conflict of interest. A broker or
subcontractor is not considered free from conflict of interest if any
person who is the owner, employee, or consultant of the broker or
subcontractor or has any contract with them--
(i) Has any direct or indirect financial interest in any entity or
health care provider that furnishes services in the State in which the
broker or subcontractor provides enrollment services;
(ii) Has been excluded from participation under title XVIII or XIX
of the Act;
(iii) Has been debarred by any Federal agency; or
(iv) Has been, or is now, subject to civil money penalties under
the Act.
(c) Approval. The initial contract or memorandum of agreement (MOA)
for services performed by the broker has been reviewed and approved by
CMS.

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.

Sec. 438.814 Limit on payments in excess of capitation rates.

FFP is not available for payments pursuant to risk corridors or
incentive arrangements that exceed 105 percent of that portion of the
aggregate amount of approved capitation payments attributable to the
enrollees or services covered by the risk corridor or incentive
arrangement.

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 PCCM 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 section 1915(b) or section 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 MCOs.

(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 MCOs.
(b) Definitions. ``Claim'' and ``clean claim'' have the meaning
given those terms in Sec. 447.45.
(c) Contract requirements. (1) Basic rule. A contract with an MCO
must provide that the organization will meet the requirements of
Secs. 447.45(d)(2) and (d)(3), and abide by the specifications of
Secs. 447.45(d)(5) and (d)(6).
(2) Exception. The MCO 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, the following changes are made:
A. In paragraph (b) introductory text, the parenthetical phrase is
removed.
B. Paragraph (b)(6) is removed.
C. A new paragraph (e) is added to read as follows:

Sec. 447.53 Applicability; specification; multiple charges.

(e) No provider may deny services, to an individual who is eligible
for the services, on account of the individual's inability to pay the
cost sharing.

Sec. 447.58 [Amended]

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

Sec. 447.361 [Removed]

Section 447.361 is removed.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
Dated: August 1, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

Approved: August 10, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-20715 Filed 8-16-01; 8:45 am]
BILLING CODE 4120-01-P