Federal Register, Volume 80 Issue 104 (Monday, June 1, 2015)

[Federal Register Volume 80, Number 104 (Monday, June 1, 2015)]
[Proposed Rules]
[Pages 31098-31297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12965]

[[Page 31097]]

Vol. 80

Monday,

No. 104

June 1, 2015

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 431, 433, 438, et al.

Medicaid and Children's Health Insurance Program (CHIP) Programs;
Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and
CHIP Comprehensive Quality Strategies, and Revisions Related to Third
Party Liability; Proposed Rules

Federal Register / Vol. 80 , No. 104 / Monday, June 1, 2015 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 431, 433, 438, 440, 457 and 495

[CMS-2390-P]
RIN 0938-AS25

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would modernize the Medicaid managed care
regulations to reflect changes in the usage of managed care delivery
systems. The proposed rule would align the rules governing Medicaid
managed care with those of other major sources of coverage, including
coverage through Qualified Health Plans and Medicare Advantage plans;
implement statutory provisions; strengthen actuarial soundness payment
provisions to promote the accountability of Medicaid managed care
program rates; and promote the quality of care and strengthen efforts
to reform delivery systems that serve Medicaid and CHIP beneficiaries.
It would also ensure appropriate beneficiary protections and enhance
policies related to program integrity. This proposed rule would also
require states to establish comprehensive quality strategies for their
Medicaid and CHIP programs regardless of how services are provided to
beneficiaries. This proposed rule would also implement provisions of
the Children's Health Insurance Program Reauthorization Act of 2009
(CHIPRA) and addresses third party liability for trauma codes.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on July 27, 2015.

ADDRESSES: In commenting, please refer to file code CMS-2390-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-2390-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-2390-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Nicole Kaufman, (410) 786-6604, Medicaid Managed Care Operations.
Kristin Younger, (410) 786-3869, Medicaid Managed Care Quality.
Meg Barry, (410) 786-1536, CHIP.
Nancy Dieter, (410) 786-7219, Third Party Liability.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely would also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

I. Medicaid Managed Care
A. Background
B. Provisions of the Proposed Regulations
1. Alignment With Other Health Coverage Programs
a. Marketing
b. Appeals and Grievances
c. Medical Loss Ratio
2. Standard Contract Provisions
3. Setting Actuarially Sound Capitation Rates for Medicaid
Managed Care Programs
a. Definitions
b. Actuarial Soundness Standards
c. Rate Development Standards
d. Special Contract Provisions Related to Payment
e. Rate Certification Submission
4. Other Payment and Accountability Improvements
a. Prohibition of Additional Payments for Services Covered Under
MCO, PIHP, or PAHP Contracts
b Subcontractual Relationships and Delegation
c. Program Integrity
d. Sanctions
e. Deferral and/or Disallowance of FFP for Non-Compliance With
Federal Standards
f. Exclusion of Entities
5. Beneficiary Protections
a. Enrollment
b. Disenrollment Standards and Limitations
c. Beneficiary Support System
d. Coverage and Authorization of Services and Continuation of
Benefits While the MCO, PIHP, or PAHP Appeal and the State Fair
Hearing Are Pending
e. Continued Services to Beneficiaries and Coordination and
Continuity of Care
f. Advancing Health Information Exchange
g. Managed Long-Term Services and Supports

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h. Stakeholder Engagement for MLTSS
6. Modernize Regulatory Requirements
a. Availability of Services, Assurances of Adequate Capacity and
Services, and Network Adequacy Standards
b. Quality of Care
c. State Monitoring Standards
d. Information Standards
e. Primary Care Case Management
f. Choice of MCOs, PIHPs, PAHPs, PCCMs and PCCM Entities
g. Non-Emergency Medicaid Transportation PAHPs
h. State Plan Standards
7. Implementing Statutory Provisions
a. Encounter Data and Health Information Systems
b. Standards for Contracts Involving Indians, Indian Health Care
Providers and Indian Managed Care Entities
c. Emergency and Post-Stabilization Services
8. Definitions and Technical Corrections
a. Definitions
b. Technical Corrections
II. CHIP Requirements
A. Background
B. Provisions of the Proposed Regulations
1. Definitions
2. Federal Financial Participation
3. Basis, Scope, and Applicability
4. Contracting Requirements
5. Rate Development Standards and Medical Loss Ratio
6. Non-Emergency Medical Transportation PAHPs
7. Information Requirements
8. Requirement Related to Indians, Indian Health Care Providers,
and Indian Managed Care Entities
9. Managed Care Enrollment, Disenrollment, and Continued
Services to Beneficiaries
10. Conflict of Interest Safeguards
11. Network Adequacy Standards
12. Enrollee Rights
13. Provider-Enrollee Communication
14. Marketing Activities
15. Liability for Payment
16. Emergency and Poststabilization Services
17. Access Standards
18. Structure and Operation Standards
19. Quality Measurement and Improvement
20. External Quality Review
21. Grievances
22. Sanctions
23. Program Integrity--Conditions Necessary to Contract as an
MCO, PAHP, or PIHP
III. Third Party Liability
A. Background
B. Provisions of the Proposed Regulations
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis

Acronyms

Because of the many organizations and terms to which we refer by
acronym in this proposed rule, we are listing these acronyms and their
corresponding terms in alphabetical order below:

[the] Act Social Security Act
Affordable Care Act The Affordable Care Act of 2010 (which is the
collective term for the Patient Protection and Affordable Care Act
(Pub. L. 111-148) and the Health Care Education Reconciliation Act
(Pub. L. 111-152))
ARRA American Recovery and Reinvestment Act of 2009
BBA Balanced Budget Act of 1997
BIA Bureau of Indian Affairs
CDIB Certificate of Degree of Indian Blood
CPE Certified Public Expenditure
CFR Code of Federal Regulations
CBE Community Benefit Expenditures
CHIP Children's Health Insurance Program
CHIPRA Children's Health Insurance Program Reauthorization Act of
2009
CMS Centers for Medicare & Medicaid Services
DUR Drug Utilization Review [program]
EQR External Quality Review
EQRO External Quality Review Organization
FFM Federally-Facilitated Marketplaces
FFP Federal Financial Participation
FFS Fee-For-Service
FMAP Federal Medical Assistance Percentage
FQHC Federally Qualified Health Center
FY Fiscal Year
HHS [U.S. Department of] Health and Human Services
HIO Health Insuring Organization
HIPAA Health Insurance Portability and Accountability Act of 1996
ICD International Classification of Diseases
IGT Intergovernmental Transfer
IHCP Indian Health Care Provider
LEP Limited English Proficiency
LTSS Long-Term Services and Supports
MA Medicare Advantage
MACPAC Medicaid and CHIP Payment and Access Commission
MCO Managed Care Organization
MFCU Medicaid Fraud Control Unit
MHPA Mental Health Parity Act of 1996
MHPAEA Mental Health Parity and Addiction Equity Act MHPAEA
MLTSS Managed Long-Term Services and Supports
MLR Medical Loss Ratio
MSIS Medicaid Statistical Information System
MH/SUD Mental Health/Substance Use Disorder Services
NAMD National Association of Medicaid Directors
NCQA National Committee for Quality Assurance
NEMT Non-Emergency Medical Transportation
OMB Office of Management and Budget
PCCM Primary Care Case Manager
PHS Public Health Service Act
PIP Performance Improvement Project
PMPM Per-member Per-month
PAHP Pre-paid Ambulatory Health Plan
PIHP Pre-paid Inpatient Health Plan
QHP Qualified Health Plans
SHO State Health Official Letter
SBC Summary of Benefits and Coverage
SFH State Fair Hearing
SBM State-Based Marketplaces
SIU Special Investigation Unit
SMDL State Medicaid Director Letter
T-MSIS Transformed Medicaid Statistical Information System
TPL Third Party Liability

I. Medicaid Managed Care

A. Background

In 1965, amendments to the Social Security Act (the Act)
established the Medicaid program as a joint federal and state program
to provide medical assistance to individuals with low incomes. Under
the Medicaid program, each state that chooses to participate in the
program and receive federal financial participation for program
expenditures establishes eligibility standards, benefits packages, and
payment rates, and undertakes program administration in accordance with
federal statutory and regulatory standards. The provisions of each
state's Medicaid program are described in the state's Medicaid ``state
plan.'' Among other responsibilities, we approve state plans and
monitor activities and expenditures for compliance with federal
Medicaid laws to ensure that beneficiaries receive access to quality
health care. (Throughout this preamble, we use the term
``beneficiaries'' to mean ``individuals eligible for and receiving
Medicaid benefits.'')
Until the early 1990s, most Medicaid beneficiaries received
Medicaid coverage through fee-for-service (FFS) arrangements. However,
over time that practice has shifted and states are increasingly
utilizing managed care arrangements to provide Medicaid coverage to
beneficiaries. Under managed care, beneficiaries receive part or all of
their Medicaid services from health care providers who are paid by an
organization that is under contract with the state; the organization
receives a monthly capitated payment for a specified benefit package.
In 1992, 2.4 million Medicaid beneficiaries (or 8 percent of all
Medicaid beneficiaries) accessed part or all of their Medicaid benefits
through capitated health plans; by 1998, that number had increased
fivefold to 12.6 million (or 41 percent of all Medicaid beneficiaries).
In fiscal year (FY) 2011, at least 39 million (or 58 percent of all
Medicaid beneficiaries) in 39 states and the District of Columbia
accessed part or all of their Medicaid benefits through such capitated
health plans.\1\
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\1\ MACPAC, Report to Congress on Medicaid and CHIP (June 2014),
tables 11 and 14 at pgs. 106 and 120, available at https://www.macpac.gov/wp-content/uploads/2015/01/2014-06-13_MACPAC_Report.pdf.
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In a Medicaid managed care delivery system, through contracts with
health plans, states require that the plan provide or arrange for a
specified package of Medicaid services for

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enrolled beneficiaries. Under these contracts, the organization
offering the health plan is paid a fixed, prospective, monthly payment
for each enrolled beneficiary. This payment approach is referred to as
``capitation.'' Beneficiaries enrolled in capitated managed care
organizations (MCOs) must access the Medicaid services covered under
the state plan through the health plan. States may contract with
managed care entities that offer comprehensive benefits, referred to as
MCOs. Alternatively, managed care plans can receive a capitated payment
for a limited array of services, such as behavioral health or dental
services. Such entities that receive a capitated payment for a limited
array of services are referred to as ``prepaid inpatient health plans''
(PIHPs) or ``prepaid ambulatory health plans'' (PAHPs) depending on the
scope of services the health plan provides. Finally, applicable federal
statute recognizes primary care case management as a type of managed
care entity subject to some of the same standards as MCOs. States that
do not pursue capitated arrangements but want to promote coordination
and care management may contract with primary care providers or care
management entities to support better health outcomes and increase the
quality of care delivered to beneficiaries, but continue to pay for
covered benefits on a FFS basis directly to the health care provider.
As Medicaid managed care grew in the 1990's, the Congress enacted
specific standards for Medicaid managed care programs in sections 4701
through 4709 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33,
enacted on August 5, 1997). The BBA represented the first comprehensive
revision to federal statutes governing Medicaid managed care since the
early 1980s. In general, the BBA modified the 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 statutory standards; (2) eliminate standards on the composition
of enrollment in MCOs that had not proven to be effective (the 75/25
rule limiting Medicare and Medicaid enrollment to 75 percent of total
enrollment); (3) apply consumer protections that were becoming
widespread in the private sector and Medicare markets to Medicaid
beneficiaries (for example, consumer information standards and
standards for access to services); and (4) apply certain advances and
developments in health care quality improvement that were then widely
used in the private sector to Medicaid managed care programs. These
standards are codified in sections 1903 and 1932 of the Act and
implemented in regulations at 42 CFR part 438 published June 14, 2002
(67 FR 40989), with an effective date of August 13, 2002.
Since the publication of the Medicaid managed care regulations in
2002, the landscape for health care delivery has continued to change,
both within the Medicaid program and outside (in Medicare and the
private sector market). States have continued to expand the use of
managed care over the past decade, serving both new geographic areas
and broader groups of Medicaid beneficiaries. In particular, states
have expanded managed care delivery systems to include seniors and
persons with disabilities, as well as those who need long-term services
and supports (LTSS). In 2004, eight states (AZ, FL, MA, MI, MN, NY, TX,
and WI) had implemented Medicaid managed long-term services and
supports (MLTSS) programs. By January 2014, 12 additional states had
implemented MLTSS programs (CA, DE, IL, KS, NC, NM, OH, PA, RI, TN, VA,
WA).
The predominant form of managed care in Medicaid is capitated risk-
based arrangements--virtually identical in structure and payment to
arrangements in the commercial marketplace. Notably, in FY 2011, at
least 58 percent of all Medicaid beneficiaries (about 39 million
individuals) in 39 states and the District of Columbia accessed part or
all of their Medicaid benefits through such capitated health plans,
accounting for approximately 24 percent of all Medicaid spending. These
figures are based on the Medicaid and CHIP Payment and Access
Commission (MACPAC) Report to Congress on Medicaid and CHIP (June
2014).\2\ Some states carve out behavioral health or dental services
from the comprehensive acute care MCO and manage such services under a
risk-based PIHP or PAHP. Additional states have added or expanded
managed care programs since 2012.
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\2\ MACPAC, Report to Congress on Medicaid and CHIP (June 2014)
at pgs. 106, 119, and 120, available at https://www.macpac.gov/wp-content/uploads/2015/01/2014-06-13_MACPAC_Report.pdf.
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States may implement a managed care delivery system using four
types of federal authorities. Under the authority of section 1915(a) of
the Act, states can implement a voluntary managed care program by
executing a contract with organizations that the state has procured
using a competitive procurement process. To require beneficiaries to
enroll in managed care to receive services, a state must obtain
approval from CMS under two primary authorities:
(1) Through a state plan amendment that meets standards set forth
in section 1932 of the Act, states can implement a mandatory managed
care delivery system. This authority does not allow states to require
beneficiaries who are dually eligible for Medicare and Medicaid (dually
eligible), American Indians/Alaska Natives, or children with special
health care needs to enroll in a managed care program. State plans,
once approved, remain in effect until modified by the state.
(2) CMS may grant a waiver under section 1915(b) of the Act,
permitting a state to require all Medicaid beneficiaries to enroll in a
managed care delivery system, including dually eligible beneficiaries,
American Indians/Alaska Natives, or children with special health care
needs. After approval, a state may operate a section 1915(b) waiver for
a 2-year period (certain waivers can be operated for up to 5 years if
they include dually eligible beneficiaries) before requesting a renewal
for an additional 2 (or 5) year period.
CMS may also authorize managed care programs as part of
demonstration projects under section 1115(a) of the Act that includes
waivers permitting the state to require all Medicaid beneficiaries to
enroll in a managed care delivery system, including dually eligible
beneficiaries, American Indians/Alaska Natives, and children with
special health care needs. Under this authority, states may seek
additional flexibility to demonstrate and evaluate innovative policy
approaches for delivering Medicaid benefits, as well as the option to
provide services not typically covered by Medicaid. Such flexibility is
approvable only if the objectives of the Medicaid statute are likely to
be met, and is subject to evaluation.
These authorities may permit states to operate their programs
without complying with the following standards of Medicaid law outlined
in section of 1902 of the Act:
Statewideness [section 1902(a)(1) of the Act]: States may
implement a managed care delivery system in specific areas of the State
(generally counties/parishes) rather than the whole state;
Comparability of Services [section 1902(a)(10) of the
Act]: States may provide different benefits to people enrolled in a
managed care delivery system; and
Freedom of Choice [section 1902(a)(23)(A) of the Act]:
States may

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require people to receive their Medicaid services only from a managed
care plan or primary care provider.
Laws passed since the Medicaid managed care regulations were
promulgated in 2002 have altered the Medicaid program to such a degree
that we believe our current regulatory framework for managed care is no
longer the most appropriate. Such legislation includes the Medicare
Improvement for Patients and Providers Act (MIPPA) (Pub. L. 110-275,
enacted on July 15, 2008), the Paul Wellstone and Pete Domenici Mental
Health Parity and Addiction Equity Act of 2008 (sections 511 and 512 of
the Tax Extenders and Alternative Minimum Tax Relief Act of 2008)
(MHPAEA) (Division C of Pub. L. 110-343, enacted on October 3, 2008),
the Children's Health Insurance Program Reauthorization Act (CHIPRA)
(Pub. L. 111-3, enacted on February 4, 2009), and the Patient
Protection and Affordable Care Act of 2010 (Affordable Care Act) (Pub.
L. 111-148, enacted March 23, 2010). We note, in particular, that the
Affordable Care Act provided states the option to expand Medicaid
eligibility to most low-income adults, bringing millions of new
beneficiaries into the Medicaid program, most of whom are likely to
receive coverage through capitated managed care. In addition, the
coverage provided under the Affordable Care Act has also made issues of
coordination and alignment with the private insurance market
increasingly important to improve operational efficiencies for health
plans that operate in both public and private markets, and improve the
experience of care for individuals moving between sources of health
care coverage. Specifically, Medicaid beneficiaries who experience
increases in income may move to receiving health insurance coverage
through qualified health plans in the Marketplace. Greater alignment
between Medicaid managed care plans and qualified health plans will
help these individuals transition between sources of coverage.
Because the health care delivery landscape has changed
substantially, both within the Medicaid program and outside of it, and
reflecting the significant role that managed care plays in the Medicaid
program, this rule proposes to modernize the Medicaid managed care
regulatory structure to facilitate and support delivery system reform
initiatives to improve health care outcomes and the beneficiary
experience while effectively managing costs. To that end, the proposed
rule includes provisions that would strengthen the ability of states to
use managed care to promote innovative and cost effective methods of
delivering care to Medicaid and CHIP beneficiaries, to incent managed
care plans to engage in state activities that promote certain
performance targets, and to identify strategies for value-based
purchasing models for provider reimbursement. The rule also includes
provisions that strengthen the quality of care provided to Medicaid
beneficiaries, including measuring and managing quality and improving
coordination of care. The rule also promotes more effective use of data
in overseeing managed care and promotes advances in health information
exchange.
This proposed rule would revise the Medicaid managed care
regulations to align with other statutory and regulatory provisions
that pertain to other sources of coverage, strengthen actuarial
soundness and other payment regulations to improve accountability of
rates paid in the Medicaid managed care program, ensure beneficiary
protections, and incorporate statutory provisions affecting Medicaid
managed care passed since 2002. In addition, the rule promotes
beneficiary access to care by strengthening provider networks. This
proposed rule also recognizes that through managed care plans, state
and federal taxpayer dollars are used to purchase covered services from
providers on behalf of Medicaid enrollees, thus ensuring accountability
and strengthening program integrity safeguards are necessary to ensure
the appropriate stewardship of those funds.
We recognize that in addition to the changes the Affordable Care
Act brought to the Medicaid program, it also included significant
changes for private insurance and group health plans. Among the reforms
of the private health care coverage market are the creation of minimum
standards for the treatment of appeals by covered individuals, minimum
medical loss ratios for health insurance, and certain minimum coverage
standards for essential health benefits and preventive services. The
Affordable Care Act created the Marketplaces (also known as
``Exchanges'') and qualified health plans (QHPs), which are private
health plans that are certified as meeting minimum standards. See 45
CFR 155.20. Only QHPs can be offered through Marketplaces and they are
the only plans for which federal premium tax credits and cost-sharing
reductions are available to assist many consumers with the cost of
health care coverage. In developing these Medicaid managed care
proposed regulations, we considered the market reforms, the standards
established for QHPs, and our Medicare Advantage (MA) experience, which
is the managed care component of the Medicare program that has also
grown significantly since 2002.
Therefore, this proposed rule seeks to align Medicaid managed care
rules with Marketplace or MA standards, where appropriate and feasible,
to support administrative simplicity for states and health plans to
manage health care delivery across different product lines, as well as
to enhance beneficiary protections. In general, we believe that
adopting standards for Medicaid managed care that parallel or align
with those in the private health care and MA context where appropriate
will benefit Medicaid programs and enrollees, both because those
minimum standards would provide an appropriate level of protection for
enrollees and because alignment would ease the administrative burden on
issuers and regulators that work in all of those contexts and markets.
By aligning Medicaid managed care with other programs when possible, we
believe enrollees will experience smoother transitions and have fewer
disruptions to care when they transition among sources of health care
coverage. Improving beneficiary experience and alignment are important
goals of this proposed rule, and the proposed changes would enable
states and health plans to more successfully achieve these goals.

B. Provisions of the Proposed Regulations

We have restated the entirety of part 438 and incorporated our
proposed changes into the regulation text due to the extensive nature
of our proposal. However, for many sections within part 438, we are not
proposing substantive changes. This preamble discusses our proposed
changes with discussion of the current law where appropriate.
Throughout this document, the term ``PAHP'' is used to mean a
prepaid ambulatory health plan that does not exclusively provide non-
emergency medical transportation services. Whenever this document is
referencing a PAHP that exclusively provides non-emergency medical
transportation services, it will be specifically addressed as a ``Non-
Emergency Medical Transportation (NEMT) PAHP.'' In addition, many of
our proposals incorporate ``PCCM entities'' into existing regulatory
provisions and the proposed amendments. Our proposal on this topic is
discussed in section I.B.6.e. of this proposed rule.
In general, we have organized the subjects in this proposed rule
according to one of the goals described above, but

[[Page 31102]]

many of the subjects could be attributed to more than one goal.
1. Alignment With Other Health Coverage Programs
a. Marketing (Sec. 438.104)
Current regulation at Sec. 438.104 imposes certain limits on MCOs,
PIHPs, PAHPs, and PCCMs in connection with marketing activities; our
2002 final rule based these limits on those set forth in section
1932(d)(2) of the Act for MCOs and PCCMs and extended them to PIHPs and
PAHPs based on our authority at section 1902(a)(4) of the Act. The
creation of qualified health plans (QHPs) by the Affordable Care Act
and changes in managed care delivery systems since the adoption of the
2002 rule are the principle reasons behind our proposal to revise the
marketing standards applicable to Medicaid managed care programs. QHPs
are defined in 45 CFR 155.20.
We propose to revise Sec. 438.104(a) as follows: To (1) to amend
the definition of ``marketing'' in Sec. 438.104 to specifically
exclude communications from a QHP to Medicaid beneficiaries even if the
issuer of the QHP is also the entity providing Medicaid managed care;
(2) to amend the definition of ``marketing materials;'' and (3) to add
a definition for ``private insurance'' to clarify that QHPs certified
for participation in the FFM or an SBM are excluded from the term
``private insurance'' as it is used in this regulation. In recognition
of the wide array of services PCCM entities provide in some markets, we
also propose to include PCCM entities in Sec. 438.104 as we believe it
is important to extend the beneficiary protections afforded by this
section to enrollees of PCCM entity enrollees by proposing to revise
paragraphs (a) and (b) to include ``or PCCM entity'' wherever the
phrase ``MCO, PIHP, PAHP or PCCM'' appears. We are not proposing
changes to paragraph (b), except for one clarifying change to (b)(1)(v)
as noted below.
We have received several questions from Medicaid managed care plans
about the implications of current Medicaid marketing rules in Sec.
438.104 for their operation of QHPs. Specifically, stakeholders have
asked whether the provisions of Sec. 438.104(b)(1)(iv) would prohibit
a carrier that offers both a qualified health plan (QHP) and a managed
care organization (MCO) from marketing both products. The provision in
the regulations implements section 1932(d)(2)(C) of the Act, titled
``Prohibition of Tie-Ins.'' In issuing regulations implementing this
provision in 2002, we clarified that we interpreted it as intended to
preclude tying enrollment in the Medicaid plan to purchasing other
types of private insurance (67 FR 41027). Therefore, it would not apply
to the issue of a possible alternative to the Medicaid plan, which a
QHP could be if the consumer is determined as not Medicaid eligible or
loses Medicaid eligibility. Section 438.104(b)(1)(iv) only prohibits
insurance policies that would be sold ``in conjunction with''
enrollment in the Medicaid plan.
We recognize that a single legal entity could be operating separate
lines of business, that is, a Medicaid MCO (or PIHP or PAHP) and a QHP.
Issuers of QHPs may also contract with states to provide Medicaid
managed care plans; in some cases the issuer might be the MCO, PIHP, or
PAHP, or the entity offering the Medicaid managed care plan, thus
providing coverage to Medicaid beneficiaries. Many Medicaid health plan
contracts with states executed prior to 2014 did not anticipate this
situation and may contain broad language that could unintentionally
result in the application of Medicaid standards to the non-Medicaid
lines of business offered by the single legal entity. For example, if a
state defines the entity subject to the contract through reference to
something shared across lines of business, such as licensure as an
insurer, both the Medicaid MCO and QHP could be subject to the terms of
the contract with the state. To prevent ambiguity and overly broad
restrictions, contracts should contain specific language to clearly
define the state's intent that the contract is specific to the Medicaid
plan being offered by the entity. This becomes critically important in
the case of a single legal entity operating Medicaid and non-Medicaid
lines of business. We strongly recommend that states and Medicaid
health plans review their contracts to ensure that it clearly defines
each party's rights and responsibilities.
As consumers may experience periodic transitions between Medicaid
and QHP eligibility, and families may have members who are divided
between Medicaid and QHP coverage, selecting a carrier that offers both
types of products may be the most effective way for some consumers to
manage their health care needs. Improving coordination of care and
minimizing disruption to care is best achieved when the consumer has
sufficient information about coverage options when making a plan
selection. We believe that our proposed regulatory revisions would
enable more complete and effective information sharing and consumer
education while still upholding the intent of the Medicaid beneficiary
protections detailed in the Act. Section 438.104 alone does not
prohibit a managed care plan from providing information on a qualified
health plan (QHP) to enrollees who could potentially enroll in a QHP as
an alternative to the Medicaid plan due to a loss of eligibility or to
potential enrollees who may consider the benefits of selecting an MCO,
PIHP, PAHP, or PCCM that has a related QHP in the event of future
eligibility changes. Our proposal would set minimum marketing standards
that a state may build on as part of its contracts with entities
providing Medicaid managed care.
Finally, we have also received inquiries about the use of social
media outlets for dissemination of marketing information about Medicaid
managed care. The definition of ``marketing'' in Sec. 438.104 includes
``any communication from'' an entity that provides Medicaid managed
care (including MCOs, PIHPs, PAHPs, etc.) and ``marketing materials''
include ``materials that . . . are produced in any medium.'' These
definitions are sufficiently broad to include social media and we
intend to interpret and apply Sec. 438.104 as applicable to
communication via social media and electronic means. To address these
inquiries and to make this interpretation clear, we also propose to
clarify the regulation text by adding unsolicited contact by email and
texting as prohibited cold-call marketing activities in paragraph
(b)(1)(v).
We believe these proposed revisions would clarify, for states and
issuers, the scope of the marketing provisions in Sec. 438.104, which
generally are more detailed and restrictive than those imposed on QHPs
under 45 CFR 156.225. While we continue to believe that the Medicaid
managed care regulation correctly provides significant protections for
Medicaid beneficiaries, we recognize that the increased prevalence in
some markets of carriers offering both QHP and Medicaid products and
seek to provide clearer and more targeted Medicaid managed care
standards with our proposed changes.
b. Appeals and Grievances (Sec. 438.400, Sec. 438.402, Sec. 438,404,
Sec. 438.406, Sec. 438.408, Sec. 438.410, Sec. 438.414, Sec.
438.416, Sec. 438.424, Sec. 431.200, Sec. 431.220 and Sec. 431.244)
We propose several modifications to the current regulations
governing the grievance and appeals system for Medicaid managed care to
further align and increase uniformity between rules for Medicaid
managed care and rules for

[[Page 31103]]

MA managed care plans and rules applicable to private health insurance
and group health plans. The existing differences between the rules
applicable to Medicaid managed care and those applicable to the MA and
private insurance and group health plans concerning grievance and
appeals processes inhibit the efficiencies that could be gained with a
streamlined grievance and appeals process that applies across the
market. A streamlined process would make navigating the appeals system
more manageable for consumers in an increasingly fluid health care
market. Our proposed changes in subpart F of part 438 would adopt new
definitions, update appeal timeframes, and align certain processes for
appeals and grievances. We also propose modifying Sec. Sec. 431.200,
431.220 and 431.244 to effectuate the changes proposed to subpart F of
part 438.
We are concerned that the different appeal and grievance processes
for the respective programs and health coverage causes: (1) Confusion
for beneficiaries who are transitioning between private health care
coverage, MA coverage, and Medicaid managed care; and (2)
inefficiencies for health insurance issuers that participate in both
the public and commercial sectors. Aligning appeal and grievance
procedures across these areas will provide consumers with a more
manageable and consumer friendly appeals process and allow health
insurers to adopt more consistent protocols across product lines.
The grievance, organization determination, and appeal regulations
in 42 CFR part 422, subpart M, govern grievance, organization
determinations, and appeals procedures for MA members. The internal
claims and appeals, and external review processes for private insurance
and group health plans are found in 45 CFR 147.136. We referred to both
sets of standards in reviewing current Medicaid managed care
regulations regarding appeals and grievances.
(1) Subpart F, Part 438
Two of our proposals concerning the grievance and appeals system
for Medicaid managed care affect the entire subpart. First, we propose
to add PAHPs to the types of entities subject to the standards of
subpart F and propose to revise text throughout this subpart
accordingly. Currently, subpart F only applies to MCOs and PIHPs.
Unlike MCOs which provide comprehensive benefits, PIHPs and PAHPs
provide a narrower benefit package. While PIHPs were included in the
standards for a grievance system, PAHPs were excluded. In 2002 most
PAHPs were, in actuality, capitated PCCM programs managed by individual
physicians or small group practices and, therefore, should not be
expected to have the administrative structure to support a grievance
process. However, since then, PAHPs have evolved into arrangements
under which entities--private companies or government subdivisions--
manage a smaller subset of Medicaid covered services such as dental,
behavioral health, and home and community-based services. Because some
PAHPs may provide those medical services which typically are subject to
medical management techniques such as prior authorization, we believe
PAHPs should be expected to manage a grievance process, and therefore,
propose that they be subject to the grievance and appeals standards of
this subpart. In adding PAHPs to subpart F, our proposal would also
change the current process under which enrollees in a PAHP may seek a
State Fair Hearing (SFH) immediately following an action to deny,
terminate, suspend, or reduce Medicaid covered services in favor of
having the PAHP conduct the first level of review of such actions. We
rely on our authority at sections 1902(a)(3) and 1902(a)(4) of the Act
to propose extending these appeal and grievance provisions to PAHPs.
We note that some PAHPs receive a capitated payment to provide non-
emergency medical transportation (NEMT) services to Medicaid
beneficiaries; for these NEMT PAHPs, an internal grievance and appeal
system does not seem appropriate. The reasons for requiring PAHPs that
cover medical services to adhere to the grievance and appeals processes
in this subpart are not present for a PAHP solely responsible for NEMT.
We propose to distinguish NEMT PAHPs from PAHPs providing medical
services covered under the state plan. Consequently, NEMT PAHPs will
not be subject to these internal grievance and appeal standards.
Beneficiaries receiving services from NEMT PAHPs will continue to have
direct access to the SFH process to appeal adverse benefit
determinations, as outlined in Sec. 431.220. We request comment on
this approach.
As a result of our proposal to have PAHPs generally follow the
provisions of subpart F of part 438, we also propose corresponding
amendments to Sec. Sec. 431.220 and 431.244 regarding SFH, and changes
to Sec. 431.244 regarding hearing decisions. In Sec. 431.220(a)(5),
we propose to add PAHP enrollees to the list of enrollees that have
access to a SFH after an appeal has been decided in a manner adverse to
the enrollee; and in Sec. 431.220(a)(6), we propose that beneficiaries
receiving services from NEMT PAHPs will continue to have direct access
to the SFH process. We propose no additional changes to Sec. 431.220.
In Sec. 431.244, as in part 438 subpart F generally, in each instance
where MCO or PIHP is referenced, we propose to add a reference to
PAHPs.
Second, throughout subpart F, we propose to insert ``calendar''
before any reference to ``day'' to remove any ambiguity as to the
duration of timeframes. This approach is consistent with the timeframes
specified in regulations for the MA program at 42 CFR part 422, subpart
M.
(2) Statutory Basis and Definitions (Sec. 438.400)
In general, the proposed changes for Sec. 438.400 are to revise
the definitions to provide greater clarity and to achieve alignment and
uniformity for health care coverage offered through Medicaid managed
care, private insurance and group health plans, and MA plans. We are
not proposing to change the substance of the description of the
authority and applicable statutes in Sec. 438.400(a) but propose a
more concise statement of the statutory authority.
In Sec. 438.400(b), we propose a few changes to the defined terms.
First, we propose to replace the term ``action'' with ``adverse benefit
determination.'' The proposed definition for ``adverse benefit
determination'' would include the existing definition of ``action'' and
revisions to include determinations based on medical necessity,
appropriateness, health care setting, or effectiveness of a covered
benefit in revised paragraph (b)(1). We believe this would conform to
the term used for private insurance and group health plans and lays the
foundation for MCOs, PIHPs, or PAHPs to consolidate processes across
Medicaid and private health care coverage sectors. We considered the
term ``adverse determination'' but that is already used in Sec.
431.202 to describe a nursing home level of care determination.
Further, the term ``adverse benefit determination'' is used in 45 CFR
147.136 and 29 CFR. 2560.503-1, which are provisions governing internal
grievance and appeals processes for private insurance (the group and
individual insurance markets) and group health plans (fully-insured and
self-insured plans). By adopting a uniform term for MCO, PIHP, or PAHP
enrollees and enrollees in private insurance and group health plans, we
hope consumers will be able to identify similar processes between lines
of business, and be better able to navigate different health care
coverage options more easily. Our proposal

[[Page 31104]]

would also update cross-references to other regulations affected by
this proposed rule, delete the term ``Medicaid'' before the word
``enrollee,'' and consistently replace the term ``action'' in the
current regulations in subpart F with the term ``adverse benefit
determination'' throughout this subpart.
In addition to using the new term ``adverse benefit
determination,'' we propose to revise the definition of ``appeal'' to
add accuracy by stating that an appeal is a review by the MCO, PIHP, or
PAHP, as opposed to the current definition which defines it as a
request for a review. In the definition of ``grievance,'' we propose a
conforming change to delete the reference to ``action,'' to delete the
part of the existing definition that references the term being used to
mean an overall system, and to add text to clarify the scope of
grievances.
For clarity, we propose to separately define ``grievance system''
as the processes the MCO, PIHP, or PAHP implements to handle appeals
and grievances and collect and track information about them. By
proposing a definition for ``grievance system,'' we intend to clarify
that a MCO, PIHP, or PAHP must have a formal structure of policies and
procedures to appropriately address both appeals and grievances. We
also propose to remove the reference to the state's fair hearing
process from this definition as it is addressed in part 431, subpart E.
This continued to be a significant source of confusion, even after the
changes were made in the 2002 final rule, and we hope these proposed
changes add clarity.
(3) General Requirements (Sec. 438.402)
We propose in paragraph (a) to add ``grievance'' in front of
``system'' and to delete existing language that defines a system in
deference to the proposed new definition added in Sec. 438.400. We
also propose to add text to clarify that subpart F does not apply to
NEMT PAHPs.
In paragraph (b), we propose to revise the paragraph heading to
``Level of appeals'' and limit MCOs, PIHP, and PAHPs to only one level
of appeal for enrollees before beneficiaries exhaust the managed care
plan's internal appeal process. Once this single level appeal process
is exhausted, the enrollee would be able to request a SFH under subpart
E of part 431. In conjunction with this proposal, we are also proposing
to amend Sec. 438.402(c)(1)(i) and Sec. 438.408(f) with corresponding
text that would have enrollees exhaust their MCO, PIHP, or PAHP appeal
rights before seeking a SFH. Our proposal is designed to ensure that
the MCO, PIHP, or PAHP process would not be unnecessarily extended by
having more than one level of internal review. This proposal is
consistent with the limit imposed on issuers of individual market
insurance under 45 CFR 147.136(b)(3)(ii)(G) and MA organizations at
Sec. 422.578, although we acknowledge that issuers of group market
insurance and group health plans are not similarly limited under 45 CFR
147.136(b)(2) and 29 CFR 2560.503-1(c)(3). We believe that this
proposal would not impair the administrative alignment we seek in this
context and ensures that enrollees can reach the SFH process within an
appropriate time. We request comment on this proposal.
In paragraph (c)(1)(i), we propose to revise this section to permit
an enrollee to request a SFH after receiving notice from the MCO, PIHP,
or PAHP upholding the adverse benefit determination. We propose in
paragraph (c)(1)(ii) to remove the standard for the enrollee's written
consent for the provider to file an appeal on an enrollee's behalf. The
current standard is not specified in section 1932(b)(4) of the Act and
is inconsistent with similar MA standards for who may request an
organization determination or a reconsideration at Sec.
422.566(c)(1)(ii) and Sec. 422.578, so we believe it is not necessary.
We propose in paragraph (c)(2) to delete the state's option to
select a timeframe between 20 and 90 days for enrollees to file an
appeal and propose to revise paragraphs (c)(2)(i) and (ii) to set the
timing standards for filing grievances (at any time) and appeals (60
calendar days), respectively. For grievances, we do not believe that
grievances need a filing limit as they do not progress to a SFH and
thus do not need to be constrained by the coordination of timeframes.
For appeals, proposed paragraph (c)(2)(ii) would permit an enrollee or
provider to file an appeal within 60 calendar days of receipt of the
notice of an adverse benefit determination. Medicare beneficiaries in a
MA plan and enrollees in private health care coverage each have 60
calendar days to request an appeal under regulations governing MA plans
(Sec. 422.582) and private insurance and group health plans (45 CFR
147.136(b)(2) and (b)(3) and 29 CFR 2560.503-1(h)(2)). By adjusting the
timeframe for MCO, PIHP, or PAHP enrollees to file appeals to 60
calendar days from the date of notice of the adverse decision, our
proposal would achieve alignment and uniformity across Medicaid managed
care plans, MA organizations, and private insurance and group health
plans, while ensuring adequate opportunity for beneficiaries to appeal.
We note that the existing provisions of Sec. 438.402 (b)(2)(i) are
subsumed into the proposed paragraph (c)(1)(i) and (ii) while the
existing provisions of paragraph (b)(2)(ii) would be deleted consistent
with our proposal in Sec. 438.408(f)(1) concerning exhaustion of the
MCO's, PIHP's, or PAHP's appeal process.
In paragraph (c)(3), we propose to add headings to paragraphs
(c)(3)(i) and (c)(3)(ii) and to make non-substantive changes to the
text setting forth the procedures by which grievances or appeals are
filed. Under our proposal, as under current law, a standard grievance
or appeal may be requested orally or in writing (which includes
online), and standard appeal requests made orally must be followed up
in writing. Expedited appeal requests may be requested either way, and
if done orally, the consumer does not need to follow up in writing.
We request comment on the extent to which states and managed care
plans are currently using or plan to implement an online system that
can be accessed by enrollees for filing and/or status updates of
grievances and appeals. If such systems are not in use or in
development, we request comment on the issues influencing the decision
not to implement such a system and whether an online system for
tracking the status of grievances and appeals should be required at the
managed care plan level.
(4) Timely and Adequate Notice of Adverse Benefit Determination (Sec.
438.404)
In Sec. 438.404, we propose to revise the section heading to a
more accurate and descriptive title, ``Timely and adequate notice of
adverse benefit determination.'' In paragraph (a), we propose a non-
substantive wording revision to more accurately reflect the intent that
notices must be timely and meet the information standards detailed in
proposed Sec. 438.10.
In paragraph (b), describing the minimum content of the notice, we
propose to delete paragraph (b)(4) (about the state option for
exhaustion) to correspond to our proposal in Sec. 438.408(f) and
redesignate the remaining paragraphs accordingly. In paragraph (b)(2),
we propose to clarify that the reason for the adverse benefit
determination includes the right of the enrollee to be provided upon
request and free of charge, reasonable access to and copies of all
documents, records, and other information relevant to the enrollee's
claim for benefits. This

[[Page 31105]]

additional documentation would include information regarding medical
necessity criteria, and any processes, strategies, or evidentiary
standards used in setting coverage limits. In new paragraph (b)(5), we
propose to replace expedited ``resolution'' with expedited ``appeal
process'' to add consistency with wording throughout this subpart. We
further propose to add the phrase ``consistent with State policy'' in
paragraph (b)(6) to be consistent with a proposed change in Sec.
438.420(d) regarding the MCO's, PIHP's, or PAHP's ability to recoup
from the enrollee under a final adverse decision be addressed in the
contract and that such practices be consistent across both FFS and
managed care delivery systems within the state. While notice of the
possibility of recoupment under a final adverse decision is an
important beneficiary protection, we recognize that such notice may
deter an enrollee from exercising the right to appeal. We would issue
guidance following publication of the rule regarding the model language
and content of such notice to avoid dissuading enrollees from pursuing
appeals.
In paragraph (c), we propose to revise paragraph (c)(4) to replace
``extends the timeframe in accordance with . . .'' with ``meets the
criteria set forth . . .'' to more clearly state that MCOs, PIHPs, and
PAHPs cannot extend the timeframes without meeting the specific
standards of Sec. 438.210(d)(1)(ii). Lastly, in paragraph (c)(6), we
propose to update the cross reference from Sec. 438.210(d) to Sec.
438.210(d)(2).
(5) Handling of Grievances and Appeals (Sec. 438.406)
In addition to language consistent with our overall proposal to
make PAHPs subject to the grievance and appeals standards for MCOs and
PIHPs, we are proposing to reorganize Sec. 438.406 to be simpler and
easier to follow and to revise certain procedural standards for
appeals. Existing paragraph (a) is revised by adding the existing
provision in paragraph (a)(1) to paragraph (a), which specifies that
each MCO, PIHP, and PAHP must give enrollees any reasonable assistance,
including auxiliary aids and services upon request, in completing forms
and taking other procedural steps.
In paragraph (b), we propose to revise the paragraph heading and
redesignate existing provisions in paragraphs (a)(2) and (a)(3) as
(b)(1) and (b)(2), respectively; we also propose to add grievances to
the provisions of both. MCOs, PIHPs, or PAHPs would have to send an
acknowledgment receipt for each appeal and grievance and follow the
limitations on individuals making decisions on grievances and appeals
in paragraphs (b)(2)(i) and (ii). In new (b)(2)(i), we propose to add
that individuals who are subordinates of individuals involved in any
previous level of review are, like the individuals who were involved in
any previous level of review, excluded from making decisions on the
grievance or appeal. This proposed revision adds another level of
beneficiary protection that we believe is appropriate and is consistent
with standards under the commercial rules in 45 CFR 147.136 that
incorporate 29 CFR 2560.503-1(h)(3)(ii). Redesignated paragraph
(b)(2)(ii) remains unchanged from its current form. Consistent with the
standards under the commercial rules in 45 CFR 147.136 that incorporate
29 CFR 2560.503-1(h)(2)(iv), we propose to add a new paragraph
(b)(2)(iii) to specify that individuals that make decisions on appeals
and grievances take all comments, documents, records, and other
information submitted by the enrollee into account regardless of
whether the information had been considered in the initial review. We
propose to redesignate current paragraph (b)(2) as (b)(4) and add
``testimony'' in addition to evidence and legal and factual arguments.
We also propose to use the phrase ``legal and factual arguments'' to
replace the phrase ``allegations of fact or law'' in the current text
for greater clarity.
We note that, currently, in paragraph (b)(3) the enrollee must have
the opportunity before and during the appeal process to examine the
case file, medical record and any documents or records considered
during the appeal process. We propose to redesignate this paragraph as
paragraph (b)(5) and to replace ``before and during'' with
``sufficiently in advance'' of resolution, to add specificity. We also
propose to add ``new or additional evidence'' to the list including
case file, medical records, and any other documents or records that
must be available to the enrollee. This language in paragraph (b)(5)
would align with the disclosure standards applicable to private
insurance and group health plans in 45 CFR 147.136(b)(2)(ii)(C)(1).
Existing paragraph (b)(4) would be redesignated as paragraph (b)(6)
without change.
(6) Resolution and Notification: Grievances and Appeals (Sec. 438.408
and Sec. 431.244(f))
We propose to make significant modifications to Sec. 438.408 to
further align Medicaid managed care standards with MA and private
insurance and group health plan standards. We are proposing several
significant modifications as explained in more detail below: (1)
Changes in the timeframes to decide appeals and expedited appeals, (2)
strengthen notice standards for extensions, and (3) change the
processes for receiving a SFH for enrollees of MCOs, PIHPs, and PAHPs.
In addition, we propose to reorganize the regulation for greater
clarity and to add the phrase ``consistent with state policy'' to
paragraph (e)(2)(iii) to be consistent with our proposal in Sec.
438.420(d).
In Sec. 438.408(b)(2), we propose to adjust the timeframes in
which MCOs, PIHPs, and PAHPs would have to make a decision about an
enrollee appeal to align with the standards applicable to a MA
organization. Currently, MCOs and PIHPs may have up to 45 days to make
a decision about a standard (non-expedited) appeal. In Sec.
422.564(e), MA plans must make a decision about first level appeals in
30 days, while Part D plans must provide a decision in 7 days under
Sec. 423.590(a)(1). Federal regulations on the commercial insurance
market permit up to 60 days for a standard decision on an internal
appeal (see Sec. 147.136(b)(2)(i) and (b)(3), incorporating 29 CFR
2560.503-1(b)(1) for individual health insurance issuers and group
health insurance issuers and plans). We are proposing to shorten the
timeframe for MCO, PIHP, and PAHP appeal decisions from 45 days to 30
calendar days, which would achieve alignment with MA standards while
still allowing adequate time for decision-making and response.
In paragraph (b)(3), we propose to adjust the Medicaid managed care
timeframes for expedited appeals to align with standards applicable to
MA and the commercial insurance market. Currently under subpart F, MCOs
and PIHPs have 3 working days from receipt of a request to make a
decision in an expedited review. The MA (Sec. 422.572(a)) and
commercial insurance regulations (29 CFR 2590.715-2719(c)(2)(xiii))
stipulate that a health plan must make a decision within 72 hours of
receiving a request for expedited review. We propose to modify our
expedited appeal decision timeframes from 3 working days to 72 hours.
The change would improve the speed with which enrollees would receive a
MCO, PIHP, or PAHP decision on critical issues, and align Medicaid
managed care with Medicare and private insurance and group health
plans. Again, this change would enable insurance companies that operate
multiple product lines to have consistent regulatory standards
governing its operations.

[[Page 31106]]

We also propose to strengthen the notification responsibilities on
the MCO, PIHP, or PAHP following an extension of the timeframe for
resolution of a grievance or appeal, when the extension is not
requested by the enrollee. In addition, we propose to add existing text
from paragraph (c)(2)(i) regarding timeframe extensions that are not
requested by the enrollee to paragraph (c)(2). We also propose to add a
standard for the MCO, PIHP, or PAHP to make reasonable efforts to give
the enrollee prompt oral notice of the delay in paragraph (c)(2)(i). We
propose to add the current standards in Sec. 438.404(c)(4)(i) and (ii)
to Sec. 438.408(c)(ii) and (iii), which describe the standards on the
MCO, PIHP, or PAHP for an extension of the timeframe for standard or
expedited appeals for clarity and consistency.
In Sec. 438.408(d)(1) and (2), we propose to add a provision
requiring that grievance notices (as established by the state) and
appeal notices (as directed in the regulation) from a MCO, PIHP, or
PAHP ensure meaningful access for people with disabilities and people
with limited English proficiency by, at a minimum, meeting the
standards described at Sec. 438.10.
In Sec. 438.408(e), we propose to add ``consistent with state
policy'' in paragraph (e)(2)(iii). This is added here to be consistent
with a proposed change in Sec. 438.420(d) which stipulates that the
MCO's, PIHP's, or PAHP's ability to recoup from the enrollee under a
final adverse decision must be addressed in the contract and that such
practices be consistent across both FFS and managed care delivery
systems within the state. For example, if the state does not exercise
the authority for recoupment under Sec. 431.230(b) for FFS, the same
practice must be followed by the state's contracted MCOs, PIHPs, and
PAHPs.
In Sec. 438.408(f), we are proposing to modify the Medicaid
managed care appeals process such that an enrollee must exhaust the
MCO, PIHP, or PAHP appeal process prior to requesting a SFH. This would
eliminate a bifurcated appeals process while aligning with Medicare and
the private market regulations. Under current Medicaid rules, states
have the discretion to decide if enrollees must complete the MCO, PIHP,
or PAHP appeal process before requesting a SFH or whether they can
request a SFH while the MCO, PIHP, or PAHP appeal process is still
underway. Depending on the state's decision in this regard, this
discretion has led to duplicate efforts by the MCO, PIHP, or PAHP and
the state to address an enrollee's appeal. Both MA rules and
regulations governing private insurance and group health plans have a
member complete the health plan's internal appeal process before
seeking a second--that is, external--level review. Our proposed change
would be consistent with both those processes.
Specifically, under the proposed change in paragraph (f)(1), a MCO,
PIHP, or PAHP enrollee would have to complete the MCO, PIHP, or PAHP
appeal process before requesting a SFH. Maintaining two processes at
the same time can be confusing and cumbersome to all parties involved.
With the proposed change, consumers would still be able to take
advantage of the SFH process, but in a consecutive manner which would
lead to less confusion and effort on the enrollee's part. Moreover, our
proposed reduction in the timeframes that a MCO, PIHP, or PAHP would
have to take action on an appeal (from 45 to 30 calendar days) in Sec.
438.408(b)(2) would permit enrollees to reach the SFH process more
quickly. Further, a federal standard would eliminate variations across
the country and lead to administrative efficiencies at the MCO, PIHP,
and PAHP level. We believe that our proposal achieves the appropriate
balance between alignment, beneficiary protections, and administrative
simplicity. For consistency, this change is also reflected in proposed
revisions to Sec. 438.402(b) and Sec. 438.404(b)(4) as noted
previously.
We propose in new paragraph (f)(2) to revise the timeframe
enrollees have to request a SFH to align with filing timeframes
applicable to group health plans and private insurance. Currently in
Sec. 438.408(f)(1), a state may set the timeframe for an enrollee to
request a SFH within the range of 20 to 90 days from the date of notice
of the MCO's, PIHP's, or PAHP's resolution. By adjusting the timeframe
for enrollees to file SFH requests to 120 calendar days, we give
enrollees more time to gather the necessary information, seek
assistance for the SFH process and make the request for a SFH.
We also propose a number of changes to Sec. 431.244, Hearing
Decisions, that correspond to these proposed amendments to Sec.
438.408. In Sec. 431.244, we propose to remove paragraph (f)(1)(ii)
which references direct access to a SFH when permitted by the state. As
that option is proposed to be deleted in Sec. 438.408(f)(1), it should
also be deleted in Sec. 431.244(f)(1). In Sec. 431.244(f)(2), we
considered whether to modify the 3 working day timeframe on the State
to conduct an expedited SFH. In the interest of alignment, we examined
the independent and external review timeframes in both MA and QHPs and
found no analogous standard or consistency for final administrative
action regarding expedited hearings. We believe that SFHs are different
than a review by an Independent Review Organization (IRO) or
Independent Review Entity (IRE). We have therefore decided to keep the
SFH expedited timeframe at 3 working days. We propose to delete current
paragraph (f)(3) as it is no longer relevant given the deletion of
direct access to SFH proposed revision to Sec. 438.408(f)(1). We
propose no additional changes to Sec. 431.244.
(7) Expedited Resolution of Appeals (Sec. 438.410)
In addition to the revisions to add PAHPs to the scope of this
regulation, we propose to revise Sec. 438.410(c)(2) to replace the
current general language on oral and written notification with a cross
reference to Sec. 438.408(c)(2), which as proposed, provides more
specificity on the responsibilities of the MCO, PIHP, or PAHP when
extending timeframes for resolution. We also propose a grammatical
correction to paragraph (b) to replace the word ``neither'' with
``not.'' We propose no other changes to this section.
(8) Information About the Grievance System to Providers and
Subcontractors (Sec. 438.414)
In addition to the change proposed throughout this subpart in
connection with PAHPs, we propose to update the cross reference from
Sec. 438.10(g)(1) to Sec. 438.10(g)(2)(xi) to be consistent with our
proposed revisions to Sec. 438.10, discussed in more detail below in
section I.B.6.d.
(9) Recordkeeping Requirements (Sec. 438.416)
In Sec. 438.416, we propose to modify the recordkeeping standards
under subpart F to achieve consistency across states by specifying the
recordkeeping elements. The current recordkeeping provisions do not set
standards for the type of appeals and grievance information to be
collected, and only stipulate that states must review that information
as part of an overall quality strategy. The proposed recordkeeping
language here would set minimum standards for the types of information
that must be collected to create consistency across states. Under the
proposed updates to the recordkeeping section, states would have to
review information about appeals and grievances as part of its ongoing
monitoring, which would allow for better tracking of issues and promote
faster interventions.

[[Page 31107]]

Specifically, we propose to redesignate the existing provisions of
Sec. 438.416 as a new paragraph (a), adding that the state must review
the information as part of its monitoring of managed care programs and
to update and revise its comprehensive quality strategy. We are
proposing to add a new paragraph (b) to specifically list the
information that must be contained in the record of each grievance and
appeal: A description of the reason for the appeal or grievance, the
date received, the date of each review or review meeting if applicable,
the resolution at each level, the date of resolution, and the name of
the enrollee involved. Finally, we are proposing to add a new paragraph
(c) to stipulate that the record be accurately maintained and made
accessible to the state and available to CMS upon request.
(10) Effectuation of Reversed Appeal Resolutions (Sec. 438.424)
In addition to adding PAHPs to Sec. 438.424 as discussed earlier
in this preamble, we propose to revise the current rule in paragraph
(a) so that the MCO, PIHP, or PAHP must effectuate a reversal of an
adverse benefit determination and authorize or provide such services no
later than 72 hours from the date it receives notice of the adverse
benefit determination being overturned. This is consistent with the
timeframes for reversals by MA organizations and independent review
entities in the MA program, as specified in Sec. 422.619 for expedited
reconsidered determinations, when the reversal is by the MA
organization or the independent review entity. In addition to providing
consistency across these different managed care programs, and the
increases in efficiency that we predict as a result of this alignment,
we believe that 72 hours is sufficient time for an MCO, PIHP, or PAHP
to authorize or provide services that an enrollee has successfully
demonstrated are covered services. We solicit comment on this proposal
and on our assumptions as to the amount of time that is necessary for
an MCO, PIHP, or PAHP to authorize or provide services.
c. Medical Loss Ratio (Sec. 438.4, Sec. 438.5, Sec. 438.8, and Sec.
438.74)
The Affordable Care Act includes standards for a minimum medical
loss ratio (MLR) in the private health insurance and MA markets. A
standardized MLR calculation allows regulators the ability to conduct a
retrospective analysis of premiums paid compared to overall
expenditures to ensure a fair and equitable arrangement is maintained;
additionally, the outcomes of the MLR calculation may be considered by
issuers and managed care plans in future rate development or decision
making. We believe that MLR calculation and reporting are important
tools to ensure that capitation rates set for Medicaid managed care
programs are actuarially sound and adequately based on reasonable
expenditures on covered medical services for enrollees.
As of 2015, Medicaid and CHIP are the only health benefit coverage
programs to not utilize a minimum MLR for managed care plans. We
understand some states require a minimum MLR or some similar
calculation, but these standards vary widely depending on state defined
characteristics and have differing levels of enforcement. In keeping
with our goals of alignment with the health insurance market whenever
reasonable and appropriate and to ensure that capitation rates are
actuarially sound, we propose that the MLR for MCOs, PIHPs, and PAHPs
be calculated, reported, and used in the development of actuarially
sound capitation rates. Under sections 1903(m)(2) and regulations based
on our authority under section 1902(a)(4) of the Act, actuarially sound
capitation rates must be utilized for MCOs, PIHPs, and PAHPs; actuarial
soundness requires that capitation payments cover reasonable,
appropriate and attainable costs in providing covered services to
enrollees in Medicaid managed care programs. Medical loss ratios are
one tool that could be used to assess whether capitation rates are
appropriately set by generally illustrating how those funds are spent
on claims and quality improvement activities as compared to
administrative expenses, demonstrating that adequate amounts under the
capitation payments are spent on services for enrollees. In addition,
MLR calculation and reporting would result in responsible fiscal
stewardship of total Medicaid expenditures by ensuring that states have
sufficient information to understand how the capitation payments made
for enrollees in managed care programs are expended.
A national standard for Medicaid managed care plans that aligns
with the methodologies for health insurance issuers found in 45 CFR 158
et seq. and the rules for MA and Part D plans found in Sec. 422.2400
et seq. and Sec. 423.2400 et seq. would provide the most consistent
approach to calculating and reporting MLR. A consistent methodology
across multiple markets (private, Medicare, and Medicaid) would allow
for administrative efficiency for the states in their roles regulating
insurance and Medicaid and for issuers and managed care entities to
collect and measure data necessary to calculate an MLR and provide
reports. In addition, a consistent standard would allow comparison of
MLR outcomes consistently from state to state and among commercial,
Medicare, and Medicaid managed care plans.
To establish the standard that MLR be calculated, reported and used
in the Medicaid managed care rate setting context, we propose to
incorporate these standards in the actuarial soundness standards
proposed in Sec. 438.4 and Sec. 438.5, and to add new Sec. 438.8 and
Sec. 438.74, which would establish, respectively, the substantive
standards for how MLR is calculated and reported by MCOs, PIHPs, and
PAHPs and state responsibilities in oversight of the MLR standards.
(1) Medical Loss Ratio as a Component of Actuarial Soundness (Sec.
438.4 and Sec. 438.5)
First, we propose standards for how MLR calculations and reporting
must be considered in both a prospective and retrospective manner in
the rate setting process to ensure that capitation rates are
actuarially sound.
In Sec. 438.4(b)(8), we propose that rates for MCOs, PIHPs, and
PAHPs must be set such that, using the projected revenues and costs for
the rate year, the MCO, PIHP, or PAHP would achieve an MLR of at least
85 percent, but not exceed a reasonable maximum threshold that would
account for reasonable administrative costs. We believe that 85 percent
is the appropriate minimum threshold and is the industry standard for
MA and large employers in the private health insurance market. We
believe that considering the MLR as part of the rate setting process
would be an effective mechanism to ensure that program dollars are
being spent on health care services, covered benefits, and quality
improvement efforts rather than on potentially unnecessary
administrative activities. Additionally, our proposed use of the MLR
and 85 percent threshold is very similar to the use of the MLR in the
proposed and final rules entitled ``Rate Increase Disclosure and
Review'' (75 FR 81012 and 76 FR 29973) that implemented 45 CFR 154.205
for that provision considers whether a rate increase that would be
subject to CMS' Center for Consumer Information and Insurance
Oversight's (CCIIO) review would result in a projected MLR below the 85
percent MLR standard. In addition, as issuers may participate in
multiple product lines, we believe that there would be administrative
efficiencies from using consistent

[[Page 31108]]

standards and methods for calculating MLR. We also believe that
issuers, states, and CMS would benefit from an MLR that can be compared
to other similar measures.
We also believe that it is appropriate to consider the MLR in rate
setting to protect against the potential for an extremely high MLR (for
example, an MLR greater than 100 percent). When an MLR is too high, it
means there is a possibility that the capitation rates were set too
low. Capitation rates that are too low raise concerns about enrollees'
access to services, the quality of care, provider participation, and
the continued viability of the Medicaid managed care plans in that
market. Additionally, extremely high MLRs may indicate that the
capitation rates do not account for reasonable administrative costs,
which could result in poor client and provider experiences. We are
hesitant to set a specific upper bound for the MLR that represents a
maximum upper threshold that is analogous to 85 percent as a minimum
threshold. States are better positioned to establish and justify a
maximum MLR threshold, which accounts for the type of services being
delivered, the state's administrative requirements, the maturity of the
program and the managed care plans. Nonetheless, states should consider
an appropriate maximum threshold to ensure that the capitation rates
are adequate for necessary and reasonable administrative costs and we
have proposed such a standard, rather than a specific percentage, for
an upper bound on MLR experience.
In Sec. 438.5(b)(5), we propose that states must use the annual
MLR calculation and reporting from MCOs, PIHPs, or PAHPs as part of
developing rates for future years. While the projected MLR measurement
proposed in Sec. 438.4(b)(8) appears to be most closely tied to the
actuarial soundness of the rates, we believe that knowing the actual
MLR experienced by an MCO, PIHP, or PAHP each year will provide
important information necessary for rate setting for future years. We
propose that states must take the information about past MLR experience
into account as part of the rate setting process. If an MCO, PIHP, or
PAHP has not met the 85 percent MLR in prior years, the state would use
that information in the development of future capitation rates. If the
MCO's, PIHP's, or PAHP's reported MLR calculation continues to reflect
that the actual experience varies from those projections used in the
rate development process, the state, and its actuary, would use that
information during the development of the capitation rates for future
rating periods. The information and process, in turn, assist in setting
a rate where the MCO, PIHP, or PAHP would reasonably be expected to
achieve at least an 85 percent MLR in future contract years.
(2) Standards for Calculating and Reporting Medical Loss Ratio (Sec.
438.8)
Second, we propose minimum standards for how the MLR must be
calculated and the associated reports submitted to the state so that
the MLR information used in the rate setting process is available and
consistent. Our goal in developing the MLR standards is to be as
consistent as possible with the NAIC model and the regulations on
health insurers in the private market and MA, while taking into
consideration the unique aspects of delivering services through
Medicaid managed care. While we considered both the commercial market
and MA standards when developing this proposed rule, we more closely
aligned with the commercial rules as we believe the need for
consistency is greater between plans on the Marketplace and in
Medicaid. We did incorporate MA standards for the calculation of the
MLR when we believed the needs of incorporating standards of a public
program outweighed our desire to create efficiency between the
calculations from the Marketplace to Medicaid.
In paragraph (a), we propose that states ensure through their
contracts with any risk based MCO, PIHP, or PAHP that starts on or
after January 1, 2017, the MCO, PIHP, or PAHP would meet the standards
proposed in Sec. 438.8. Non-risk PIHP or PAHP contracts by their
nature do not need to calculate a MLR standard since contractors are
paid an amount equal to their incurred service costs plus an amount for
administrative activities. Through this proposed paragraph, we propose
that MLR reporting years would start with contracts beginning on or
after January 1, 2017. We believe that most states use 1 year contract
periods with MCOs, PIHPs, and PAHPs, but for those states that do not,
we propose that the state have its MCOs, PIHPs, and PAHPs calculate and
report the MLR for the rating period beginning in 2017. This means if a
state has a contract running from October 2017 through September 2018
and the state wishes to align their MLR reporting year with the
contract year, the first MLR reporting year would be October 2017
through September 2018. We believe that starting the MLR calculation
and reporting standards with contract years starting in 2017 will allow
enough time for states, MCOs, PIHPs, and PAHPs to take any necessary
measures to prepare for application of the MLR after this proposed rule
is finalized. We request comment on this timeframe and whether we
should consider a start date that is some specific time after the final
rule becomes effective.
Paragraph (b) proposes to define terms used in this proposed
section, including the terms MLR reporting year and non-claims cost;
several terms that are relevant for purposes of credibility adjustments
are also proposed but are discussed with proposed Sec. 438.8(h). We
discuss the definition of non-claims cost below in connection with the
proposal at Sec. 438.5(d)(2)(v)(A) and how such costs are excluded
from incurred claims. The private market and MA both calculate the MLR
on a calendar year basis. While we expect some states to use a calendar
year as the basis for the calculation of the MLR, other states may
choose to use a different time period. States vary their contract years
and we propose to give states the option of aligning their MLR
reporting year with the contract year if they so choose so long as the
MLR reporting year is the same as the rating period, although states
will not be permitted to have a MLR reporting year that is more than 12
months. We considered allowing an MLR calculation consistent with any
rating period even if the rating period was more than 12 months, but
were concerned that allowing varying lengths of time in the MLR
reporting year could create inconsistencies with how the credibility
factors are applied to the MLR calculation. In addition, the 12 month
period is consistent with how the commercial and MA MLR is calculated.
In the event the state changes the time period, for example,
transitions from paying capitation rates on a state fiscal year to a
calendar year, the state could choose if the MLR calculation would be
done for two 12 month periods with some period of overlap. Whichever
methodology the state elects, the state will need to clarify the
decision in the actuarial certification and take this overlap into
account when determining the penalties or remittances (if any) on the
MCO, PIHP, or PAHP for not meeting the standards developed by the
state.
Proposed paragraph (c) addresses certain minimum standards for the
use of an MLR if a state elects to mandate a minimum MLR for an MCO,
PIHP, or PAHP. We know that some states have imposed MLR percentages on
certain plans that equal or exceed 85 percent and we do not want to
prevent states from continuing those practices if they believe a higher
MLR percentage is appropriate. Therefore, our proposed

[[Page 31109]]

regulation permits each state, through its law, regulation, or contract
with the MCO, PIHP, or PAHP to establish a minimum MLR that may be
higher than 85 percent, although the method of calculating the MLR
would still be consistent with the standards in proposed Sec. 438.8.
The parameters on state flexibility, to set an MLR requirement that is
no lower than 85 percent but that is calculated consistent with the
requirements in proposed Sec. 438.8, are based on our authority under
section 1902(a)(4) of the Act and recognizes that for some managed care
programs, for example, MLTSS programs, states may find it appropriate
to establish an MLR standard that is higher than 85 percent. If a state
were to set an MLR standard below 85 percent that was calculated in a
different manner than the proposals in Sec. 438.8, it would be
inconsistent with our approach of assuming an MLR of at least 85
percent in the development of actuarially sound capitation rates, as
described in Sec. 438.4(b)(7). We understand that some states use
their existing MLR standard as a general rule or guidepost for health
plan evaluation as opposed to recouping funds from the MCO, PIHP, or
PAHP if its MLR falls below the state-define threshold. While states
would not have to collect remittances from the MCOs, PIHPs, or PAHPs
through this proposed rule (see discussion of Sec. 438.8(j)), we
strongly encourage states to implement the types of financial contract
provisions that would drive MCO, PIHP, and PAHP performance in
accordance with the MLR standard. In section I.B.1.c.(3) of this
proposed rule, we address the treatment of any federal share of
potential remittances.
Proposed paragraphs (d), (e) and (f) propose the basic methodology
and components that make up the calculation of the MLR. The calculation
of the MLR proposed for Medicaid managed care is the sum of the MCO's,
PIHP's, or PAHP's incurred claims, expenditures on activities that
improve health care quality, and activities specified under proposed
Sec. 438.608(a)(1) through (5), (7), (8) and (b) (subject to the cap
in Sec. 438.8(e)(4)), divided by the adjusted premium revenue
collected, taking into consideration any adjustments for MCO, PIHP, or
PAHP enrollment (known as a credibility adjustment). Our proposal uses
the same general calculation as the one established in 45 CFR 158.221
(private plan MLR) with proposed differences as to what is included in
the numerator and the denominator to account for differences in the
Medicaid program. The proposal also calculates the MLR over a 12-month
period rather than a 3-year period.
The total amount of the numerator is proposed in paragraph (e)
which, as noted above, is equal to the sum of the incurred claims,
expenditures on activities that improve health care quality, and,
subject to the cap in paragraph (e)(4), activities related to proposed
standards in Sec. 438.608(a)(1) through (5), (7), (8) and (b) of this
proposed rule. As proposed, there are certain amounts that would need
to be included or deducted from incurred claims for this MLR
calculation. Generally, the proposed definition of incurred claims
comports with the private market and MA standards, with Medicaid
differing in several ways, such as:
We propose that amounts the MCO, PIHP, or PAHP receives
from the state for purposes of stop-loss payments, risk-corridor
payments, or retrospective risk adjustment are deducted from incurred
claims. MCOs, PIHPs, and PAHPs should not include those payments as
incurred claims (proposed Sec. 438.8(e)(2)(ii)(C) and (e)(2)(iv)(A)).
Likewise, if a MCO, PIHP, or PAHP must make payments to
the state because of a risk-corridor or risk adjustment calculation,
this proposed rule would include those amounts in incurred claims
(proposed Sec. 438.8(e)(2)(iv)(A)).
A state may operate Medicaid-specific solvency funds for
its managed care program. If MCOs, PIHPs, or PAHPs must pay into those
funds, this proposed rule would consider those payments incurred claims
(proposed Sec. 438.8(e)(2)(iii)(A)).
Due to proposed changes in subpart H, we believe there is
a possibility that the adjustment to claims in the MLR numerator of
Medicaid MCOs, PIHPs, or PAHPs could have fewer recoveries from
fraudulent or excluded providers because of enhanced fraud prevention
and monitoring measures. We want to encourage Medicaid MCOs, PIHPs, and
PAHPs to build and sustain a program integrity infrastructure that has
strong prevention activities as well as robust processes for the
detection, referral and recovery of improper payments, including
potential fraud, waste and abuse. Therefore, we propose that
expenditures related to fraud prevention activities, as set forth in
Sec. 438.608(a)(1) through (5), (7), (8) and (b), may be attributed to
the numerator but would be limited to 0.5 percent of MCO's, PIHP's, or
PAHP's premium revenues. Section I.B.4.c.(4) of this proposed rule
provides a discussion of the proposed revisions to Sec. 438.608. We
also propose to make clear in the regulatory text that the expenses for
fraud prevention activities described in Sec. 438.8(e)(4) would not
duplicate expenses for fraud reduction efforts for purposes of
accounting for recoveries in the numerator pursuant to Sec.
438.8(e)(2)(iii)(C), and the same would be true in the converse. While
many employees of a managed care plan may conduct activities that
support fraud, waste, and abuse prevention through the normal course of
duties, the expenditures related to the proposed fraud, waste, and
abuse activities attributable to the numerator, as proposed in Sec.
438.8(e)(4), are associated with the work of employees that directly
carry out those functions and associated data analytics and
technological infrastructure to conduct these ongoing fraud prevention
activities. Successful technology and analytics to conduct fraud,
waste, and abuse prevention and detection will have some of the
following characteristics: A process for incorporating field
intelligence, policy knowledge and clinical expertise (or other
expertise relevant to the industry) into the development of the
predictive or other sophisticated algorithms to ensure that the results
are actionable; a method for tracking, measuring, and evaluating the
actions taken based on the information produced, and the presence of an
analytical environment for data exploration that includes the historic
information necessary for predictive modeling and an operational
environment that quickly displays results and visualization (graphics,
maps) that assists the end user in taking action.
We believe that this proposed limit on expenditures for fraud
prevention is a reasonable amount to encourage MCOs, PIHPs, and PAHPs
to build and maintain robust and dynamic fraud prevention programs. In
addition, we assert that the 0.5 percent figure is appropriate as a
limitation because fraud prevention and monitoring costs should not
yield a one-to-one ratio relative to recoveries due to fraud, waste, or
abuse. In other words, one dollar spent on fraud prevention and
monitoring activities should render more than one dollar in recoveries.
We request comment on the approach to incorporating fraud prevention
activities and the proportion of such expenditures in the numerator for
the MLR calculation, as this proposal is unique to Medicaid managed
care. We also request general comments on the proposal, as well as
other methodologies. Specifically, we request comment on alternative
options that only account for

[[Page 31110]]

increased investments in fraud prevention activities relative to prior-
year levels, so as to prevent incorporation in the numerator of fraud
prevention activities plans currently undertake.
Non-claims costs would be considered the same in Medicaid as they
are in the commercial market and MA rules. We propose in Sec.
438.8(e)(2)(v)(A)(3) that certain amounts paid to a health care
professional are not included as incurred claims; we intend to use the
illustrative list in the similar provisions at Sec.
422.2420(b)(4)(i)(C) and Sec. 158.140(b)(3)(iii) to interpret and
administer this aspect of our proposal. Incurred claims would not
include non-claims costs and remittances paid to the state from a
previous year's MLR experience. In paragraph (e)(2)(iii)(A), we propose
that payments made by an MCO, PIHP, or PAHP to mandated solvency funds
must be included as incurred claims, which is consistent with the
commercial market regulations on market stabilization funds at 45 CFR
158.140(b)(2)(i). Paragraph (e)(2)(iv) would take a consistent approach
with the commercial rules at 45 CFR 158.140(b)(4)(ii) that amounts that
must either be included in or deducted from incurred claims are net
payments related to risk adjustment and risk corridor programs. We
propose in paragraph (e)(2)(v) that the following non-claims costs are
excluded from incurred claims: Amounts paid to third party vendors for
secondary network savings, network development, administrative fees,
claims processing, and utilization management; and amounts paid for
professional or administrative services. This approach is consistent
with the expenditures that must be excluded from incurred claims under
the commercial rules at 45 CFR 158.140(b)(3). Proposed paragraph
(e)(2)(vi) would incorporate the provision in MA regulations at 42 CFR
422.2420(b)(5) for the reporting of incurred claims for a MCO, PIHP, or
PAHP that is later assumed by another entity to avoid duplicative
reporting in instances where one MCO, PIHP, or PAHP is assumed by
another.
Through these proposed rules in Sec. 438.8(e)(3), an activity that
improves health care quality can be included in the numerator as long
as it meets one of three standards: (1) It meets the definition in 45
CFR 158.150(b) (the private insurance market MLR rule) of an activity
that improves health care quality and is not excluded under 45 CFR
158.150(c); (2) it is an activity specific to Medicaid managed care
External Quality Review activities (described in subpart E); or (3) it
is an activity related to Health Information Technology and meaningful
use, as defined in 45 CFR 158.151 and excluding any costs that are
deducted or excluded from incurred claims under paragraph (e)(2).
Regarding activities related to Health Information Technology and
meaningful use, we encourage states to support the adoption of
certified technology that enables interoperability across providers and
supports seamless care coordination for enrollees. In addition, we
refer MCOs, PIHPs, and PAHPs to the Office of the National Coordinator
for Health Information Technology's draft of the ``2015
Interoperability Standards Advisory'' published for public comment
(available at http://www.healthit.gov/standards-advisory), which
proposes a set of best available standards and implementation
specifications enabling priority health information exchange use cases.
We understand that some managed care plans cover more complex
populations in their Medicaid line of business than in their commercial
line of business; therefore, the case management/care coordination
standards are more intensive and costly for Medicaid health plans than
in a typical private market group health plan. Consistent with the use
of the term in the private market, we believe the definition of
activities that improve health care quality in 45 CFR 158.150 is broad
enough to encompass MCO, PIHP, and PAHP activities related to service
coordination, case management, and activities supporting state goals
for community integration of individuals with more complex needs such
as individuals using LTSS. For that reason, we are not specifically
identifying these activities separately in this rule, but expect MCOs,
PIHPs, and PAHPs would include the cost of appropriate outreach,
engagement, and service coordination in this category. We request
comment on this approach.
Paragraph (f) proposes what would be included in the denominator
for calculation of the MLR. Generally, the denominator is the MCO's,
PIHP's, or PAHP's premium revenue less any expenditure for federal or
state taxes and licensing or regulatory fees. In proposed Sec.
438.8(f)(2), we specify what must be included in premium revenue. We
expect that a state will have adjusted capitation payments
appropriately for every population enrolled in the MCO, PIHP, or PAHP
so that the capitated payment reasonably reflects the costs of
providing the services covered under the contract for those populations
and meets the actuarial soundness standards in Sec. 438.4 through
Sec. 438.7. Additionally, because many states make payments to MCOs,
PIHPs, or PAHPs for one-time, specific life events of enrollees--events
that do not receive separate payments in the private market or MA--
these payments need to be included as premium revenue in the
denominator. Typical examples of these are maternity ``kick-payments''
where a payment to the MCO is made at the time of delivery for to
offset the costs of prenatal, postnatal and labor and delivery costs
for an enrollee.
As proposed in paragraph (f)(3), we would treat taxes, licensing
and regulatory fees in the same way as they are treated in the private
market and MA; they would be deducted from premium revenue. Similar to
the private market in 45 CFR 158.161(b), fines or penalties imposed on
the MCO, PIHP, or PAHP would not be deducted from premium revenue and
must be considered non-claims costs (proposed Sec.
438.8(e)(2)(v)(A)(4)). Consistent with MA, we propose in paragraph
(f)(3)(v) to allow Community Benefit Expenditures (CBEs), as defined in
45 CFR 158.162(c) (which is analogous to the definition in Sec.
422.2420(c)(2)(iv)(A)), to be deducted up to the greater of 3 percent
of earned premiums or the highest premium tax rate in the applicable
state multiplied by the earned premium for the MCO, PIHP, or PAHP. We
request comment on this proposal. Paragraph (f)(4) incorporates the
provision for MLR under MA regulations at Sec. 422.2420(c)(4) for the
reporting of the denominator for a MCO, PIHP, or PAHP that is later
assumed by another entity to avoid duplicative reporting in instances
where one MCO, PIHP, or PAHP is assumed by another.
Paragraph (g) proposes our standards for allocation of expenses.
MCOs, PIHPs, and PAHPs would use a generally accepted accounting method
to allocate expenses to only one category, or if they are associated
with multiple categories, pro-rate the amounts so the expenses are only
counted once.
Section 2718(c) of the Public Health Service Act charges the
National Association of Insurance Commissioners (NAIC) with developing
uniform methodologies for calculating measures of the expenditures that
make up the MLR calculation, and provides that ``such methodologies
must be designed to take into account the special circumstances of
small plans, different types of plans, and newer plans.'' To address
the special circumstances of smaller plans, the NAIC model regulation
allows smaller plans to adjust their MLR calculations by applying a

[[Page 31111]]

``credibility adjustment.'' In paragraph (h), we propose to adopt this
method of credibility adjustment for MCOs, PIHPs, and PAHPs. To the
extent possible, we propose to follow the approach used in both the
private market (45 CFR 158.230) and MA and Medicare Part D MLR rules
(Sec. Sec. 422.2440, 423.2440).
A credibility adjustment is a method to address the impact of
claims variability on the experience of smaller plans due to random
statistical variation and we propose to define a credibility adjustment
in this manner in Sec. 438.8(b). All issuers experience some random
claims variability, where actual claims experience deviates from
expected claims experience. In a health plan with a large number of
enrollees the impact of such random deviations is less than in plans
with fewer enrollees. One source of variability is the impact of large
claims, which are infrequent but have a greater impact on financial
experience than average or typical claims. Large claims have a
disproportionate impact on small plans because the higher claim cost is
spread across a smaller premium base. These random variations in the
claims experience for enrollees in a smaller plan may cause an issuer's
reported MLR to be below or above a particular standard in any
particular year, even though the state or the issuer estimated in good
faith that the combination of the projected premiums and claims would
produce an MLR that meets the specific standard. It is important to
emphasize that health insurance rates are the product of assumptions,
estimates, and projections. For example, when an actuary projects that
the rate he or she has calculated will produce an 85 percent MLR,
whether in fact it will produce an 85 percent MLR, depends on whether
the assumptions the actuary has made--such as those concerning the
characteristics and health status of the enrollees covered by the plan,
the intensity and frequency with which its enrollees will use health
care services, and unit costs--turn out to be correct. All things being
equal, it is more likely that those assumptions will turn out to be
correct when an issuer insures a large number of enrollees rather than
a small number, and differences between the assumptions and actual
experience would likewise be smaller when an issuer covers a larger
number of enrollees.
After extensive analysis and public discussion, the NAIC adopted a
credibility adjustment table designed to result in an issuer that
charges premiums intended to produce an 80 percent MLR to pay a rebate
less than 25 percent of the time. We propose to adopt this approach of
less than 25 percent in paragraph (h)(4)(ii). Toward the conclusion of
its public proceedings on these issues, the NAIC gave some
consideration to setting the base credibility factors so that such an
issuer would have to pay a rebate less than 10 percent of the time. The
credibility factors in that case would have been roughly twice as large
as the factors the NAIC adopted. The case made in favor of making this
change is that it would reduce the likelihood of requiring a plan to
pay a rebate simply because of chance variation in claims experience.
However, it would also have increased the likelihood that a plan
setting premiums to achieve an MLR that is less than the applicable MLR
standard would avoid paying a rebate, and it would have reduced the
size of the rebates that plans pricing below the MLR standard would
have to pay. The NAIC concluded that the credibility factors it adopted
more equitably balance the consumers' interest in requiring plans that
should pay rebates to pay rebates against the issuers' interest in
minimizing the risk of paying rebates as a result of chance variations.
We propose to adopt a credibility adjustment methodology in
paragraph (h)(4). The NAIC recommends that the credibility factors be
monitored and reevaluated in light of developing experience as the
Affordable Care Act reforms are implemented over the next several
years. We concur with this recommendation and we intend both to monitor
the effects of the credibility adjustment and, as appropriate, to
update the credibility adjustment method within the parameters of the
methodology proposed in this rule.
The NAIC developed a standard for the minimum number of life-years
for the plan's MLR to be determined at least partially credible. The
NAIC selected the standard in part to avoid having credibility
adjustments that would exceed 10 percent (credibility adjustments are
described later in this section). The standards for the private market
and MA and Part D were selected using similar criteria. We propose in
paragraph (h)(4)(iii) setting the minimum number of member months (that
is, the sum of the number of months that each individual was enrolled
in the plan over the period that the MLR is measured) to determine at
least partial credibility such that the maximum credibility adjustment
is equal to or less than 10 percent. Using member months would be
consistent with the approach taken for MA and Part D, and we believe
the use of member months is more consistent with Medicaid data and
reports. We would also recommend that states that collect remittances
from plans based on the MLR, would not collect remittances from any
plan that is determined to be non-credible on the basis of the number
of member months of enrollment in the plan.
In paragraph (h)(4)(iv), we propose to follow the NAIC's assumption
that variations of less than approximately 1 percent are reasonably to
be expected based on ordinary variation in claims experience of very
large plans. We propose to consider the experience of such plans to be
fully credible, and would recommend that such a plan should have to pay
a remittance based on its reported MLR, to the extent that a state
chooses to collect a remittance as described in paragraph (j) of this
section.
The NAIC designated a minimum number of life-years that would be
needed to assign full credibility to a plan's MLR and a minimum number
of life-years that would be needed to assign at least partial
credibility to a plan's MLR. For the MLR of plans that are assigned
partial but not full credibility, the NAIC developed a credibility
adjustment to apply to the MLR. We propose to adopt a similar approach
based on the variability of Medicaid expenditures in paragraph
(h)(4)(v). For purposes of the credibility adjustment for Medicaid
MCOs, PIHPs, and PAHPs we use the term ``member months'', and propose
to define the term in Sec. 438.8(b) as the ``number of months an
enrollee or group of enrollees is covered by an MCO, PIHP, or PAHP over
a specified time period, such as a year.''
The Office of the Actuary modeled the distribution of the MLR using
the following statistical formula by applying the Central Limit
Theorem:
[GRAPHIC] [TIFF OMITTED] TP01JN15.000

[[Page 31112]]

Where:

Xi is the annual claim amount with mean ([mu]) and variance
([sigma]\2\) for an individual. Xi is assumed to be independently
and identically distributed for each individual.
n is the number of individuals in the group; and
[GRAPHIC] [TIFF OMITTED] TP01JN15.001

The numerator of the formula represents the aggregate claims (a
variable), and the denominator represents the aggregate premium. The
denominator is modeled as a single point equal to the expected premium
because we are not evaluating the variability in the denominator.
The credibility adjustment equals the expected value of the MLR
less the 25th percentile (25 percent target failure rate). This
difference can be calculated by multiplying the z-score for the
standard normal distribution by the standard deviation for the MLR. The
credibility adjustment equals:
[GRAPHIC] [TIFF OMITTED] TP01JN15.002

Where -0.6745 is the z-score for the 25th percentile of the standard
normal distribution.

We propose that, in addition to calculating the number of member-
months needed to determine the minimum number of member-months for a
MLR to be partially credible and for a MLR to be fully credible, the
credibility adjustment would also be determined at several other
numbers of member-months in between those levels and published. For a
MLR that is determined to be partially credible, the credibility
adjustment would be calculated by interpolating between the credibility
adjustments at the nearest member-month levels published. For example,
if a MLR for a plan with 5,000 member-months would receive a
credibility adjustment of 2.0 percent and a plan with 10,000 member-
months would receive a credibility adjustment of 1.0 percent, then we
would determine that a plan with 6,000 member-months would receive a
credibility adjustment of 1.8 percent using linear interpolation, as
demonstrated in the equation below:

1% + [(10,000-6,000)/(10,000-5,000)] x (2%-1%) = 1.8%

More generally:
[GRAPHIC] [TIFF OMITTED] TP01JN15.003

Where MM is the number of member-months for a specific plan for
which the MLR is measured; CAa and CAb are the credibility
adjustments for the published member-month levels below and above
the number of member-months MM for a specific plan; and MMa and MMb
are the member-month levels below and above the number of member-
months MM for a specific plan (for which the credibility adjustments
would be CAa and CAb).

As proposed in Sec. 438.8(h)(4)(vi), the number of member-months
required for full and partial credibility for the MLR may be rounded
for the purposes of administrative simplicity. We believe the standards
would be clearer and easier to implement if they were rounded rather
than unrounded. We intend that, under our proposal, we would round the
member-month standards to the nearest 1,000, but depending on the
results of the calculations of the number of member-months we may
choose a different degree of rounding to ensure that the credibility
thresholds are consistent with the objectives of this regulation.
In paragraph (i)(1), the minimum MLR would be calculated and
reported for the entire population enrolled in the MCO, PIHP, or PAHP
under the contract with the state unless the state directs otherwise.
We expect that most states would have the MCO, PIHP, or PAHP calculate
the MLR on a contract-wide basis, but we propose to permit flexibility
for states that may choose to separate the MLR calculation by Medicaid
eligibility group based on differences driven by the federal medical
assistance percentage (FMAP) (to simplify accounting with the federal
government), by capitation rates, or for legislative tracking purposes.
However, while states could divide eligibility groups for MLR
calculation purposes, states may not apply different standards of
review or different MLR minimums to different eligibility groups. The
state may choose any aggregation method described, but proposed
paragraph (k)(1)(xii) stipulates that the MCO, PIHP, and PAHP must
clearly show in their report to the state which method it used.
Paragraph (j) proposes that an MCO, PIHP, or PAHP pay a remittance
to the state if the state elects to impose a remittance standard on a
MCO, PIHP,or PAHP that does not meet the minimum MLR standard set by
the state as described in proposed in Sec. 438.8(c). We strongly
encourage states to incent MCO, PIHP, and PAHP performance consistent
with their authority under state law.
We propose that MCOs, PIHPs, and PAHPs would submit a report
meeting specific content standards and in the time and manner
established by the state (so long as the deadline is within 12 months
of the end of the MLR reporting year). We believe this will be

[[Page 31113]]

enough time after the end of the MLR reporting year for the state to
reconcile any incentive or withhold arrangements they have with the
MCOs, PIHPs, and PAHPs and for the managed care plans to calculate the
MLR accurately. The specified contents of the report in paragraph (k)
are considered the minimum information necessary for the state to
monitor and confirm compliance with the standards for the calculation
of the MLR as specified in this section. We request comment on whether
this is an appropriate timeframe.
Because there is always some uncertainty when health plans enter a
new market, we propose in paragraph (l) that MCOs, PIHPs, and PAHPs
need not calculate or report their MLR in the first year they contract
with the state to provide Medicaid services if the state chooses to
exclude that MCO, PIHP, or PAHP from the MLR calculation in that year.
If the state chose that option, the first MLR reporting year the MCO,
PIHP, or PAHP would be the next MLR reporting year and only the
experience of the MCO, PIHP, or PAHP for that MLR reporting year would
be included. We considered whether to provide similar flexibility for
situations where a Medicaid MCO, PIHP, or PAHP covers a new population
(that is, the state decides to cover a new population of Medicaid
beneficiaries in managed care). While we agree it is possible that
there may be unknown risk to the plans for new populations, we do not
believe any additional considerations need to be factored in for these
cases because capitation payments and any risk mitigation strategy
employed by the state would already be considered in the numerator and
denominator. Moreover, if we were to allow those newly added
populations to be carved out of the MLR calculation, we would create an
unnecessary misalignment between Medicaid and the rules governing the
private market and MA MLR. We request comment on this proposal and
whether we should further define when a health plan newly contracts
with the state.
We anticipate that states may make retroactive changes to
capitation rates that could affect the MLR calculation for a given MLR
reporting year. Permissible retroactive adjustments to the final
capitation rate are discussed in section I.B.3.e. of this proposed
rule. We propose in paragraph (m) that in any case where a state makes
a retroactive adjustment to the rates that affect a MLR calculation for
a reporting year, the MCO, PIHP, or PAHP would need to recalculate the
MLR and provide a new report with the updated figures.
In paragraph (n) we propose that the MCO, PIHP, or PAHP provide an
attestation when submitting the report specified under proposed
paragraph (k) that gives an assurance that the MLR was calculated in
accordance with the standards in this proposed section.
(3) State Requirements (Sec. 438.74)
We propose minimum standards for state oversight of the MLR
standards in Sec. 438.74. Specifically, we propose two key standards
related to oversight for states when implementing the MLR for
contracted MCOs, PIHPs, and PAHPs: (1) Report to CMS a summary
description of the outcomes of the MLR calculations for each MLR
reporting year; and (2) re-pay the federal share of any remittances the
state chooses to collect from the MCOs, PIHPs, or PAHPs. The proposed
report in paragraph (a) is a summary description of the MLR
calculations for each of the MCOs, PIHPs, and PAHPs in the state, and
must be included with the rate certification that would be submitted
under Sec. 438.7 of this proposed rule. In proposed paragraph (b), if
the state chooses to collect any remittances from the MCOs, PIHPs, or
PAHPs for not meeting the minimum MLR standard, then the state would
also need to determine a methodology for how the state will return the
federal share of that remittance. With much of the Medicaid expansion
population included in managed care and the possibility of the FMAP
changing within the MLR reporting year, a MLR calculated on a contract
basis may have varying levels of federal match within the MLR
remittance. If a state has decided not to segregate MLR reporting by
population, the state will need to submit to CMS the methodology of how
the federal share of the remittance was calculated that would be
reviewed and approved in the normal CMS-64 claiming protocol.
2. Standard Contract Provisions (Sec. 438.3, Sec. 438.6)
Our existing regulations at Sec. 438.6 stipulate that MCO, PIHP,
and PAHP capitation rates must be set on an actuarially sound basis,
based on section 1903(m)(2)(A)(iii) of the Act (for MCOs) and section
1902(a)(4) of the Act (for PIHPs and PAHPs). Section 438.6 currently
also includes standards related to contracting and contract terms for
MCOs, PIHPs, and PAHPs. Based on our experience with the changing
Medicaid managed care environment, we are proposing several updates to
these standards for contract terms and actuarial soundness. In
addition, the current language also includes provisions that are better
organized by specific topic. To that end, we propose to restructure the
standards currently codified in Sec. 438.6 at the same time as we
propose several substantive changes in these areas. Our proposal would
divide the content into the following five new sections, four of which
specifically address setting actuarially sound capitation rates.
Sec. 438.3--Standard Contract Provisions
Sec. 438.4--Actuarial Soundness
Sec. 438.5--Rate Development Standards
Sec. 438.6--Special Contract Provisions Related to
Payment
Sec. 438.7--Rate Certification Submission
We discuss in section I.B.3., the substance of our proposal
concerning setting actuarially sound capitation rates, and focus in
this section I.B.2. on our proposal for the standard contract
provisions for MCO, PIHP, and PAHP contracts. Where we propose to
reorganize or recodify existing provisions into new sections, they are
so noted in this preamble discussion. Likewise, where we have proposed
additional specificity, those are clearly delineated. We welcome
comments on both the approach and content of this portion of the
proposed rule.
We propose to add a new Sec. 438.3 to contain the standard
provisions for MCO, PIHP, and PAHP contracts that are distinguishable
from the rate setting process. As proposed, these provisions generally
set forth specific elements that states must include as performance
standards in their managed care contracts. As published in 2002, Sec.
438.6 contained contract standards from part 434 that were carried over
from that section and updated as necessary when part 438 was created to
contain all standards for Medicaid managed care programs, including the
standards for actuarially sound capitation payments and for risk-
sharing and related payment mechanisms. To improve the clarity and
readability of part 438, we propose that Sec. 438.3 would include the
standard contract provisions from current Sec. 438.6 that are
unrelated to payment. We recognize that additional contract standards
that direct aspects of the MCO's, PIHP's, or PAHP's operations appear
elsewhere in this part; however, to preserve the continuity of and
familiarity with part 438 over the past decade, we do not believe it is
necessary or appropriate to completely consolidate all contract
standards into one section.
We are proposing that the provisions currently codified in Sec.
438.6 as paragraphs (a) through (m) be redesignated respectively as
Sec. 438.3(a)

[[Page 31114]]

through (l), (p) and (q), with some revisions as described below. These
proposed paragraphs address standards for our review and approval of
contracts, entities eligible for comprehensive risk contracts, payment,
prohibition of enrollment discrimination, services covered under the
contract, compliance with applicable laws and conflict of interest
safeguards, provider-preventable conditions, inspection and audit of
financial records, physician incentive plans, advance directives,
subcontracts, choice of health care professional, additional rules for
contracts with PCCMs, and special rules for certain HIOs.
First, in Sec. 438.3(a) related to our review and approval of
contracts, we propose to add the regulatory flexibility for us to set
forth procedural rules--namely timeframes and detailed processes for
the submission of contracts for review and approval--in sub-regulatory
materials, and add a new standard for states seeking contract approval
prior to a specific effective date that proposed final contracts must
be submitted to us for review no later than 90 days before the planned
effective date of the contract. Under our proposal, the same timeframe
standard would also apply to rate certifications, as proposed Sec.
438.7(a) incorporates the review and approval process of Sec.
438.3(a). To the extent that the final contract submission is complete
and satisfactory responses to questions are exchanged in a timely
manner, we believe that 90 days is a reasonable and appropriate
timeframe for us to conduct the necessary level of review of these
documents to verify compliance with federal standards and thereby
authorize FFP concurrent with the health plan's initiation of
performance under the contract. We acknowledge a state's interest in
receiving approval prior to the planned effective date and propose that
states provide us with adequate time to conduct our review to ensure
compliance with applicable rules. In addition, for purposes of
consistency throughout part 438, we are removing specific references to
the CMS Regional Offices and replacing it with a general reference to
CMS. This proposed change does not represent a modification in the role
of the Regional Offices.
We propose for Sec. 438.3(b) and (d) to merely redesignate the
existing provisions at Sec. 438.6(b) and (d), with the addition of
PCCM entities to paragraph (d) consistent with our proposal discussed
in section I.B.6.e. of this proposed rule about PCCM entities. Wherever
there is a reference to PCCM in existing regulatory text being moved or
amended as part of our proposal for Sec. 438.3, we propose to add PCCM
entities.
In proposed Sec. 438.3(c), we propose to restate our longstanding
standard currently in Sec. 438.6(c)(2)(ii) that the final capitation
rates for each MCO, PIHP, or PAHP must be specifically identified in
the applicable contract submitted for our review and approval. We also
propose to clarify in this paragraph that the final capitation rates
must be based only upon services covered under the state plan and that
the capitation rates represent a payment amount that is adequate to
allow the MCO, PIHP, or PAHP to efficiently deliver covered services in
a manner compliant with contractual standards.\3\
---------------------------------------------------------------------------

\3\ We note that in ``Medicaid and Children's Health Insurance
Programs; Mental Health Parity and Addiction Equity Act of 2008; the
Application of Mental Health Parity Requirements to Coverage Offered
by Medicaid Managed Care,'' published April 10, 2015 [CMS-2333-P],
we proposed that certain additional costs could also be used to
develop capitation rates. We anticipate that if that proposal is
finalized, that provision would be codified as part of Sec.
438.6(e) and redesignated through this proposed rule as Sec.
438.3(e)).
---------------------------------------------------------------------------

We propose to redesignate the provisions prohibiting enrollment
discrimination currently at Sec. 438.6(d) as new Sec. 438.3(d) and
propose to replace the reference to the Regional Administrator with CMS
for consistency with other proposals to refer uniformly to CMS in the
regulation text. We also propose to add sex as a protected category as
discussed in the proposed changes in Sec. 438.3(f) below.
The current regulation at Sec. 438.6(e) addresses the services
that may be covered by the MCO, PIHP, or PAHP contract. We propose to
move that provision to Sec. 438.3(e). The existing provision also
prohibits services that are in addition to those in the Medicaid state
plan from being included in the capitation rate and we have proposed to
address that standard in proposed Sec. 438.3(c) above.
We also propose to redesignate the existing standard for compliance
with applicable laws and conflict of interest standards from existing
Sec. 438.6(f) to Sec. 438.3(f)(1) with the addition of a reference to
section 1557 of the Affordable Care Act, which prohibits discrimination
in health programs that receive federal financial assistance.
Similarly, we propose to add sex as a protected category for purposes
of MCO, PIHP, PAHP, or PCCM enrollment practices in the enrollment
provisions proposed to be moved to Sec. 438.3(d)(4). We also propose a
new standard, at proposed Sec. 438.3(f)(2), to state more clearly the
existing standard that all contracts comply with conflict of interest
safeguards (described in Sec. 438.58) and section 1902(a)(4)(C) of the
Act.
We propose to redesignate the standards related to provider
reporting of provider-preventable conditions currently codified in
Sec. 438.6(f)(2)(i) to the new Sec. 438.3(g). With this
redesignation, we propose to limit these standards to MCOs, PIHPs, and
PAHPs, because those are the entities for which these standards are
applicable.
We propose to move the inspection and audit rights for the state
and federal government from Sec. 438.6(g) to new Sec. 438.3(h) and to
expand the existing standard to include access to the premises,
physical facilities and equipment of contractors and subcontractors
where Medicaid-related activities or work is conducted. In addition, we
propose to clarify that the State, CMS, and the Office of the Inspector
General may conduct such inspections or audits at any time.
As part of our proposal to redesignate the provisions related to
physician incentive plans from Sec. 438.6(h) to new Sec. 438.3(i), we
propose to correct the outdated references to Medicare+Choice
organizations to MA organizations. We propose to redesignate the
provisions for advance directives currently in Sec. 438.6(i) as Sec.
438.3(j). We propose to redesignate the provisions for subcontracts
currently at Sec. 438.6(l) as Sec. 438.3(k) and also propose to add a
cross-reference to Sec. 438.230 that specifies standards for
subcontractors and delegation. We propose to redesignate the standards
for choice of health care professional currently at Sec. 438.6(m) at
Sec. 438.3(l).
In proposed Sec. 438.3(m), we propose to add a new standard that
MCOs, PIHPs, and PAHPs submit audited financial reports annually. We
believe this standard is appropriate and necessary for these managed
care plans because such information is a source of base data that must
be used for rate setting purposes in proposed Sec. 438.5(c). We
propose that the audits are conducted in accordance with generally
accepted accounting principles and generally accepted auditing
standards. We propose to reserve Sec. 438.3(n).
In proposed Sec. 438.3(o), we propose that contracts covering
long-term services and supports provide that services that could be
authorized through a waiver under section 1915(c) of the Act or a state
plan amendment through section 1915(i) or 1915(k) be delivered
consistent with the settings standards in Sec. 441.301(c)(4).
We propose to redesignate existing Sec. 438.6(j) (special rules
for certain HIOs) and (k) (additional rules for contracts

[[Page 31115]]

with PCCMs) as Sec. 438.3(p) and (q). As part of our proposed
redesignation of the HIO-specific provisions from existing Sec.
438.6(j) to new Sec. 438.3(p), we also propose to correct a cross-
reference in that paragraph. The existing language cross-references
Sec. 438.6(a) to determine whether certain HIOs may enter into risk
contracts. This cross-reference first appeared in the 1998 proposed
rule when Sec. 438.6(a) contained the contract review standards for
risk-bearing entities. In the final rule for part 438, those standards
were moved to Sec. 438.6(b) and the reference in Sec. 438.6(j) was
not updated. We propose to correct that oversight by using a cross
reference to paragraph (a) of this proposed section, where we have
proposed to designate the contract review standard. We propose to
redesignate the additional contract standards specific to PCCM
contracts from existing Sec. 438.6(k) to new Sec. 438.3(q) so that
all contract standards for MCOs, PIHPs, and PAHPs are separated from
any special rules for PCCMs. We believe this restructuring adds clarity
to our rules.
In proposed Sec. 438.3(r), we propose to set standards for
contracts with PCCM entities, in addition to those standards specified
for PCCM contracts in proposed Sec. 438.3(q), including the submission
of such contracts for our review and approval to ensure compliance with
Sec. 438.10 (information standards). If the PCCM entity contract
provides for shared savings, incentive payments or other financial
reward for improved quality outcomes, Sec. 438.330 (performance
measurement), Sec. Sec. 438.340 (managed care elements of
comprehensive quality strategy), and 438.350 (external quality review)
would be applicable.
In proposed Sec. 438.3(s), we propose to add standards for
contracts with MCOs, PIHPs, or PAHPs that are contractually obligated
to provide coverage of covered outpatient drugs. The proposed MCO
standards are based primarily on section 1903(m)(2)(A)(xiii) of the Act
and we rely on our authority under section 1902(a)(4) to extend them to
PIHPs and PAHPs that are contractually obligated to provide covered
outpatient drugs. In addition, we rely on section 1902(a)(4) of the Act
to address, for all managed care plans within the scope of this
proposal, requirements that are outside the scope of section
1903(m)(2)(A)(xiii) of the Act, namely the proposal at Sec.
438.3(s)(1), (4) and (6).
Section 2501(c)(1)(C) of the Affordable Care Act amended section
1903(m)(2)(A) of the Act to add clause (xiii) to add certain standards
applicable to contracts with MCOs. In the February 2, 2012 Federal
Register, we published the ``Medicaid Program; Covered Outpatient
Drugs'' proposed rule that included the addition of a definition for
covered outpatient drugs in Sec. 447.502 (77 FR 5318). We propose here
to incorporate appropriate definitions related to covered outpatient
drugs in part 438 should such definitions be implemented and have used
the phrase ``as defined in section 1927(k)'' in our proposed regulation
text as a placeholder for that in Sec. 438.3(s).
In paragraph (s)(1), we propose that the MCO, PIHP, or PAHP must
provide coverage of covered outpatient drugs (as defined in section
1927(k)(2) of the Act) as specified in the contract and in a manner
that meets the standards for coverage of such drugs imposed by section
1927 of the Act as if such standards applied directly to the MCO, PIHP,
or PAHP. This is intended to clarify that when the MCO, PIHP, or PAHP
provides prescription drug coverage, the coverage of such drugs must
meet the standards set forth in the definition of covered outpatient
drugs at section 1927(k)(2) of the Act. The MCO, PIHP, or PAHP may be
permitted to maintain its own formularies for covered outpatient drugs
that are under the contract, but when there is a medical need for a
covered outpatient drug that is not included in their formulary but
that is within the scope of the contract, the MCO, PIHP, or PAHP must
cover the covered outpatient drug under a prior authorization process.
This proposal is based on our authority under section 1902(a)(4) of the
Act to mandate methods of administration that are necessary for the
efficient operation of the state plan. Furthermore, if an MCO, PIHP, or
PAHP is not contractually obligated to provide coverage of a particular
covered outpatient drug, or class of drugs, the state is required to
provide the covered outpatient drug through FFS in a manner that is
consistent with the standards set forth in its state plan and the
requirements in section 1927 of the Act.
In paragraph (s)(2), we propose to implement section
1903(m)(2)(A)(xiii)(III), specifically, we propose that MCOs, PIHPs,
and PAHPs report drug utilization data necessary for the state to bill
for rebates under section 1927(b)(1)(A) to the state within 45 calendar
days after the end of each quarterly rebate period to ensure that MCO,
PIHP, or PAHP data is included with the FFS invoicing of manufacturers
for rebates for the state in the same rebate period. Such utilization
information must include, at a minimum, information on the total number
of units of each dosage form and strength and package size by National
Drug Code of each covered outpatient drug dispensed or covered by the
MCO, PIHP, or PAHP.
As amended, section 1927(b)(1)(A) of the Act provides in part that
states must bill manufacturers for rebates for drugs dispensed to
enrollees with a Medicaid managed care plan and the proposed standard
in paragraph (s)(2) will help facilitate state compliance with the
statutory directive. In paragraph (s)(3), we propose that the MCO,
PIHP, or PAHP must have procedures in place to exclude utilization data
for drugs subject to discounts under the 340B Drug Pricing Program from
the utilization reports submitted under proposed paragraph (s)(2).
Section 2501(c) of the Affordable Care Act modified section 1927(j)(1)
of the Act to specify that covered outpatient drugs are not subject to
the rebate standards if such drugs are both subject to discounts under
section 340B of the PHS Act and dispensed by MCOs. Section 340B of the
PHS Act prohibits covered entities from billing Medicaid for covered
outpatient drugs purchased at discounted 340B prices if the drugs are
subject to a Medicaid rebate. Section 1903(m)(2)(A)(xiii)(III) of the
Act provides that the reporting standard for MCOs does not include
information about drugs that are not subject to the rebates under
section 1927 of the Act. As we propose in paragraph (s)(2), that MCOs,
PIHPs, and PAHPs must report utilization data, it would follow that
covered outpatient drugs purchased at 340B prices need to be excluded
from the utilization reports to the state to avoid duplicate discounts
for rebates paid by manufacturers. To ensure that drug manufacturers
will not be billed for rebates for drugs purchased and dispensed under
the 340B Drug Pricing Program, MCOs, PIHPs, or PAHPs must have
mechanisms in place to identify these drugs and exclude the reporting
of this utilization data to the state as to avoid the manufacturer from
incurring a duplicate discount on these products.
In paragraph (s)(4), we propose that MCOs, PIHPs, or PAHPs that
provide coverage of covered outpatient drugs also operate a drug
utilization review (DUR) program that is consistent with the standards
in section 1927(g) of the Act; this standard means that the DUR program
operated by the MCO, PIHP, or PAHP would be compliant with section
1927(g) of the Act if it were operated by the state in fulfilling its
obligations under section 1927 of the Act. This does not mean that the
DUR program operated by the MCO, PIHP, or PAHP must be the same as that
operated by the state, but that the MCO's, PIHP's, or

[[Page 31116]]

PAHP's DUR program meets the requirements in section 1927(g) of the
Act. This proposal is based on our authority under section 1902(a)(4)
of the Act. We recognize that MCOs, PIHPs, and PAHPs that are
contractually responsible for covered outpatient drugs generally
conduct utilization review activities as these activities promote the
delivery of quality care in a cost effective and programmatically
responsible manner. We believe that because the MCO, PIHP, or PAHP is
providing coverage for covered outpatient drugs as part of the state
plan instead of the state providing that coverage through FFS, it is
appropriate to extend the DUR responsibilities associated with such
coverage to the MCO, PIHP, or PAHP. Section 1927(g)(1)(A) of the Act
provides, in part, that states must provide a DUR program for covered
outpatient drugs to assure that prescriptions: (1) Are appropriate; (2)
are medically necessary; and (3) are not likely to result in adverse
medical results. We intend that our proposal in paragraph (s)(4) be met
when the DUR program operated by an MCO, PIHP, or PAHP meets these
standards. We recommend that the state's DUR Board coordinate with the
MCOs, PIHPs, and PAHPs to coordinate review activities. In paragraph
(s)(5), we propose that the MCO, PIHP, or PAHP would have to provide a
detailed description of its DUR program activities to the state on an
annual basis. The purpose of the report is to ensure that the
parameters of section 1927(g) of the Act are being met by the MCO's,
PIHP's, or PAHP's DUR program, as proposed under paragraph (s)(4).
Finally, in paragraph (s)(6), we propose that the state stipulate
that the MCO, PIHP, or PAHP conduct the prior authorization process for
covered outpatient drugs in accordance with section 1927(d)(5); we rely
again on our authority under section 1902(a)(4) of the Act for this
proposal. We believe that because the MCO, PIHP, or PAHP is providing
coverage for covered outpatient drugs as part of the state plan instead
of the state providing that coverage through FFS, it is appropriate to
extend the prior authorization standards associated with such coverage
to the MCO, PIHP, or PAHP. Therefore, we propose that the MCO, PIHP, or
PAHP would provide a response to a request for prior authorization for
a covered outpatient drug by telephone or other telecommunication
device within 24 hours of the request and dispense a 72 hour supply of
a covered outpatient drug in an emergency situation. We request comment
on the proposals for MCO, PIHP, or PAHP coverage of covered outpatient
drugs.
In proposed Sec. 438.3(t), we propose a new contract provision for
MCO, PIHP, or PAHP contracts that cover Medicare-Medicaid dually
eligible enrollees and delegate the state's responsibility for
coordination of benefits to the health plan. Under our proposal, in
states that use the automated crossover process for FFS claims, the
contract would need to provide that the MCO, PIHP, or PAHP sign a
Coordination of Benefits Agreement and participate in the automated
crossover process administered by Medicare. In FFS, states are
responsible for dually eligible beneficiaries' Medicare cost-sharing
and use Medicare's automated crossover process to reduce burden on
providers. Under this crossover process, a Medicare provider--who may
not be part of the managed care plan's network--submits a claim to
Medicare and there is an automatic crossover to the state for whatever
Medicaid payment would be due. As more MCOs, PIHPs, or PAHPs plans are
contractually responsible for Medicare deductibles and co-insurance,
providers face a much more complex set of processes. If an MCO, PIHP,
or PAHP does not enter into a Coordination of Benefits Agreement with
Medicare, providers may have to submit separate bills in electronic or
paper format. Each health plan has its own process, and often, a single
provider may have patients in two or three different health plans.
Contract provisions requiring an MCO, PIHP, or PAHP serving dually
eligible enrollees to enter into a Coordination of Benefits Agreement
with Medicare and participate in automated crossover would encourage
providers to serve dually eligible beneficiaries. Further, such a
standard would also reduce administrative burden for the relevant
entities, ensuring more efficient provision of benefits to enrollees.
We propose to add a new paragraph (u) to permit MCOs and PIHPs to
receive a capitation payment from the state for an enrollee aged 21 to
64 that spends a portion of the month for which the capitation is made
as a patient in an institution for mental disease (IMD) so long as the
facility is a hospital providing psychiatric or substance use disorder
(SUD) inpatient care or sub-acute facility providing psychiatric or SUD
crisis residential services and the stay in the IMD is for less than 15
days in that month. As background, paragraph (B) following section
1905(a)(29) provides that federal financial participation is not
available for any medical assistance under title XIX for services
provided to an individual ages 21 to 64 who is a patient in an IMD
facility. Under this broad exclusion, no FFP is available for the cost
of services provided either inside or outside the IMD while the
individual is a patient in the facility. In light of the flexibility
that managed care plans have had historically to furnish care in
alternate settings that meet an enrollee's needs, we propose to clarify
that managed care plans have had flexibility under risk contracts to
provide alternative services or services in alternative settings in
lieu of covered services or settings if cost-effective, on an optional
basis, and to the extent the managed care plan and the enrollee agree
that such setting or service would provide medically appropriate care.
We aim to propose rules on substitute providers under Medicaid
managed care programs for CMS's ``in lieu of'' policy in particular.
For reasons set forth later in this section, we believe that addressing
managed care plan flexibility in the context of short inpatient or sub-
acute IMD stays is necessary because of what we believe are access
issues for short-term inpatient psychiatric and SUD treatment. We
propose to include sub-acute facilities in our proposal as an option to
address access issues for inpatient services. Our proposed
clarification of policy aims to ensure that the use of IMD settings in
lieu of covered settings for this care is sufficiently limited so as to
not contravene the Medicaid coverage exclusion in section
1905(a)(29)(B) of the Act. Our proposal recognizes that managed care
plans have flexibility in ensuring access and availability of covered
services while ensuring that use of an appropriate alternate setting
does not endanger beneficiaries' overall access to Medicaid benefits
for the entire month during which a brief stay occurs. We welcome
comment on these proposals, as well as other recommendations for
addressing the IMD payment exclusion in managed care delivery systems.
Managed care programs may achieve efficiency and economic savings
compared to Medicaid FFS programs by managing care through numerous
means, including networks of providers, care coordination and case
management. We have previously acknowledged such increased efficiencies
and savings, see 67 FR 41005, and current Sec. 438.6(e) (proposed to
be redesignated as Sec. 438.3(e)) permit managed care plans to provide
additional services not covered in the state plan, but such services
cannot be included when determining payment rates. We believe that to
implement the IMD exclusion in the managed care plan context by

[[Page 31117]]

prohibiting or limiting the payment through the capitation rate for
services when an enrollee is a patient in an IMD is contrary to the
flexibilities managed care plans have had in the delivery of services.
We could take a narrow view of section 1905(a)(29)(B) of the Act and
prohibit the payment, either entirely or in part, of the capitation
rate for any month during which a beneficiary is a patient in any IMD
for any part of the month, or to require mid-month changes in
capitation payments and enrollment status. Either of these alternatives
would have the potential to disrupt the coordination and management of
care for such beneficiaries that managed care plans otherwise use. We
also acknowledge that inherent in transferring the risk for Medicaid
coverage during a period means that capitation payments may be made for
months during which no Medicaid services are used by a particular
beneficiary who is enrolled with the plan. Thus, we believe that it is
appropriate to permit states to make a monthly capitation payment that
covers the risk of services that are eligible for FFP rendered during
that month when the enrollee is not a patient in an IMD, even though
the enrollee may also be a patient in an IMD during a portion of that
same period. A corollary of our proposal is that capitation payments
may not be made if the specified conditions outlined in this section
are not met and that a state would have to ensure that covered Medicaid
services are provided on a FFS basis or make other arrangements to
assure compliance. We seek comment on our proposed approach to
providing this flexibility under managed care and alternative
permissible options under the statute.
We clarify here that services rendered to a patient in an IMD may
be considered ``in lieu of services'' covered under the state plan, as
described in this proposed rule. ``In lieu of services'' are
alternative services or services in a setting that are not included in
the state plan or otherwise covered by the contract but are medically
appropriate, cost effective substitutes for state plan services
included within the contract (for example, a service provided in an
ambulatory surgical center or sub-acute care facilities, rather than an
inpatient hospital). However, an MCO, PIHP or PAHP may not require an
enrollee to use an ``in lieu of'' arrangement as a substitute for a
state plan covered service or setting, but may offer and cover such
services or settings as a means of ensuring that appropriate care is
provided in a cost efficient manner. Accordingly, the contract may not
explicitly require the MCO or PIHP to use IMD facilities, and must make
clear that the managed care plan may not make the enrollee receive
services at an IMD facility versus the setting covered under state
plan. However, the contract could include, in its list of Medicaid-
covered services to be provided under the contract, services such as
inpatient psychiatric hospital services. The MCO or PIHP could then
purchase these services from an IMD rather than an inpatient hospital
if it so chooses in order to make the covered services available. This
is consistent with the ability of managed care plans to select
providers for their network to provide covered services.
We propose to limit payment of capitation rates for enrollees that
are provided services while in an IMD (to stays of less than 15 days
per month and so long as the IMD is a certain type of facility) for two
reasons. First, our proposal seeks to address the specific concerns
about ensuring access to and availability of inpatient psychiatric and
SUD services that are covered by Medicaid; these concerns have focused
on short-term stays. The expansion of the Medicaid program coupled with
the overall increase in health care coverage in managed care plans in
the Marketplace leads us to expect greater demand on the limited
inpatient resources available to provide mental health and SUD
services. An estimated 7.1 percent of those aged 18-64 currently meet
the criteria for a serious mental illness \4\ and an estimated 14.9
percent are currently experiencing serious psychological distress.\5\
Further, an estimated 13.6 percent of uninsured individuals aged 18-64
within the Medicaid expansion population currently have a substance use
disorder.\6\ Similarly, within the Marketplace eligible population, 6.1
percent currently have a serious mental illness, 13.5 percent are
experiencing serious psychological distress, and 14.3 percent have a
substance use disorder.\7\ However, over the past several years the
number of beds in freestanding inpatient psychiatric facilities
declined by 5 percent with freestanding inpatient psychiatric
facilities in urban areas accounting for the majority of the decrease
(5.7 percent). In addition, psychiatric beds have decreased
significantly over the past 25 years \8\ in urban hospitals and
distinct part psychiatric units have declined by 9 percent from 2010 to
2013. In addition, newer diversionary services such as crisis
residential services have been effective in diverting individuals with
psychiatric and substance use disorders experiencing a crisis from
emergency departments or inpatient services. We have heard concerns
from states and other stakeholders that access to and availability of
short-term inpatient psychiatric and SUD services has been compromised
and that delays in the provision of care may occur. Managed care plans
have an obligation to ensure access to and availability of services
under Medicaid regulations for services not prohibited by statute and
covered under the contract. To meet that obligation, managed care plans
have used alternate settings, including short term crisis residential
services, to provide appropriate medical services in lieu of Medicaid-
covered settings, they are also dealing with the gap between the need
for and the capacity to provide

[[Page 31118]]

inpatient and sub-acute psychiatric services.
---------------------------------------------------------------------------

\4\ Serious Mental Illness: Respondents to the NSDUH meet the
criteria for SMI in the past year if they have had a diagnosable
mental, behavioral, or emotional disorder (excluding developmental
and substance use disorders) of sufficient duration to meet
diagnostic criteria specified within the 4th edition of the
Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) that
has resulted in serious functional impairment that substantially
interferes with or limits one or more major life activities. Adult
NSDUH respondents' mental illness is determined based on modeling
their responses to questions on distress (Kessler-6 [K6] scale) and
impairment (truncated version of the World Health Organization
Disability Assessment Schedule [WHODAS]).
\5\ Serious Psychological Distress (SPD): Respondents are
determined to have SPD if they have a score of 13 or higher on the
Kessler-6 (K6) scale. The Kessler-6 (K6) scale consists of six
questions that gather information on how frequently adult
respondents experienced symptoms of psychological distress during
the past month or during the one month in the past year when they
were at their worst emotionally. These questions ask about the
frequency of feeling (1) nervous, (2) hopeless, (3) restless or
fidgety, (4) sad or depressed, (5) that everything was an effort,
and (6) no good or worthless. The NSDUH measure of serious
psychological distress results in larger prevalence estimates than
the SMI.
\6\ Substance Use Disorder (SUD): An adult is defined as having
a SUD if they meet the criteria for abuse or dependence for illicit
drugs or alcohol. Abuse of illicit drugs or alcohol is defined as
meeting one or more of the four criteria for abuse included in the
DSM-IV. Dependence on illicit drugs or alcohol is defined as meeting
three out of seven dependence criteria (for substances that included
questions to measure a withdrawal criterion) or three out of six
dependence criteria (for substances that did not include withdrawal
questions) for that substance, based on criteria included in DSM-IV.
Additional criteria for alcohol and marijuana dependence since 2000
included the use of these substances on 6 or more days in the past
12 months.
\7\ Substance Abuse and Mental Health Services Administration
(SAMHSA), Behavioral Health Treatment Needs Assessment Toolkit for
States, available at http://store.samhsa.gov/shin/content//SMA13-4757/SMA13-4757.pdf.
\8\ New Freedom Commission on Mental Health, Subcommittee on
Acute Care: Background Paper. DHHS Pub. No. SMA-04-3876. Rockville,
MD: 2004.
---------------------------------------------------------------------------

The second reason we are limiting the payment of capitation rates
for enrollees that are provided services while in an IMD is that we
believe that section 1905(a)(29)(B) of the Act is applicable to the
managed care context. Managed care plans should not be used to provide
Medicaid coverage for services not authorized in statute, such as
services provided to individuals in an IMD that are not furnished in
lieu of a covered service authorized in statute. If an enrollee were a
patient in an IMD for an extended period of time, the likelihood that
the enrollee would otherwise be incurring authorized Medicaid-covered
expenses--and with it, the risk compensated by the capitation payment--
decreases. We believe that permitting capitation payments when an
enrollee has a short-term stay in an IMD is a means of securing
compliance with the statute by delineating parameters for these
payments, which we would otherwise exclude or prohibit to achieve
compliance with the statute.
Therefore, we propose that capitation payments may be made for a
month in which an enrollee receives inpatient services in an IMD for a
period of 15 days or less. This 15-day parameter is based on evidence
of lengths of stay in an IMD based on data from the Medicaid Emergency
Psychiatric Demonstration. This evidence suggests that the average
length of stay is 8.2 days.\9\ We propose to define a short-term stay
as 15 days or less to account for the variability in the length of stay
often experienced by individuals who need acute inpatient psychiatric
or SUD services. We would expect practice patterns for the same
services, whether delivered in an inpatient hospital or an IMD facility
would be similar and that such patterns would be monitored by the
state. Note that under this proposal, an enrollee could have a length
of stay longer than 15 days that covers two consecutive months where
the length of stay within each month is less than 15 days, and the MCO
or PIHP would be eligible to receive a capitation payment for that
enrollee for both months. We considered other alternatives to this
approach, including whether to remain silent on a numerical definition
associated with a short-term acute stay, or utilizing a number
associated with an average length of stay, such as data available under
the Medicaid Emergency Psychiatric Demonstration. We request comment on
this provision, general approach and methodology, or any other
comments. We also request comment on the proposed definition of a
short-term acute stay in this context, including the cost of IMD
services in FFS or managed care, the wisdom of reflecting a number as
either a hard cap on the amount of time for which FFP would be
available via the capitation payment, or as an articulation of the
average length of stay across a managed care plan's enrollees that
would legitimize FFP. We also request comment on ways to operationalize
use of an average length of stay in terms of capitation payment
development and oversight. In addition, we request comment on the
percentage of enrollees that have a length of stay of less than 15 days
for inpatient or sub-acute psychiatric services.
---------------------------------------------------------------------------

\9\ http://innovation.cms.gov/Files/reports/MEPD_RTC.pdf, page
12.
---------------------------------------------------------------------------

For purposes of rate setting, the state and its actuaries may use
the utilization of services provided to an enrollee while they have a
short term stay as a patient in an IMD to determine an estimate of the
utilization of state plan services, that is, inpatient psychiatric
services, covered for the enrolled population in future rate setting
periods. However, the costs associated with the services to patients in
an IMD may not be used when pricing covered inpatient psychiatric
services. The IMD utilization must be priced consistent with the cost
of the same services through providers included under the state plan.
We note that this guidance for accounting for service utilization to
patients in an IMD differs from rate setting guidance issued in
December 2009 for in lieu of services in the context of home and
community based services, see CMS, Providing Long-Term Services and
Supports in a Managed Care Delivery System: Enrollment Authorities and
Rate Setting Techniques (December 2009), at page 15, available at
http://www.pasrrassist.org/sites/default/files/attachments/10-07-23/ManagedLTSS.pdf. In that guidance, we provided that the state may
modify the rate-setting process to account for the expected cost as
well as utilization of in lieu of services as a proxy for the cost of
approved state plan services in a contract. In the context of services
rendered to patients in an IMD, we believe such proxy pricing is not
consistent with the statutory prohibition of FFP referenced above. As
noted earlier, we welcome comment on this proposal.
In proposed paragraph (v), we establish minimum recordkeeping
requirements for MCOs, PIHPs, PAHPs, and subcontractors, as applicable,
of at least 6 years for data, documentation and information specified
in this part. Specifically, we propose that MCOs, PIHPs, PAHPs, and
subcontractors retain enrollee grievance and appeal records as
specified in Sec. 438.416, base data as specified in Sec. 438.5(c),
MLR reports as specified in Sec. 438.8(k), and the documentation
specified in Sec. 438.604, Sec. 438.606, Sec. 438.608, and Sec.
438.610. We make this proposal under our authority under section
1902(a)(4) of the Act to mandate methods of administration that are
necessary for the efficient operation of the state plan. The retention
of these records will aid in monitoring, oversight, and audit
activities at the state and federal levels. We request comment on the
proposed length of record retention; specifically, whether 6 years is
consistent with existing state requirements on managed care plans for
record retention and whether we should adopt a different timeframe. We
note that MA requires MA organizations to retain records for a period
of 10 years at Sec. 422.504(d).
3. Setting Actuarially Sound Capitation Rates for Medicaid Managed Care
Programs (Sec. 438.2, Sec. 438.4, Sec. 438.5, Sec. 438.6, and Sec.
438.7)
Building on a decade of experience with states, we are proposing to
improve the effectiveness of the regulatory structure to better assure
the fiscal integrity, transparency and beneficiary access to care under
the Medicaid program and to promote innovation and improvement in the
delivery of services through a comprehensive review of Medicaid managed
care capitation rates. The existing regulatory framework is process-
based, rather than focused on a substantive review and assessment of
the actuarial assumptions and methodologies underlying the development
of the rates. Our proposal would strengthen that approach. The
overarching goal behind our proposed revisions to the rate-setting
framework (proposed in Sec. 438.4 through Sec. 438.7) is to reach the
appropriate balance of regulation and transparency that accommodates
the federal interests as payer and regulator, the state interests as
payer and contracting entity, the actuary's interest in preserving
professional judgment and autonomy, and the overarching programmatic
goals--shared by states and the federal government--of promoting
beneficiary access to quality care, efficient expenditure of funds and
innovation in the delivery of care. In addition, we believe that
requiring more consistent and transparent documentation of the rate
setting process will allow us to conduct more efficient reviews of the
rate certification submissions, which is a benefit to all parties.

[[Page 31119]]

Section 1903(m)(2)(A)(iii) of the Act permits federal matching
dollars for state expenditures to a risk bearing entity for Medicaid
services when ``such services are provided for the benefit of
individuals eligible for benefits under this title in accordance with a
contract between the state and the entity under which the prepaid
payments to the entity are made on an actuarially sound basis and under
which the Secretary must provide prior approval for contracts [meeting
certain value thresholds].'' Existing Sec. 438.6(c)(i) elaborates upon
the statutory standard to define actuarially sound rates as rates that:
(1) Have been developed in accordance with generally accepted actuarial
principles and practices; (2) are appropriate for the populations to be
covered and the services to be furnished under the contract; and (3)
have been certified by an actuary who meets the qualification standards
established by the American Academy of Actuaries and follows the
practice standards established by the Actuarial Standards Board. In its
Actuarial Standard of Practice No. 49, ``Medicaid Managed Care
Capitation Rate Development and Certification'' issued in March 2015,
the American Academy of Actuaries states that Medicaid capitation rates
are ``actuarially sound'' if, for business for which the certification
is being prepared and for the period covered by the certification,
projected capitation rates and other revenue sources provide for all
reasonable, appropriate, and attainable costs. Other revenue sources
include, but are not limited to, expected reinsurance and governmental
stop-loss cash flows, governmental risk adjustment cash flows, and
investment income. Costs include, but are not limited to, expected
health benefits, health benefit settlement expenses, administrative
expenses, the cost of capital, and government-mandated assessments,
fees, and taxes. See Actuarial Standard of Practice No. 49 (March
2015), available at http://www.actuarialstandardsboard.org/wp-content/uploads/2015/03/asop049_179.pdf. Our proposal to revise the Medicaid
managed care rate setting framework expands upon these basic and
generally accepted definitions of actuarial soundness to ensure that
Medicaid rates are developed in a transparent and consistent manner
across Medicaid managed care programs.
We relied on the following principles of actuarial soundness to
inform the modernized rate setting framework in this proposed rule.
First, capitation rates should be sufficient and appropriate for the
anticipated service utilization of the populations and services covered
under the contract and provide appropriate compensation to the health
plans for reasonable non-benefit costs. Built into that principle is
the concept that an actuarially sound rate should result in appropriate
payments for both payers (the state and the federal government) and
that the rate should promote program goals such as quality of care,
improved health, community integration of enrollees and cost
containment, where feasible. Second, an actuarial rate certification
underlying the capitation rates should provide sufficient detail,
documentation, and transparency of the rate setting components set
forth in this regulation to enable another actuary to assess the
reasonableness of the methodology and the assumptions supporting the
development of the final capitation rate. Third, a transparent and
uniformly applied rate review and approval process based on actuarial
practices should ensure that both the state and the federal government
act effectively as fiscal stewards and in the interests of beneficiary
access to care.
a. Definitions (Sec. 438.2)
We propose to define ``actuary'' to incorporate standards for an
actuary who is able to provide the certification under current law at
Sec. 438.6(c); that is, that the individual meets the qualification
standards set by the American Academy of Actuaries as an actuary and
follows the practice standards established by the Actuarial Standards
Board. We also propose that where the regulation text refers to the
development and certification of the capitation rates, and not the
review or approval of those rates by CMS, the term actuary refers to
the qualified individual acting on behalf of the state. We intend that
an actuary who is either a member of the state's staff or a contractor
of the state could fulfill this role so long as the qualification and
practice standards are also met.
We propose to modify the existing definition of ``capitation
payment'' by removing references to ``medical'' services in recognition
of the fact that states are contracting with MCOs, PIHPs, and PAHPs for
LTSS, which are not adequately captured in the existing definition of
capitation payments that refers only to medical services.
We propose to define a ``material adjustment'' as one that, in the
objective exercise of an actuary's judgment, has a significant impact
on the development of the capitation rate. We note that material
adjustments may be large in magnitude, or be developed or applied in a
complex manner. The actuary developing the rates should use reasonable
actuarial judgment based on generally accepted actuarial principles
when assessing the materiality of an adjustment. Further discussion of
material adjustments is provided in the discussion on documentation of
adjustments in Sec. 438.7 and section I.B.3.c. of this proposed rule.
We also propose to add a definition for ``rate cells.'' The use of
rate cells is intended to group people with more similar
characteristics and expected health care costs together to set
capitation rates more accurately. The rate cells should be developed in
a manner to ensure that an enrollee is assigned to one and only one
rate cell. That is, each enrollee should be categorized in one of the
rate cells and no enrollee should be categorized in more than one rate
cell.
b. Actuarial Soundness Standards (Sec. 438.4)
Consistent with the principles of actuarial soundness described
herein, we propose to add a new Sec. 438.4 that builds upon the
definition of actuarially sound capitation rates currently at Sec.
438.6(c)(i) and establishes standards for states and their actuaries.
In Sec. 438.4(a), we propose to define actuarially sound capitation
rates as rates that are projected to provide for all reasonable,
appropriate, and attainable costs under the terms of the contract and
for the time period and population covered under the contract. Further,
we state that the rate development process should be conducted and
rates developed in accordance with the proposed standards for approval
of rates in Sec. 438.4(b).
Under this provision, costs that are not reasonable, appropriate,
or attainable should not be included in the development of capitated
rates. Thus, for instance, costs related to improper payments that an
MCO, PIHP, or PAHP recovers are not reasonable costs and should not be
included as part of the base data used to develop the capitation rate.
This is because, consistent with proposed standards in Sec.
438.608(a)(2) and (d)(1) described in section I.B.4.(c) of this
proposed rule, MCOs, PIHPs, and PAHPs must report improper payments and
recover overpayments they identify from network providers. States must
take such recoveries into account when developing capitation rates.
Therefore, capitation rates that include the amount of improper
payments recovered by an MCO, PIHP, or PAHP as projected costs would
not be considered actuarially sound.

[[Page 31120]]

In Sec. 438.4(b), we propose to set forth the standards that
capitation rates must meet and that we will apply in the review and
approval of actuarially sound capitation rates. In Sec. 438.4(b)(1),
we propose to redesignate the standard currently in Sec.
438.6(c)(1)(i)(A) that capitation rates have been developed in
accordance with generally accepted actuarial principles and practices.
We also propose in Sec. 438.4(b)(1) that capitation rates must meet
the standards described in proposed Sec. 438.5 dedicated to rate
development standards. We acknowledge that states may desire to
establish minimum provider payment rates in the contract with the
managed care plan. Because actuarially sound capitation rates must be
based on the reasonable, appropriate, and attainable costs under the
contract, minimum provider payment expectations included in the
contract would necessarily be built into the relevant service
components of the rate. However, we propose in paragraph (b)(1) to
prohibit different capitation rates based on the FFP associated with a
particular population. We believe that such practices represent cost-
shifting from the state to the federal government and are not based on
generally accepted actuarial principles and practices.
In Sec. 438.4(b)(2), we propose to redesignate the provision
currently at Sec. 438.6(c)(1)(i)(B). We have restated the standard but
the substance is the same: The capitation rates must be appropriate for
the population(s) to be covered and the services provided under the
managed care contract.
In Sec. 438.4(b)(3), we propose that capitation rates be adequate
to meet the requirements on MCOs, PIHPs, and PAHPs in Sec. Sec.
438.206, 438.207, and 438.208. These sections contain the requirements
for MCOs, PIHPs, and PAHPs to ensure availability and timely access to
services, adequate networks, and coordination and continuity of care,
respectively. The definition of actuarially sound capitation rates in
proposed Sec. 438.4(a) provides that the rates must provide for all
reasonable, appropriate, and attainable costs that are required under
the contract. The maintenance of an adequate network that provides
timely access to services and ensures coordination and continuity of
care is an obligation on the managed care plans for ensuring access to
services under the contract. In the event concerns in these areas
arise, the review of the rate certification would explore whether the
provider rates are sufficient to support the MCO's, PIHP's, or PAHP's
obligations. We solicit comments on this proposal.
In Sec. 438.4(b)(4), we propose that capitation rates be specific
to the payment attributable to each rate cell under the contract. The
rates must appropriately account for the expected benefit costs for
enrollees in each rate cell, and for a reasonable amount of the non-
benefit costs of the plan. Payments from any rate cell must not be
expected to cross-subsidize or be cross-subsidized by payments for any
other rate cell. In accordance with the existing rule in Sec.
438.6(c)(2)(i), we propose that all payments under risk contracts be
actuarially sound and that the rate for each rate cell be developed and
assessed according to generally accepted actuarial principles and
practices. See 67 FR 40989, 40998. We now propose to make this a more
explicit standard in the regulation text in paragraph (b)(3) to
eliminate any potential ambiguity on this point and to be consistent
with our goal to make the rate-setting and rate approval process more
transparent. Some states use rate ranges as a tool that allows the
submission of one actuarial certification but permits further
negotiation with each of the MCOs, PIHPs, and PAHPs within the rate
range. Historically, we have permitted that any rate paid to any
managed care plan within the certified range will be determined to be
actuarially sound regardless of where it fell in the range. However,
the rate ranges may be quite large. States have not had to submit
additional documentation to CMS as long as the final payment rate was
within the certified rate range. Additionally, states have used rate
ranges to increase or decrease rates paid to the managed care plans
without providing further notification to CMS or the public of the
change or certification that the change was based on actual experience
incurred by the MCOs, PIHPs, or PAHPs that differed in a material way
from the actuarial assumptions and methodologies initially used to
develop the capitation rates. In this rule, we propose to alter past
practices moving forward such that:
Each individual rate paid to each MCO, PIHP, or PAHP be
certified as actuarially sound with enough detail to understand the
specific data, assumptions, and methodologies behind that rate.
States may still use rate ranges to gauge an appropriate
range of payments on which to base negotiations but states will have to
ultimately provide certification to CMS of a specific rate for each
rate cell, rather than a rate range. While we understand that this will
impact some states that rely heavily on rate ranges, we believe that
requiring the details, including the specific data, assumptions, and
methodologies, behind each contracted rate strengthens program
integrity and transparency in the rate setting process. We request
comment on this approach.
This proposed change and the impact on our review of the rate-
setting process would give CMS, the states, and taxpayers more
confidence that Medicaid capitation payments are proper for the
services and populations covered, are supportive of beneficiary access
to quality care, and are an efficient use of Medicaid funds.
In proposed Sec. 438.4(b)(5), we propose to redesignate the
standard in current Sec. 438.6(c)(1)(i)(C) that an actuary certify
that the rate methodology and the final capitation rates are consistent
with the standards of this part and generally applicable standards of
actuarial practice. This would require that all components and
adjustments of the rate be certified by the actuary. In addition, the
actuary would certify the rate for each rate cell under the contract.
Under our proposal, a rate certification of a general rate range would
not be sufficient. Also, we reiterate that for this standard to be met,
the individual providing the certification must be within our proposed
definition of ``actuary'' in Sec. 438.2.
As proposed, Sec. 438.4(b)(6) would incorporate the special
contract provisions related to payment proposed in Sec. 438.6 if such
provisions were applied under the contract. As discussed in this rule,
we propose to codify in Sec. 438.6 the rules for risk-sharing
mechanisms, incentive arrangements, withhold arrangements, and delivery
system and provider payment initiatives under MCO, PIHP, or PAHP
contracts.
Proposed Sec. 438.4(b)(7) incorporates the documentation standards
proposed in Sec. 438.7. We believe that for us to assess the actuarial
soundness of capitation rates the data, methodologies, and assumptions
applied by the actuary must be sufficiently and transparently
documented. Clear documentation will support the goal of instituting a
meaningful and uniformly applied rate review and approval process and
will streamline the process for both states and CMS. Again, we believe
that the elements of actuarial soundness specified in proposed Sec.
438.4--and the more detailed standards in proposed Sec. Sec. 438.5,
438.6 and 438.7--are consistent with the prevailing and generally
accepted actuarial practices for Medicaid rate setting.
In proposed Sec. 438.4(b)(8), we propose to include a new standard
that actuarially sound capitation rates for MCOs, PIHPs, and PAHPs must
be

[[Page 31121]]

developed so that MCOs, PIHPs, and PAHPs can reasonably achieve a
minimum MLR of at least 85 percent, and if higher, a MLR calculation
that provides for reasonable administration costs when using the
calculation defined in proposed Sec. 438.8. See section I.B.1.c.(1) of
this proposed rule for additional discussion of this proposal. States
could establish higher MLR standards, either for rate development
purposes or to measure actual performance of the managed care plan, or
both. We believe this minimum standard, which is consistent with MLR
standards for both commercial and MA organizations, balances the goal
of ensuring enrollees are provided appropriate services while also
ensuring a cost effective delivery system. As a result of this
standard, the reports from MCOs, PIHPs, and PAHPs on the MLR would be
integral sources of data for rate setting. For instance, states that
discover, through the MLR reporting under proposed Sec. 438.8(k), that
an MCO, PIHP, or PAHP has not met an MLR standard of at least 85
percent would need to take this into account and include adjustments in
future year rate development. We believe that such adjustments to
account for a lower MLR ensure ongoing actuarial soundness. All such
adjustments would need to comply with all standards around adjustments
discussed in section I.B.3.c. of this proposed rule.
Through this proposed rule, as we codify and revise standards for
states and their actuaries for the development of Medicaid capitation
rates our aim is to offer flexibility in setting rates to foster
efficiency, quality and innovation. We solicit comment whether these
standards are adequate for this purpose and the goals discussed in this
proposed rule. Also, we request comment on methods, measures, and data
sources that the states and their actuaries can use to assess whether
capitation rates are adequate to support provider reimbursement levels
that result in managed care plan provider networks that satisfy the
network adequacy and timely access standards in proposed Sec. Sec.
438.68 and 438.206.
c. Rate Development Standards (Sec. 438.5)
In Sec. 438.5(a), we propose to establish definitions for terms of
significance to the standards for rate development and documentation in
the rate certification as proposed in Sec. 438.7(b). We propose to add
definitions for ``budget neutral,'' ``prospective risk adjustment,''
``retroactive risk adjustment,'' and ``risk adjustment.''
We propose to define ``budget neutral'' in accordance with the
generally accepted usage of the term as applied to risk sharing
mechanisms, as meaning no aggregate gain or loss across the total
payments made to all managed care plans under contract with the state.
We propose to define ``risk adjustment'' as a methodology to account
for health status of enrollees covered under the managed care contract.
We propose that the definitions for ``prospective risk adjustment'' and
``retrospective risk adjustment'' clarify when the risk adjustment
methodology is applied to the capitation rates under the contract.
In Sec. 438.5(b), we set forth the steps a state, acting through
its actuary, would have to follow when establishing Medicaid managed
care capitation rates. These proposed standards are based on furthering
the goals of transparency, fiscal stewardship, and beneficiary access
to care. We believe setting clear standards and expectations for rate
development, which are to be documented in the rate certification as
described in proposed Sec. 438.7(b), would--without restricting
appropriate flexibility for states to drive program improvements
through managed care contracting--support managed care systems that can
operate efficiently, effectively, and with a high degree of fiscal
integrity. These goals would underlie our interpretation and guidance
on the rules adopted to govern rate-setting for MCOs, PIHPs, and PAHPs.
Paragraph (b) of this section generally proposes the steps that
would be necessary for developing actuarially sound capitation rates
with specific standards for the steps outlined in proposed paragraphs
(c) through (g). We based these steps on our understanding of how
actuaries approach rate setting with modifications to accommodate our
proposal as to what actuarial soundness should include in the context
of Medicaid managed care. We solicit comment on whether additional or
alternative steps are more appropriate to meet the stated goals for
establishing standards for rate setting. We do not intend for these
steps to be followed in the order listed in this proposed rule, but we
would stipulate that the rate setting process include each step and
follow the standards for each step. In reviewing and approving rates
under this proposal, we would evaluate each step and states would have
to explain why any one of the steps was not followed or was not
applicable. The six steps include:
Collect or develop appropriate base data from historical
experience;
Develop and apply appropriate and reasonable trends to
project benefit costs in the rating period, including trends in
utilization and prices of benefits;
Develop appropriate and reasonable projected costs for
non-benefit costs in the rating period as part of the capitation rate;
Make appropriate and reasonable adjustments to the
historical data, projected trends, or other rate components as
necessary to establish actuarially sound rates;
Consider historical and projected MLR of the MCO, PIHP, or
PAHP; and
For programs that use a risk adjustment process, select an
appropriate risk adjustment methodology, apply it in a budget neutral
manner, and calculate adjustments to plan payments as necessary.
In Sec. 438.5(c), we propose standards for selection of
appropriate base data. In paragraph (c)(1), we propose that, for
purposes of rate setting, states provide to the actuary Medicaid-
specific data such as validated encounter data, FFS data (if
applicable), and audited financial reports for the 3 most recent years
completed prior to the rating period under development. In proposed
Sec. 438.5(c)(2), we propose that the actuary exercise professional
judgment to determine which data is appropriate after examination of
all data sources provided by the state, setting a minimum parameter
that such data be derived from the Medicaid population or derived from
a similar population and adjusted as necessary to make the utilization
and cost data comparable to the Medicaid population for which the rates
are being developed. We propose that the data that the actuary uses
must be from the 3 most recent years that have been completed prior to
the rating period for which rates are being developed. For example, for
rate setting activities in 2016 for calendar year 2017, the data used
must at least include data from calendar year 2013. We understand that
claims may not be finalized for 2015 and we would expect the actuary to
make appropriate and reasonable judgments as to whether 2013 or 2014
data, which would be complete, must account for a greater percentage of
the base data set. We use a calendar year for ease of reference in the
example, but a calendar year is interchangeable with the state's
contracting cycle period (for example, state fiscal year). We
understand that there may be reasons why older data are necessary to
inform certain trends or historical experience containing data
anomalies, but the primary source of utilization and price data should
be no older than the most recently completed 3 years. Noting that
states may not be able to meet the

[[Page 31122]]

standard in proposed paragraph (c)(2) for reasons such as a need to
transition into these new standards or for an unforeseen circumstance
where data meeting the proposed standard is not available, we propose
an exception in the regulation to accommodate such circumstances. Under
our proposal in Sec. 438.5(c)(3)(i) and (ii), the state may request an
exception to the provision in paragraph (c)(2) that the basis of the
data be no older than from the three most recent and complete years
prior to the rating period provided that the state submits a
description of why an exception is needed and a corrective action plan
with the exception request that details how the problems will be
resolved in no more than 2 years after the rating period in which the
deficiency was discovered, as proposed in Sec. 438.5(c)(3)(ii). We
believe that 2 years is enough time for states to work with their
contracted managed care plans or repair internal systems to correct any
issues that impede the collection and analysis of recent data. We
request comment on this proposed standard and our assumption about the
length of time to address data concerns that would prevent a state from
complying with our proposed standard.
Proposed Sec. 438.5(d) addresses standards for trend factors in
setting rates. Specifically, we propose that trend factors be
reasonable and developed in accordance with generally accepted
actuarial principles and practices. We also stipulate that trend
factors be developed based on actual experience from the same or
similar populations. We propose specific standards for the
documentation of trend factors in proposed Sec. 438.7(b)(2). We
request comment on whether we should establish additional parameters
and standards in this area.
Proposed paragraph (e) would establish standards for developing the
non-benefit component of the capitation rate, which includes expenses
related to administration, taxes, licensing and regulatory fees,
reserve contributions, profit margin, cost of capital, and other
operational costs. The only non-benefit costs that may be recognized
and used for this purpose are those associated with the MCO's, PIHP's,
or PAHP's provision of state plan services to Medicaid enrollees; this
proposal is consistent with our proposal at Sec. 438.3(c) that
capitation rates be based only on services covered under the state
plan.
In paragraph (f), we propose to address adjustments. Adjustments
are important for rate development and may be applied at almost any
point in the rate development process. For purposes of this proposed
rule, we have separated risk adjustment from all other adjustments, and
specific standards for risk adjustment are proposed in paragraph (g) of
this section. Proposed standards for adjustments are set forth in Sec.
438.5(f). We believe that most adjustments applied to Medicaid
capitation rate development would reasonably support the development of
accurate data sets for purposes of rate setting, address appropriate
programmatic changes, the health status of the enrolled population, or
reflect non-benefit costs. For additional discussion on acuity
adjustments to account for the health status of the enrolled
population, refer to the content on risk adjustment in section I.B.3.e
of the preamble. We considered identifying specific adjustments we find
permissible in the regulations instead of requiring additional
justification, but believe that such an approach might foreclose the
use of reasonable adjustments. We request comment on this approach.
In proposed paragraph (g), we propose to set forth standards for
risk adjustment. In general, risk adjustment is a methodology to
account for the health status of enrollees when predicting or
explaining costs of services covered under the contract for defined
populations or for evaluating retrospectively the experience of MCOs,
PIHPs, or PAHPs contracted with the state.
States currently apply the concept of ``risk adjustment'' in
multiple ways and for multiple purposes. In some cases, states may use
risk adjustment as the process of determining and adjusting for the
differing risk between managed care plans. In other cases, states may
use risk adjustment as the process of determining the relative risk of
the total enrolled population compared to a standard population (for
example, the enrolled population from a prior rating period.) For
purposes of this regulation, we consider the first case to be the
concept of risk adjustment as described in Sec. 438.5(a) and Sec.
438.5(g). We consider the second case to be an acuity adjustment
subject to the proposed standards for adjustments in Sec. 438.5(f).
Risk adjustment may be conducted in one of two ways. First, a state may
use historical data to adjust future capitation payments. This is risk
adjustment conducted on a prospective basis. Second, a state may
perform a reconciliation and redistribution of funds based on the
actual experience in the rating period. This is risk adjustment
conducted on a retrospective basis. In Sec. 438.5(g), we propose that
prospective or retrospective risk adjustment be budget neutral. This is
a proposed redesignation and renaming of the standard that such
mechanisms be cost neutral in the current Sec. 438.6(c)(1)(iii). The
proposed documentation standards in the certification would depend on
the type of risk adjustment chosen and are discussed in proposed Sec.
438.7(b)(4).
d. Special Contract Provisions Related to Payment (Sec. 438.6)
We propose, at Sec. 438.6, contract standards related to payments
to MCOs, PIHPs, and PAHPs, specifically, risk-sharing mechanisms,
incentive arrangements, and withhold arrangements. This section builds
upon, and proposes minor modifications to the special contract
provisions that are currently codified at Sec. 438.6(c)(5). We
propose, at paragraph (a), three definitions applicable to this
section. The definition for an ``incentive arrangement'' is unchanged
from the definition that is currently codified in Sec.
438.6(c)(1)(iv). We propose a definition for ``risk corridor'' with a
slight modification from the existing definition at Sec.
438.6(c)(1)(v). The current definition specifies that the state and the
contractor share in both profits and losses outside a predetermined
threshold amount. Experience has shown that states employ risk
corridors that may apply to only profits or losses. We therefore
propose to revise the definition to provide flexibility that reflects
that practice. We also propose to add a definition for ``withhold
arrangements,'' which would be defined as a payment mechanism under
which a portion of the capitation rate is paid after the MCO, PIHP, or
PAHP meets targets specified in the contract. Our current regulation is
silent on this increasingly popular payment mechanism and we propose
with this rule to acknowledge and add standards governing such
arrangements.
In proposed paragraph (b), we would establish the basic standards
for programs that apply risk corridor or similar risk sharing
arrangements, incentive arrangements, and withhold arrangements. In
Sec. 438.6(b)(1), we propose to redesignate the existing standard (in
current Sec. 438.6(c)(2)) that the contract include a description of
any risk sharing mechanisms, such as reinsurance, risk corridors, or
stop-loss limits, applied to the MCO, PIHP, or PAHP. Although the
proposed regulation text includes these examples, this list is not
exhaustive and we intend to interpret and apply this regulation to any
mechanism or arrangement that has the effect of sharing risk between
the MCO, PIHP, or PAHP and the state.

[[Page 31123]]

Given the new proposed standards on a minimum MLR in Sec. 438.8, we
believe that states should consider the parameters of the minimum MLR
when developing any risk sharing mechanisms to ensure upper and lower
bounds are within those MLR standards but we have not made that a
standard. We request comment on this approach.
In Sec. 438.6(b)(2), we propose to redesignate the existing
standards for incentive arrangements currently stated in Sec.
438.6(c)(5)(iii), but with a slight modification. We believe that the
existing regulatory standards that incentive arrangements be time-
limited and not subject to automatic renewal, available to both public
and private contractors, not conditioned on intergovernmental transfer
(IGT) agreements, necessary for the specified activity, and limited to
5 percent of the certified capitation rate are appropriate standards,
as they support the fiscal integrity of the capitation rate and the
development of quality and outcome-based initiatives. However, we
believe that an additional standard is appropriate. We propose to add a
new standard in Sec. 438.6(b)(2)(v) that incentive arrangements would
have to be designed to support program initiatives tied to meaningful
quality goals and performance measure outcomes. We believe this change
would support delivery system reform initiatives that include incentive
arrangements for quality goals and outcomes. We also clarify that not
conditioning the incentive payment on IGTs means that the health plan's
receipt of the incentive is solely based on satisfactory performance
and not conditioned on the health plan's compliance with an IGT
agreement. We request comment as to whether the existing upper limit (5
percent) on the amount attributable to incentive arrangements is
perceived as a barrier to designing performance initiatives and
achieving desired outcomes and whether CMS must continue to set forth
expectations for incentive arrangements between the state and
contracted health plans.
Unlike incentive arrangements that are an add-on to the base
capitation rate received by the MCO, PIHP, or PAHP, a withhold
arrangement is an amount retained by the state from the base capitation
rate payable to the MCO, PIHP, or PAHP; the withhold amount is paid
based on satisfactory performance of specified measures or outcomes
related to the contract. In paragraph (b)(3), we propose that the
capitation rate under the contract with the MCO, PIHP, or PAHP, minus
any portion of the withhold amount that is not reasonably achievable,
must be certified as actuarially sound. For example, if the contract
permits the state to hold back 3 percent of the final capitation rate
under the contract, or 3 percent from a particular rate cell of the
capitation rate under the contract, the actuary must determine the
portion of the withhold that is reasonably achievable. We request
comment on how an actuary would conduct such an assessment to inform
future guidance in this area. If the actuary determines that only two
thirds of the withhold is reasonably achievable (that is, 2 percent of
the final contract capitation rate), the capitation rate, minus the
portion that is not reasonably achievable (that is, 1 percent of the
final capitation rate), must be actuarially sound. Thus, the total
amount of the withhold, achievable or not, must be reasonable and take
into account an MCO's, PIHP's, or PAHP's capital reserves and financial
operating needs for expected medical and administrative costs. When
determining the reasonableness of the amount of the withhold, the
actuary should also consider the cash flow requirements and financial
operating needs of the MCOs, PIHPs, and PAHPs, taking into account such
factors as the size and characteristics of the populations covered
under the contract. The reasonableness of the amount of the withhold
should also reflect an MCO's, PIHP's, or PAHP's capital reserves as
measured by risk-based capital levels or other appropriate measures
(for example, months of claims reserve) and ability of those reserves
to address expected financial needs. The data, assumptions, and
methodologies used to determine the portion of the withhold that is
reasonably achievable must be included in the documentation for rate
certification specified under Sec. 438.7(b). We note that the proposed
terms for the design of the withhold arrangement mirror the terms for
incentive arrangements minus the upper limit, as the rate received by
the MCO, PIHP, or PAHP absent the portion of withhold amount that is
not reasonably achievable must be certified as actuarially sound. We
believe that incentive and withhold arrangements are two approaches to
drive health plan performance toward specified goals or outcomes. While
we understand the legitimate uses for withhold arrangements, we are
concerned that an excessively large withhold could inappropriately
reduce the amount received by an MCO, PIHP, or PAHP on a prepaid basis
to the extent that the amount is insufficient to cover expected benefit
costs, which would result in rates that are not actuarially sound. The
proposed regulations are designed to ensure that any withhold
arrangements meet the following goals: (1) The withhold arrangement
does not provide an opportunity for MCOs, PIHPs, or PAHPs to receive
more than the actuarially certified capitation rate; (2) the withhold
arrangement provides MCOs, PIHPs, and PAHPs an opportunity to
reasonably achieve an amount of the withhold, such that if the state
had set the capitation rate at the actual amount paid after accounting
for the effect of the withhold, it would be certifiable as actuarially
sound; and (3) the actuarial soundness of the capitation rates after
consideration of the withhold arrangement is assessed at an aggregate
level, across all contracted MCOs, PIHPs, or PAHPs. We welcome comment
on appropriate approaches to evaluating the reasonableness of these
arrangements and the extent to which the withholds are reasonably
achievable and solicit comment on whether our prorposed regulation text
sufficiently accomplishes our stated goals.
We propose to redesignate the existing standard at Sec.
438.6(c)(5)(v) related to adjustments to actuarially sound capitation
rates to account for graduate medical education (GME) payments
authorized under the state plan at the proposed Sec. 438.6(b)(4)
without any changes to the substantive standard.
We propose to add a new paragraph (c) to Sec. 438.6 to formalize
our longstanding policy on the extent to which a state may direct the
MCO's, PIHP's or PAHP's expenditures under a risk contract. Existing
standards in Sec. 438.6(c)(4) (proposed to be redesignated as Sec.
438.3(c)) limit the capitation rate paid to MCOs, PIHPs, or PAHPs to
the cost of state plan services covered under the contract and
associated administrative costs to provide those services to Medicaid
eligible individuals. Furthermore, under Sec. 438.60, the state must
ensure that additional payments are not made to a provider for a
service covered under the contract other than payment to the MCO, PIHP
or PAHP with specific exceptions. Current CMS policy has interpreted
these regulations to mean that the contract with the MCO, PIHP or PAHP
defines the comprehensive cost for the delivery of services under the
contract, and that the MCO, PIHP or PAHP, as risk-bearing
organizations, maintain the ability to fully utilize the payment under
that contract for the delivery of services. In paragraph (c)(1), we
propose the general rule that the state may not direct the MCO's,
PIHP's,

[[Page 31124]]

or PAHP's expenditures under the contract.
However, we also want to encourage states to use health plans as
partners to assist the states in achieving overall delivery system and
payment reform and performance improvements. We also want states to be
able, at their discretion, to incentivize and retain certain types of
providers to participate in the delivery of care to Medicaid
beneficiaries under a managed care arrangement. Managed care plans are
a key partner in achieving the goals of improved population health and
better care at lower cost. We are therefore proposing in paragraphs
(c)(1)(i) through (c)(1)(iii), ways that a state may set parameters on
how expenditures under the contract are made by the MCO, PIHP, or PAHP.
Proposed paragraph (c)(1)(i) provides that states may specify in the
contract that managed care plans adopt value-based purchasing models
for provider reimbursement. In this approach, the contract between the
state and the managed care plan would set forth methodologies or
approaches to provider reimbursement that prioritize achieving health
outcomes versus simply the delivery of services. Implementing this
flexibility in regulation would assure that these regulations promote
paying for quality or health outcomes rather than the volume of
services. These proposed flexibilities support states and Medicaid
managed care plans to adopt and build upon the 30/50 and 85/90 value-
based payment targets established by HHS for the Medicare FFS program
for 2016-2018.\10\ These targets for the Medicare FFS program involve
value-based provider reimbursement. Medicaid managed care programs
across the country provide integrated and coordinated systems of health
care to Medicaid beneficiaries and value-based purchasing models are a
tool that states and Medicaid managed care plans can use to achieve and
sustain better care at lower costs. In paragraph (c)(1)(ii), we
reiterate that states have the flexibility to require managed care plan
participation in broad-ranging delivery system reform or performance
improvement initiatives. This approach would permit states to specify
in the contract that MCOs, PIHPs, or PAHPs participate in multi-payer
or Medicaid-specific initiatives, such as patient-centered medical
homes, efforts to reduce the number of low birth weight babies, broad-
based provider health information exchange projects, and delivery
system reform projects to improve access to services, among others. For
example, states could make available incentive payments for the use of
technology that supports interoperable health information exchange by
network providers that were not eligible for EHR incentive payments
under the HITECH Act (for example, long-term/post-acute care,
behavioral health, and home and community based providers). The state
would be permitted to use the health plan payments as a tool to
incentivize providers to participate in particular initiatives that
operate according to state-established and uniform conditions for
participation and eligibility for additional payments. The capitation
rates to the health plans would reflect an amount for incentive
payments to providers for meeting performance targets, however the
health plans retain control over the amount and frequency of payments.
We believe that this approach balances the need to have a health plan
participate in a multi-payer or community-wide initiative, while giving
the health plan a measure of control to participate as an equal
collaborator with other payers and participants. We also clarify that
because funds associated with delivery system reform or performance
initiatives are part of the capitation payment, any unspent funds
remain with the MCO, PIHP, or PAHP. This approach ensures that any
additional payment is associated with a value relative to innovation
and statewide reform goals.
---------------------------------------------------------------------------

\10\ See, e.g., Burwell, Sylvia M., ``Setting Value-Based
Payment Goals--HHS Efforts to Improve U.S. Health Care,'' N. Engl.
J. Med. at 1 (January 27, 2015).
---------------------------------------------------------------------------

Proposed paragraph (c)(1)(iii) would support two state practices
critical to ensuring timely access to high-quality, integrated care,
specifically: (1) Setting minimum reimbursement standards or fee
schedules for providers that deliver a particular covered service; and
(2) raising provider rates in an effort to enhance the accessibility or
quality of covered services. For example, some states have opted to
continue paying primary care providers at Medicare reimbursement rates
under section 1202 of the Affordable Care Act for calendar years 2013-
2014. Because actuarially sound capitation rates are based on all
reasonable, appropriate and attainable costs (see section I.B.3.b. of
this proposed rule), the contractual expectation that primary care
providers would be paid at least according to Medicare reimbursement
levels must be accounted for in pricing the primary care component of
the capitation rate. These amounts would be subject to the same
actuarial adjustments as the service component of the rate and would be
blended into the final contract rate certified by the actuary. Under
the contract, the state would direct the MCO, PIHP, or PAHP to adopt a
minimum fee schedule created by the state for services rendered by that
class of providers This proposal is reflected in paragraph
(c)(1)(iii)(A).
In proposed paragraph (c)(1)(iii)(B), we note the state could
specify a uniform dollar or percentage increase for all providers that
provide a particular service under the contract. This option would have
the state treat all providers of the services equally and does not
permit the state to direct the MCO, PIHP, or PAHP to reimburse specific
providers specific amounts at specified intervals. We believe this
option would help ensure that additional funding is directed toward
enhancing services and ensuring access rather than benefitting
particular providers. It would also support the standard that total
reimbursement to a provider is based on utilization and the quality of
services delivered. Finally, we believe that this option would be
consistent with and build upon the existing standard that the
capitation rate reflects the costs of services under the contract.
Under both approaches in (c)(1)(iii), the MCO, PIHP or PAHP would be
permitted to negotiate higher payment amounts under their specific
provider agreements.
To ensure that state direction of expenditures promotes delivery
system or provider payment initiatives, we expect that states will, as
part of the federal approval process, demonstrate that such
arrangements are based on utilization and the delivery of high-quality
services, as specified in paragraph (c)(2)(i)(A). Our review will also
ensure that state directed expenditures support the delivery of covered
services. Consequently, we expect that would demonstrate that all
providers of the service are being treated equally, including both
public and private providers, as specified in paragraph (c)(2)(i)(B).
The ultimate goal for state-directed expenditures is to support
improved population health and better care at lower cost. These efforts
cannot occur in isolation. Therefore, in paragraph (c)(2)(i)(D), we
would link approval of the arrangement to supporting at least one of
the objectives in the comprehensive quality strategy in Sec. 438.340
(proposed paragraph (c)(2)(i)(C)) and that the state would implement an
evaluation plan to measure how the arrangement supports that objective
(proposed paragraph (c)(2)(i)(D)). This will enable us and states to
demonstrate that these

[[Page 31125]]

arrangements are effective in achieving their goals. In proposed
paragraph (c)(2)(i)(E), we would not permit provider participation in
these arrangements to be conditioned on intergovernmental transfer
agreements so that the arrangement remains focused on proactive efforts
to improve care delivery and reduce costs. Finally, in proposed
paragraph (c)(2)(i)(F), because we seek to evaluate and measure the
impact of these reforms, such agreements would not be renewed
automatically. We establish standards in proposed paragraphs (c)(2)(i)
and (c)(2)(ii) for our approval of permitted state direction of
expenditures for delivery system or provider payment initiatives to
ensure that the arrangement is consistent with the specific provisions
of this section.
Under proposed paragraph (c)(2)(ii), any contract arrangement that
directs expenditures made by the MCO, PIHP, or PAHP under paragraphs
(c)(1)(i) or (c)(1)(ii) for delivery system or payment provider
initiatives would use a common set of performance measures across all
payers and providers. Having a set of common performance measures would
be critical to evaluate the degree to which multi-payer efforts achieve
the stated goals of the collaboration. We seek comment on the proposed
general standard, and the three exceptions, providing a state the
ability to direct MCO's, PIHP's, or PAHP's expenditures. Specifically,
we seek comment on the extent to which the three exceptions are
adequate to support efforts to improve population health and better
care at lower cost, while maintaining MCO's, PIHP's or PAHP's ability
to fully utilize the payment under that contract for the delivery of
services to which that value was assigned.
We also take this opportunity to clarify that the regulations in
part 438 are not a barrier to the operation of programs that promote
wellness among beneficiaries by Medicaid managed care plans. Positive
incentives to promote wellness among the Medicaid population can help
promote health and well-being and improve health outcomes. States and
managed care plans that undertake efforts to reward beneficiary health
care decisions and behaviors through inexpensive gifts or services are,
however, advised to consult OIG guidance for compliance with section
1128A(a)(5) of the Act. See, for example, OIG, Special Advisory
Bulletin: Offering Gifts and Other Inducements to Beneficiaries (August
2002), available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/SABGiftsandInducements.pdf.
e. Rate Certification Submission (Sec. 438.7)
In new Sec. 438.7, we propose the content of the rate
certification that is submitted by the state for CMS review and
approval. This section is distinguished from the rate development
standards in Sec. 438.5 in that it focuses on documentation of rate
development as opposed to the actual steps taken by states and
actuaries to develop capitation rates. This section includes a new
proposal that states receive CMS' approval of the rate certification in
addition to the contract, as provided in Sec. 438.3(a). The rate
certification is part of the procedural mechanism for CMS to ensure
that the capitated rates payable to MCOs, PIHPs, and PAHPs are
actuarially sound as specified in section 1903(m)(2)(A)(iii) of the
Act. We propose that rate certifications in Sec. 438.7(a) follow the
same procedures as for contract submissions through a cross-reference
to Sec. 438.3(a). Our proposal therefore includes the regulatory
flexibility to set forth timeframes and more detailed processes for the
submission of the rate certification review and approval process in
subregulatory guidance, which is in addition to the specific proposed
standard that states seeking contract and rate approval prior to an
anticipated effective date should submit such contracts and rate
certifications to CMS no later than 90 days before anticipated
effective date. We believe that review and approval of the rate
certification separate from the approval of a contract is an integral
step to work with states to ensure appropriate rates under these
programs and to modernize our oversight of Medicaid managed care rate
setting practices. In addition, we believe that this approach will
streamline the approval process as the rate certification supports the
payment terms in the contract. We believe that section
1903(m)(2)(A)(iii) authorizes us to stipulate review and approval of
both the contract and the rate certification for MCOs as the contract
must include the payment rates, which are developed via the rate
certification. Consistent with existing standards for CMS review and
approval for PIHP and PAHP contract in Sec. 438.6(a) (redesignated as
Sec. 438.3(a) in this proposed rule), we propose to extend the review
and approval standards for the rate certification for PIHPs and PAHPs
under our authority under section 1902(a)(4) of the Act. As proposed
here, the rate certification describes and provides the necessary
documentation and evidence that the rates were developed consistent
with generally accepted actuarial principles and practices and
regulatory standards. In the event that the certification and the
contract are submitted to CMS at different times, we would approve the
rate certification prior to approval of the contract, but FFP for the
program is contingent upon approval of the contract. This process would
satisfy CMS' statutory authority to oversee the Medicaid program and to
ensure that capitation rates are actuarially sound, which in turn helps
states and health plans to improve access to and quality of care for
Medicaid beneficiaries.
Proposed Sec. 438.7(b) would set forth the content that must be in
the rate certification to initiate the CMS review process. As proposed
in paragraph (b)(1), the certification would describe the base data.
The rate certification would describe how the actuary used professional
judgment to determine which data was appropriate after examination of
all data sources and the data sources used, as well as reasons if the
other data sources provided to the actuary were not used in the rate
development process.
In proposed paragraph (b)(2), we propose specific documentation
standards for trend factors. We propose that the rate certification be
detailed enough so that CMS or an actuary can understand and evaluate
the development and reasonableness of the trend and any meaningful
differences among trend factors applied across rate cells, populations,
or services. In proposed paragraph (b)(3), we propose that the basis
for determining the non-benefit component of the rate must be included
in the actuarial certification with enough detail so CMS or an actuary
can understand each type of non-benefit expense and evaluate the
reasonableness of each cost assumption underlying each non-benefit
expense.
In proposed paragraphs (b)(4)(i) through (iii), we propose
standards for transparency in the rate certification on how the
material adjustments were developed and the reasonableness of the
adjustment for the population, the cost impacts of each material
adjustment and where in the rate development process the adjustment was
applied. We understand there may be multiple adjustments applied in the
rate-setting process, ranging from minor adjustments, which on their
own do not impact the overall rate by a material amount, to other
adjustments, which may be much greater in scope and magnitude.
Therefore, we have proposed that states only provide information on the
development of and cost impact for each of the material adjustments.
Adjustments that do not meet this threshold, or non-material

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adjustments, may be aggregated and only the cost impact of that
aggregated bundle would need to be shown in the certification as set
forth in proposed paragraph (b)(4)(ii). In Sec. 438.7(b)(4)(iv), we
propose that the actuarial certification include a list of all the non-
material adjustments used in rate development, but specifics of each
non-material adjustment will not be necessary. As we gain experience in
reviewing adjustments consistent with these standards and further
consult with states, we may issue guidance on what we believe to be
material and non-material adjustments, but until that time, we would
expect the actuary to exercise reasonable judgment and good faith when
characterizing or treating an adjustment as material or non-material.
In paragraph (b)(5), we propose to establish documentation
standards in the certification for prospective and retrospective risk
adjustment. In paragraph (b)(5)(i), we propose that the rate
certification should include sufficient detail of the prospective risk
adjustment methodology because the methodology is an integral part of
the rate development process. To evaluate the appropriateness of the
prospective risk adjustment methodology, we propose that the following
specific pieces of information be included in the rate certification:
The model selected and data used by the state; the method for
calculating the relative risk factors and the reasonableness and
appropriateness of the method in measuring the risk of the respective
populations; the magnitude of the adjustment on the capitation rate for
each MCO, PIHP, or PAHP; and an assessment of the predictive value of
the methodology compared to prior rating periods, and any concerns the
actuary may have with the risk adjustment process. Retrospective risk
adjustment methodologies are calculated and applied after the rates are
certified; however, we propose in Sec. 438.7(b)(5)(ii) that the
certification must document who is calculating the risk adjustment; the
timing and frequency of the risk adjustment; the model and the data to
be used and any adjustments to them; and any concerns the actuary may
have with the risk adjustment process. For either approach to risk
adjustment, our proposal would require adjustment to be budget neutral
under Sec. 438.5(b)(6).
Use of the risk adjustment model as a method to retrospectively
increase or decrease the total payments across all Medicaid managed
care plans based on the overall health status or risk of the population
would not be permitted. Such retrospective increases or decreases in
the total payments do not meet the standard in Sec. 438.5(g) that the
risk adjustment methodology be developed in a budget neutral manner. We
believe that an adjustment applied to the total payments across all
health plans to account for significant uncertainty about the health
status or risk of a population is an acuity adjustment, which is a
permissible adjustment under Sec. 438.5(f), but would need to be
documented under proposed paragraph (b)(4) of this section regarding
adjustments. While retrospective acuity adjustments may be permissible,
they are intended solely as a mechanism to account for differences
between assumed and actual health status when there is significant
uncertainty about the health status or risk of a population, such as:
(1) New populations coming into the Medicaid program; or (2) a Medicaid
population that is moving from FFS to managed care when enrollment is
voluntary and there may be concerns about adverse selection. In the
latter case, there may be significant uncertainty about the health
status of which individuals would remain in FFS versus move to managed
care; although this uncertainty is expected to decrease as the program
matures.
In Sec. 438.7(b)(6), we propose that the rate certification
include a description of any of the special contract provisions related
to payment in proposed Sec. 438.6, such as risk sharing mechanisms and
incentive or withhold arrangements.
In paragraph (c), we propose the rate certification standards for
rates paid under risk contracts. In paragraph (c)(1), we acknowledge
that states may pay different capitation rates to different plans; for
example, some states already account for differences in final
capitation rates paid to contracted managed care plans through risk
adjustment. States that choose to pay different rates to plans for
factors such as differing administrative assumptions, service area
adjustments or other non-risk adjustment methodologies will need to
provide documentation for the different assumptions used in the
development of each of the individual rates paid to each plan. While
such variations are permissible, we take this opportunity to remind
states as reflected and strengthened in this proposed rule, that all
payment rates must be actuarially sound under existing law.
In Sec. 438.7(c)(2), we propose to establish parameters for
retroactive adjustments to capitation rates paid under the risk
contract. Specifically, we propose that the state submit a revised rate
certification (and contract amendment) that describes the specific
rationale, data, assumptions, and methodologies of the adjustment in
sufficient detail to understand and evaluate the proffered retroactive
adjustments to the payment rate. All such adjustments are also subject
to federal timely filing standards for federal financial participation.
In paragraph (d), we propose to require states to include
additional information in the rate certification if pertinent to CMS'
approval of the contract rates and to identify whether that additional
information, which may supplement the rate certification, is proffered
by the state, the actuary, or another party. We believe that clarifying
our expectations and setting parameters for consistent and transparent
documentation of the rate setting process will allow CMS to conduct
more efficient reviews of the rate certification submissions and to
expedite the approval process.
We propose to remove the standard currently at Sec.
438.6(c)(4)(iii) that states document the projected expenditures under
the proposed contract compared to the prior year's contract, or with
FFS if the managed care program is new. We do not believe that this
information is integral to the review of the rate certification or
contract and that such information can be reasonably calculated by CMS
if necessary.
4. Other Payment and Accountability Improvements
a. Prohibition of Additional Payments for Services Covered Under MCO,
PIHP, or PAHP Contracts (Sec. 438.60)
We propose a new heading for Sec. 438.60 and to make minor
revisions to the regulatory text to clarify the intent of the
prohibition of additional payments to network providers that are
contracted with an MCO, PIHP or PAHP. The original heading of Sec.
438.60 was ``Limit on payments to other providers;'' we believe that
heading was potentially ambiguous or confusing when paired with the
regulatory text as it could be read to treat an MCO, PIHP, or PAHP as a
provider. We propose to revise the section heading as ``Prohibition of
additional payments for services covered under MCO, PIHP, or PAHP
contracts'' to make clear that the capitation payments are to be
inclusive of all service and associated administrative costs under such
contracts. Within this provision, we propose to add the word ``by''
preceding ``the MCO, PIHP, or PAHP'' so that the term ``provider''
clearly refers to health care professionals contracted with the MCO,
PIHP, or PAHP. We have clarified the language that made overly broad
references to Title XIX of the Act and this title of the CFR to clarify
that such

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payments are permitted only when statute and regulation specifically
stipulate that the state make those payments directly to a provider. We
believe that the exception to this standard has always been limited to
cases where other law (statutory or regulatory) explicitly directs the
state to make the additional payment to the health care provider and
propose to strengthen the language accordingly. Finally, we propose to
update the cross-reference for GME payments from its current location
at Sec. 438.6(c)(5)(v) to proposed Sec. 438.6(b)(4) to reflect the
proposed restructuring of Sec. 438.6 as discussed above in the
preamble related to setting actuarially sound capitation rates.
b. Subcontractual Relationships and Delegation (Sec. 438.230)
We propose to replace the current standards in Sec. 438.230 with
clearer expectations for MCOs, PIHPs, or PAHPs that enter into
subcontractual relationships and delegate responsibilities under the
contract with the State. These expectations are modeled on the MA
standards relating to MA organization relationships with first tier,
downstream, and related entities at Sec. 422.504(i). The MA framework
for the flow of responsibilities and obligations are effective program
integrity safeguards that are appropriate for Medicaid managed care
programs.
In paragraph (a), we propose to more clearly state when Sec.
438.230 would apply by adding language specifying that the standards of
this section would apply to all contracts and written arrangements that
a MCO, PIHP, or PAHP has with any individual or entity that relates
directly or indirectly to the performance of the MCO's, PIHP's, or
PAHP's obligations under the contract.
In a proposed new paragraph (b)(1), we would stipulate that
regardless of any relationship that a MCO, PIHP, or PAHP may have, it
alone is accountable for complying with all terms of the contract with
the state. While this is not a new standard, we believe this revised
wording more clearly states our intent. We propose in new paragraph
(b)(2) to specify that all contracts and written arrangements comply
with the provisions of paragraph (c).
Existing paragraphs (b)(2)(i) (requiring the contract to specify
the delegated activities, obligations, and responsibilities) and
(b)(2)(ii) (providing for revocation of any delegation) would be
redesignated as (c)(1)(i) and (c)(1)(iii) but otherwise remain
substantively the same with revisions for clarity. In paragraph
(c)(1)(ii), we propose to add that the individual or entity accepting
the delegation agrees to perform the activities in compliance with the
MCO's, PIHP's, or PAHP's contract with the state. In paragraph (c)(2),
we propose a general standard that the entity or individual performing
the delegated activities must comply with all applicable laws,
regulations, subregulatory guidance, and contract provisions. Lastly,
in paragraphs (c)(3)(i) through (iv), we propose that the entity or
individual performing the delegated activities must agree to grant the
state, CMS, HHS, OIG, or the Comptroller General the right to audit,
evaluate, and inspect any books, contracts, computer or other
electronic systems that pertain to services performed or determinations
of amounts payable; make available for audit, evaluation, or
inspection, its premises, physical facilities, equipment and records;
preserve the rights under (c)(3)(i) for 10 years from completion; and
grant the state, CMS, HHS, or the Comptroller General the right to
audit, evaluate, and inspect at any time if the reasonable possibility
of fraud is determined to exist by any of these entities.
c. Program Integrity (Sec. 438.600, Sec. 438.602, Sec. 438.604,
Sec. 438.606, Sec. 438.608, and Sec. 438.610)
Current regulatory language implements the provisions of section
1932(d)(1) of the Act regarding MCO and PCCM affiliations with debarred
individuals, and addresses certification of data provided by MCOs and
PIHPs to the state. Thus, the current regulations related to program
integrity are fairly limited in scope. Since the publication of those
regulations in 2002, significant new legislative changes have been made
to Medicaid program integrity operations. The Deficit Reduction Act of
2005 (DRA) (Pub. L. 109-171, enacted on February 8, 2006) created the
Medicaid Integrity Program (MIP) under section 1936 of the Act.
Subsequently, section 6401 of the Affordable Care Act added new
sections 1902(a)(77) and 1902(kk)(1) of the Act that require states to
comply with the process for screening providers established by the
Secretary under section 1866(j)(2) of the Act. Section 6401 of the
Affordable Care Act also added a new section 1902(kk)(7) of the Act,
which provides that states must enroll all ordering and referring
physicians or other professionals as participating providers (and thus
screen them according to the aforementioned screening process). We
issued final regulations implementing these Affordable Care Act
provisions in the February 2, 2011 Federal Register, ``Medicare,
Medicaid, and Children's Health Insurance Programs; Additional
Screening Requirements, Application Fees, Temporary Enrollment
Moratoria, Payment Suspensions and Compliance Plans for Providers and
Suppliers'' (76 FR 5862). However, those regulations specifically
exclude from enrollment requirements Medicaid providers that only order
or refer services as part of a risk-based managed care plans' network
(76 FR 5904). Reasons cited at that time were consistency of treatment
between MA organizations and Medicaid managed care plans as well as the
administrative burden that enrollment of managed care plans' ordering
and referring physicians and other professionals would impose on state
Medicaid agencies. In addition to standards established by the
Affordable Care Act, section 1902(a)(27) of the Act stipulates that
states must enroll ``person(s) or institution(s) providing services
under the State plan.'' In the past, we have not interpreted that
provision as applying to providers or institutions that furnish state
plan services in the managed care context.
Since issuance of the final rule for the aforementioned Affordable
Care Act provisions, states, primarily through communications from the
National Association of Medicaid Directors (NAMD), have reported that
state program integrity reviews have identified as a vulnerability the
lack of consistency in the application of the provider screening and
enrollment provisions applicable to FFS providers in states' managed
care programs. The HHS Office of the Inspector General (OIG) has issued
similar findings and recommendations in the reports identified below.
Given the growing reliance of states on managed care plans to
administer covered benefits, we are concerned that the vulnerability of
state and federal Medicaid funds to fraud by network providers will
only increase. We therefore, address the provider screening and
enrollment processes for network providers in this proposed rule.
In addition, we are taking a broader approach to rethinking
Medicaid managed care program integrity provisions. Specifically, we
have considered findings from the State Program Integrity Reviews
undertaken by CMS through the Center for Program Integrity, as well as
recommendations from the OIG to inform our proposals for this subpart
and improve managed care program integrity processes. See, for example,
OIG, State and CMS Oversight of the Medicaid Managed Care Credentialing
Process (OEI-09-10-00270) (Nov. 2013), available at http://oig.hhs.gov/oei/reports/oei-09-10-00270.pdf; OIG, Excluded Providers in

[[Page 31128]]

Medicaid Managed Care Entities (OEI-07-09-00630) (Feb. 2012), available
at https://oig.hhs.gov/oei/reports/oei-07-09-00630.pdf; OIG, Medicaid
Managed Care: Fraud and Abuse Concerns Remain Despite Safeguards (OEI-
01-09-00550) (Dec. 2011), available at http://oig.hhs.gov/oei/reports/oei-01-09-00550.pdf. Of particular concern are two types of program
integrity risks: Fraud committed by Medicaid managed care health plans
and the vulnerability of state and federal Medicaid funds to fraud by
network providers. Through the changes proposed in this rule, we intend
to address both of these types of risk, as well as tighten standards
for MCO, PIHP, PAHP, PCCM, and PCCM entity submission of certified
data, information and documentation that is critical to program
integrity oversight by state and federal agencies. Our proposal would
modify the title of subpart H to ``Additional Program Integrity
Safeguards'' from the current title ``Certifications and Program
Integrity'' to recognize that various program integrity standards, such
as those relating to audited financial data, MLR, and subcontractual
relationships, among others, are proposed to be added throughout this
part. In addition, we propose to add entirely new provisions and amend
existing provisions to address program integrity risks.
(1) Proposed Revisions to Sec. 438.600
In Sec. 438.600, we propose to add to the existing list of
statutory provisions related to program integrity that support our
proposed changes to this subpart. Our proposal would include the
following statutory provisions: Sections 1128, 1128J(d), 1902(a)(4),
1902(a)(19), 1902(a)(27), 1902(a)(68), 1902(a)(77), 1902(a)(80),
1902(kk)(7), 1903(i), 1903(m), and 1932(d)(1) of the Act. In the
description of section 1932(d)(1) of the Act in Sec. 438.600, we
propose to remove the term ``excluded'' and replace it with
``debarred'' to reflect the statutory standard. As a general matter, we
rely on section 1902(a)(4) of the Act when standards in this subpart
are proposed to extend beyond MCOs to PIHPs, PAHPs, PCCMs, and PCCM
entities.
(2) Proposed Revisions to Sec. 438.602
We propose to replace Sec. 438.602 in its entirety. The current
regulation provides a general statement of applicability under this
subpart that MCOs, PIHPs, PAHPs, and PCCMs must comply with the program
integrity and certification standards of the subpart as a condition of
payment. The intent of the revisions to Sec. 438.602 is to contain all
state responsibilities associated with program integrity in one
section. Proposed paragraph (a) sets forth the state's monitoring
standards for contractor compliance with provisions in this subpart and
Sec. 438.230 (subcontractual relationships and delegation) and Sec.
438.808 (excluded entities).
In Sec. 438.602(b), we propose that states must enroll all network
providers of MCOs, PIHPs, and PAHPs that are not otherwise enrolled
with the state to provide services to FFS Medicaid beneficiaries. Such
enrollment would include all applicable screening and disclosure
standards under part 455, subparts B and E. This standard would ensure
that all providers that order, refer or furnish services under the
state plan or waiver are appropriately screened and enrolled. We also
propose that this standard apply to PCCMs and PCCM entities, to the
extent that the primary care case manager is not otherwise enrolled
with the state to provide services to FFS Medicaid beneficiaries. Our
proposal that states must screen and enroll network providers would not
obligate the network provider to also render services to FFS
beneficiaries.
This proposal is based on an expanded interpretation of sections
1902(kk)(1) and 1902(kk)(7) and 1902(a)(27) of the Act to apply to
providers that order, refer, or furnish services in the context of
Medicaid managed care to ensure that there are no `safe havens' for
providers who, though unable to enroll in Medicaid FFS programs, shift
participation from managed care plan to managed care plan to avoid
detection. We further expect that, absent additional requirements in
managed care contracts, this approach will result in administrative and
cost efficiencies by eliminating the need for each managed care plan to
conduct duplicative screening activities as part of the credentialing
process as described in Sec. 438.214 for network providers and having
that function performed instead by states (or, in the case of dually-
participating providers, by Medicare contractors) for all providers.
However, this approach would not prohibit managed care plans from
conducting their own additional level of provider screening if so
desired or states from incorporating other screening requirements into
their contracts. This approach also has the advantage of applying the
`limited,' `moderate' and `high' risk provider screening protocols
(including site visits for providers in the moderate and high risk
categories) to all providers that order, refer, or furnish services to
Medicaid beneficiaries, whether through managed care or FFS. We request
comment on this approach; in particular, we seek feedback on any
barriers to rapid network development that this approach might create
by limiting the ability of MCOs, PIHPs, or PAHPs to contract with
providers until the results of the state's screening and enrollment
process are complete. This proposal does not alter the MCO's, PIHP's,
or PAHP's responsibility under Sec. 438.214(c) to operate a provider
selection process that does not discriminate against providers that
serve high-risk populations or that specialize in costly treatments or
the state's responsibility to monitor the implementation of provider
selection policies in Sec. 438.214(a).
In paragraph (c), we propose that the state must review the
ownership and control disclosures submitted by the, MCO, PIHP, PAHP,
PCCM, or PCCM entity, and any subcontractors, in accordance with 42 CFR
part 455, subpart B. In paragraph (d), we propose that states must
conduct federal database checks, consistent with the standards in 42
CFR 455.436, to confirm the identity of and determine the exclusion
status of the MCO, PIHP, PAHP, PCCM, or PCCM entity, any subcontractor,
any person with an ownership or control interest, or any agent or
managing employee at the time of entering into the contract and no less
frequently than monthly thereafter. If a state determines a match, it
must promptly notify the MCO, PIHP, PAHP, PCCM, or PCCM entity and take
action consistent with proposed Sec. 438.610(c). In paragraph (e), we
propose that the state must periodically, but no less frequently than
once every 3 years, conduct, or contract for the conduct of, an
independent audit of the accuracy, truthfulness, and completeness of
the encounter and financial data submitted by, or on behalf of, each
MCO, PIHP, and PAHP. In paragraph (f), we propose to incorporate the
requirement for states to receive and investigate information from
whistleblowers. In paragraph (g), we propose that each state must post
on its Web site or otherwise make available, the MCO, PIHP, PAHP, or
PCCM entity contract, the data submitted to the state under proposed
Sec. 438.604, and the results of any audits conducted under paragraph
(e) of this section. We propose to add PCCM entity contracts to this
standard as we propose in Sec. 438.3(r) that such contracts be
submitted for our review and approval. This proposal is discussed in
detail in section I.B.6.e. of this proposed rule. In paragraph (h), we
propose that states have conflict of interest safeguards in place
consistent with proposed Sec. 438.58. In paragraph (i), we propose
that the

[[Page 31129]]

state must ensure, consistent with section 1902(a)(80) of the Act, that
the MCO, PIHP, PAHP, PCCM, or PCCM entity is not located outside of the
United States and that no payments are made for services or items to
any entity or financial institution outside of the U.S. We interpret
this payment prohibition to mean that no such payments made by an MCO,
PIHP, or PAHP to an entity or financial institution located outside of
the U.S. are considered in the development of actuarially sound
capitation rates.
(3) Proposed Revisions to Sec. 438.604 and Sec. 438.606
We propose to modify existing standards regarding submission and
certification of data by managed care plans to the state which
currently exist in Sec. Sec. 438.604 and 438.606. We propose to revise
Sec. 438.604(a) and (b) to specify data, information and documentation
that must be submitted by each MCO, PIHP, PAHP, PCCM, or PCCM entity to
the state, including encounter data and other data generated by the
health plan for purposes of rate-setting; data on which the state
determined that the entity met the MLR standards; data to ensure
solvency standards are met; data to ensure availability and
accessibility of services; disclosure information as described at 42
CFR part 455, subpart B; the annual report on recoveries of
overpayments as proposed in Sec. 438.608(d)(3); and any other data
related to the performance of the entity's obligations as specified by
the state or the Secretary. For example, the state or the Secretary
could specify that MCOs, PIHP, or PAHPs submit to the state elements of
claims from network providers (for example, rendering provider NPI,
services dates, place of service, procedure code, etc.) to enable the
state to review the claims paid for program integrity purposes. These
data submission proposals are tied to the substantive standards on
these issues proposed and discussed elsewhere in this proposed rule. We
believe it is critical and necessary for the proper and efficient
administration of the state plan that key program data submitted by
MCOs, PIHPs, PAHPs, PCCMs, and PCCM entities to states is certified as
accurate, complete and truthful, as that data will be the basis for any
state or federal program integrity reviews. Therefore, the proposed
Sec. 438.606 stipulates that MCOs, PIHPs, PAHPs, PCCMs, and PCCM
entities must certify the data, information and documentation specified
in Sec. 438.604.
Our proposal builds upon existing provisions in Sec. 438.606. We
propose to expand the certification requirement to documentation and
information as well as data and propose to cross-reference the
submission standards in Sec. 438.604 to identify the scope of the
certification requirement. Further, we propose to extend the
applicability of Sec. 438.606 from MCOs and PIHPs to PAHPs, PCCMs, and
PCCM entities, based on our authority under section 1902(a)(4) of the
Act to identify and stipulate activities that are necessary for the
proper and efficient administration of the state plan. In Sec.
438.606(a), we propose to eliminate the option for a MCO's, PIHP's,
PAHP's, PCCM's, or PCCM entity's executive leadership to delegate the
certification, since we believe that in these critical program areas,
the CEO or CFO must be personally responsible for the accuracy,
completeness, and truthfulness of the reported data, documentation or
information.
In Sec. 438.606(b), we propose to include documentation or
information after the existing reference to data for consistency with
the addition of such terms in Sec. 438.604 and Sec. 438.606 and to
specify that the certification attests that the MCO, PIHP, PAHP, PCCM,
or PCCM entity has conducted a reasonably diligent review of the data,
documentation, and information in Sec. 438.604(a) and (b) and that
such data, documentation, and information is accurate, complete, and
truthful. We propose this modification to the certification to clarify
that the attesting individual has an affirmative obligation to ensure
that a reasonably diligent review has been conducted and that the
information being certified is accurate, complete, and truthful. For a
certification to be helpful for program integrity purposes, an
individual who is certifying information must make some effort to
ensure that the information is accurate. It is not enough to simply
believe the information is the best; the individual must make an effort
to determine the information is accurate. The proposed clarification to
the certification requirement is consistent with other program
integrity safeguards in this proposed rule, such as those in Sec.
438.608(a) that include requirements to take affirmative action (for
example, routine auditing and monitoring) to detect and prevent fraud,
waste, and abuse. For purposes of determining if a ``reasonably
diligent'' review has been conducted, we propose to borrow from the
standards in the final rule for MA and Part D overpayment rules
published in the Federal Register on May 23, 2014 (79 FR 29844, 29923).
In the preamble for that final rule, we clarified that ``at a minimum,
reasonable diligence would include proactive compliance activities
conducted in good faith by qualified individuals. However, conducting
proactive compliance activities does not mean that the person has
satisfied the reasonable diligence standard in all circumstances. In
certain circumstances, for example, reasonable diligence might require
an investigation conducted in good faith and in a timely manner by
qualified individuals . . .'' We request comment on the proposal to
clarify the certification standard, including comments on using the
existing reasonably diligent review standard from the MA and Part D
context.
In paragraph (c), we propose to maintain the existing standard that
the certification is provided concurrently with the submission of the
data, documentation or information specified in Sec. 438.604.
(4) Proposed Revisions to Sec. 438.608
Current Sec. 438.608 specifies the elements that must be included
in a MCO's and PIHP's program integrity/compliance program and
administrative procedures to detect and prevent fraud, waste and abuse;
we are proposing to expand those standards to PAHPs, and to
subcontractors to the extent that the subcontractor is delegated
responsibility by the MCO, PIHP, or PAHP for coverage of services and
payment of claims under the contract between the State and the MCO,
PIHP, or PAHP, to include or redesignate the following:
Establishment of written policies, procedures, and
standards of conduct that articulate the organization's commitment to
comply with all applicable requirements and standards under the
contract, and all applicable Federal and state requirements (propose to
redesignate Sec. 438.608(b)(1) as Sec. 438.608(a)(1)(i)).
Direct reporting by the Compliance Officer to both the CEO
and board of directors of the MCO, PIHP, or PAHP, which is consistent
with MA requirements at 42 CFR 422.503(b)(4)(vi)(B)(2); the designation
of compliance officer that is accountable to senior management is at
current Sec. 438.608(b)(2) (proposed Sec. 438.608(a)(1)(ii));
Establishment of a Regulatory Compliance Committee on the
Board of Directors and at the senior management level charged with
oversight of the compliance program, which is consistent with MA
requirements at 42 CFR 422.502(b)(4)(vi)(B); the establishment of a
compliance committee is at current Sec. 438.608(b)(2) (proposed Sec.
438.608(a)(1)(iii));
Establishment of a system for training and education for
the

[[Page 31130]]

Compliance Officer, the organization's senior management, and the
organization's employees for the federal and state standards and
requirements under the contract, which is consistent with MA
organization requirements at 42 CFR 422.503(b)(4)(vi)(C); effective
training and education for the compliance officer and the
organization's employees is at current Sec. 438.608(b)(3) (proposed
Sec. 438.608(a)(1)(iv));
Establishment of a system for effective communication
between the compliance officer and the organization's employees
(propose to redesignate Sec. 438.608(a)(4) as Sec. 438.608(a)(1)(v));
Enforcement of standards through well-publicized
disciplinary guidelines (propose to redesignate Sec. 438.608(b)(5) as
Sec. 438.608(a)(1)(vi));
Establishment and implementation of procedures and a
system with dedicated staff for routine internal monitoring and
auditing of compliance risks, prompt response to compliance issues as
they are raised, investigation of potential compliance problems as
identified in the course of self-evaluation and audits, correction of
such problems promptly and thoroughly (or coordination of suspected
criminal acts with law enforcement agencies) to reduce the potential
for recurrence, and ongoing compliance with the requirements under the
contract; the provision for internal monitoring and auditing and prompt
response to detected offenses is at current Sec. 438.608(b)(6) and (7)
(proposed Sec. 438.608(a)(vii));
Mandatory reporting to the state of potential fraud and
improper payments identified or recovered by managed care plans
(proposed Sec. 438.608(a)(2));
Mandatory reporting to the state of information received
by managed care plans about changes in an enrollee's circumstances that
may affect the enrollee's eligibility (proposed Sec. 438.608(a)(3));
Mandatory reporting to the state of information received
by the managed care plan about changes in a provider's circumstances
that may affect the provider's participation in the managed care
program. Such changes in circumstances would include the termination of
the provider agreement with the health plan (proposed Sec.
438.608(a)(4));
Verification by sampling or other methods, whether
services that were represented to have been delivered by network
providers were actually received (proposed Sec. 438.608(a)(5));
Establishment of written policies related to the Federal
False Claims Act, including information about rights of employees to be
protected as whistleblowers (proposed Sec. 438.608(a)(6));
Mandatory referral of any potential fraud, waste, or abuse
that the MCO, PIHP, or PAHP identifies to the State Medicaid program
integrity unit or any potential fraud directly to the State Medicaid
Fraud Control Unit (proposed Sec. 438.608(a)(7)). States that have a
Medicaid Fraud Control Unit (MFCU) may choose, as part of their
contracts with MCOs, PIHPs, or PAHPs, to stipulate that suspected
provider fraud be referred only to the MFCU, to both the MFCU and to
the Medicaid program integrity unit, or only to the Medicaid program
integrity unit. For those matters referred to the Medicaid program
integrity unit, 42 CFR part 455 provides that the unit must conduct a
preliminary investigate and cooperate with the MFCU in determining
whether there is a credible allegation of fraud. For those MCOs, PIHPs,
and PAHPs with their own Special Investigation Unit (SIU) to
investigate suspected provider fraud, the program integrity unit should
assess the adequacy of the preliminary investigation conducted by those
units and seek to avoid the duplication and delay of their own
preliminary investigation.
Provision for the MCO's, PIHP's, or PAHP's suspension of
payments to a network provider for which the state determines there is
a credible allegation of fraud in accordance with Sec. 455.23
(proposed Sec. 438.608(a)(8)). Under Sec. 455.23, which implements
section 1903(i)(2)(C) of the Act, the state must suspend payments to an
individual or entity against which there is a pending investigation or
a credible allegation of fraud against the individual or entity, unless
the state determines that there is good cause not to suspend such
payments. We note that the state's obligation to suspend payments is
not limited to FFS payments. In the final rule for the suspension of
payment provisions (76 FR 5862, 5938), we discussed the applicability
of the suspension of payment requirements to Medicaid managed care
plans. We stated that ``if there is a pending investigation of a
credible allegation of fraud against a Medicaid MCO, PIHP, or PAHP, the
state should address the issue either through imposing a payment
suspension or through other authorities that may be available to them
under state law or as part of the state's negotiated agreement with the
Medicaid MCO, PIHP, or PAHP. The same would hold true for pending
investigations of credible allegations of fraud regarding individual
network providers. Managed care capitation payments may be included in
a suspension when an individual network provider is under investigation
based upon credible allegations of fraud.'' Since the publication of
the final rule it has become clear that suspension of capitation
payments to MCOs, PIHPs, or PAHPs is not the most effective means of
suspending payments to individual network providers who are subject to
pending investigations for credible allegations of fraud. Accordingly,
under our authority in sections 1903(i)(2)(C) and 1902(a)(4) of the
Act, we propose to require that the state make provision for the MCO,
PIHP, or PAHP to suspend payment to a network provider when the state
determines there is a credible allegation of fraud, unless the state
determines there is good cause for not suspending payments to the
network provider pending the investigation. This will enable states to
carry out section 1903(i)(2)(C) of the Act and safeguard federal
Medicaid funds by not making payments to network providers under
investigation for credible allegations of fraud, whether those
providers are participating in Medicaid FFS or in Medicaid managed care
networks. Under this provision, the responsibility of MCOs, PIHPs, and
PAHPs would be limited to promptly suspending payments at the direction
of the state until notified by the state that the investigation has
concluded.
These additional elements of a MCO's, PIHP's, or PAHP's program
integrity program have been recommended by CMS and OIG reports or, in
the case of eligibility information, address any identified gap in
information flow from MCOs, PIHPs, or PAHPs to the state about
enrollees.
As part of the compliance program, we propose in Sec.
438.608(a)(1)(vi) that the MCO, PIHP, or PAHP establish procedures and
a system, including dedicated staff, for promptly responding to
compliance issues, including possible criminal acts such as provider
fraud. Many MCOs, PIHPs, and PAHPs employ a SIU to specifically focus
on suspected provider fraud and to coordinate with State program
integrity officials and law enforcement agencies, such as the state
MFCU. A managed care plan's coordination with law enforcement to ensure
the effective investigation of fraud, waste, and abuse is a vital
component of a successful program integrity program. As part of their
coordination with law enforcement, MCOs, PIHPs, and PAHPs should adopt
policies and procedures that ensure information exchange between the
managed care plans, the state, and law enforcement so that all
stakeholders can

[[Page 31131]]

be aware of fraud trends across their respective geographic areas. In
addition, effective coordination between MCOs, PIHPs, and PAHPs with
law enforcement and the state will ensure that the state meets its
program integrity obligations under 42 CFR part 455 and the provisions
of this part.
Proposed Sec. 438.608(b) incorporates the provider screening and
enrollment standards in Sec. 438.602(b).
In paragraph (c) of Sec. 438.608, we propose additional
expectations for performance by managed care plans that the state must
include in their contracts, including:
Requiring MCOs, PIHPs, and PAHPs to disclose in writing
any prohibited affiliation outlined in Sec. 438.610 (proposed
paragraph (c)(1));
Requiring written disclosures of information on control
and ownership under Sec. 455.104 (proposed paragraph (c)(2)); and
Requiring MCOs, PIHPs, and PAHPs to report to the state
within 60 calendar days of when they identify receipt of payments in
excess of the capitation rate or other payments established in the
contract. For example, the state may remit payment to the MCO, PIHP, or
PAHP in accordance with an erroneous number of member months and such
overpayments should be a matter for prompt disclosure and remediation
by the state. Other payments under the contract would be kick-payments
for high cost services that were not delivered or amounts received
under incentive or withhold arrangements (as proposed in Sec. 438.6(a)
and (b)) for which the MCO, PIHP, or PAHP did not satisfy the
performance criteria under the arrangement (proposed paragraph (c)(3)).
We request comment on whether we should establish timeframes for
the disclosures proposed in this section to be provided to the state.
In Sec. 438.608(d)(1), we propose that MCO, PIHP, and PAHP
contracts specify that recoveries of overpayments made by the MCO,
PIHP, or PAHP to providers that were excluded from Medicaid
participation or that were due to fraud, waste or abuse are to be
retained by the MCO, PIHP, or PAHP. Because these overpayments
represent state and federal Medicaid funds that were paid to the
excluded or fraudulent providers by the MCO, PIHP, or PAHP, states are
then expected to take such recoveries into account in the development
of future actuarially sound capitation rates as proposed in Sec.
438.608(d)(4). This approach is similar to that taken by CMS in
addressing provider recoveries in the MA program; in that program,
encounter data that reflects services paid to excluded providers or
other variations of provider fraud are excluded from consideration for
future rate development. This has been an area of confusion for both
states and health plans, since federal statute and regulations do not
currently specify who may retain MCO, PIHP, or PAHP recoveries. In
addition, we believe that the retention of recoveries made by the
managed care plan further supports the overall program integrity
oversight and monitoring framework for managed care plans proposed in
Sec. 438.608. The proposal in Sec. 438.608(d) does not prohibit the
federal government or states from retaining the appropriate share of
recoveries of overpayments due to their own audits and investigation.
We solicit comment on this proposal to allow MCOs, PIHPs, and PAHPs to
retain overpayment recoveries of payments made to providers that were
excluded from Medicaid participation or that were due to fraud, waste
or abuse that were made by the managed care plan, while also allowing
the federal government and states retain overpayment recoveries they
make. We also request comment on alternative approaches to determining
when a recovery may be retained by an MCO, PIHP, or PAHP. Specifically,
whether we should instead impose a timeframe between 6 months to 1 year
for which the MCO, PIHP, or PAHP may act to initiate the recovery
process and retain such recovered overpayments. We further propose
that, consistent with that contractual language, the state collect
reports from each MCO, PIHP, or PAHP about recoveries of overpayments
in proposed Sec. 438.608(d)(3). To aid in the creation and submission
of such reports in proposed paragraph (d)(3), in paragraph (d)(2) we
propose a standard that the MCO, PIHP, or PAHP must have a mechanism in
place for network providers to report the receipt of overpayments and
to return such overpayments to the MCO, PIHP, or PAHP within 60
calendar days after the overpayment was identified. For clarity, in
proposed (d)(5) we define the term ``overpayment.''
(5) Proposed Revisions to Sec. 438.610
We propose to revise the title of Sec. 438.610 from ``Prohibited
affiliations with individuals debarred by federal agencies'' to
``Prohibited affiliations.'' This proposed change is in recognition of
the addition of individuals or entities excluded from Medicaid
participation under section 1128 of the Act. The current title also did
not adequately reflect the proposed scope of this section as it did not
include ``entities.'' In paragraph (a), which provides the general
standards under this section, we have added PCCM and PCCM entities
through our authority for the proper and efficient administration of
the state plan in section 1902(a)(4) of the Act. In paragraphs (a)(1)
and (a)(2) that specify the types of knowing relationships in section
1932(d)(1)(C) of the Act, we propose to clarify that these
relationships may be with individuals or entities that meet those
criteria. The existing language refers only to individuals and the
proposed addition is consistent with the definition of ``persons'' in
the Federal Acquisition Regulation and the Nonprocurement Common Rule.
In addition, we propose to add paragraph (b) to include individuals or
entities excluded from Medicaid participation under section 1128 or
1128A of the Act in the list of prohibited relationships by the MCO,
PIHP, PAHP, PCCM, or PCCM entity, as specified in section 1902(p)(2) of
the Act. We note that in the case of excluded individuals and entities,
the prohibition applies whether or not the relationship is known to the
MCO, PIHP, PAHP, PCCM, or PCCM entity. We propose to redesignate
paragraph (b) that specifies the relationships that are prohibited as
paragraph (c) to accommodate the proposed inclusion of individuals or
entities excluded from participation under section 1128 of the Act. In
addition, we propose to add subcontractors of the MCO, PIHP, PAHP,
PCCM, or PCCM entity as described in Sec. 438.230 to the types of
prohibited relationships in paragraph (c)(3). In paragraph (c)(4), we
propose to add network providers to clarify that they fall under the
employment or other consulting arrangement for items and services under
the contract between the state and the managed care plan. Due to the
proposed restructuring of paragraphs within this section, we propose to
redesignate paragraph (c) as paragraph (d) without change, with the
exception of those described below. In paragraph (d)(3), we propose to
clarify that the compelling reasons for continuation of a managed care
plan's agreement with a prohibited individual or entity must be so
despite the prohibited affiliation. In addition, we propose a new
paragraph (d)(4) to clarify that this section does not limit or affect
any remedies available to the federal government under sections 1128,
1128A or 1128B of the Act. Finally, we propose to redesignate paragraph
(d) as paragraph (e) without change.

[[Page 31132]]

d. Sanctions (Sec. 438.700, Sec. 438.702, Sec. 438.704, Sec.
438.706, Sec. 438.708, Sec. 438.722, and Sec. 438.730)
Throughout subpart I pertaining to sanctions, we propose to extend
standards applicable to PCCMs to PCCM entities, as we propose to
recognize PCCM entities as a type of primary care case manager as
defined in section 1905(t)(2) and referenced in section
1932(a)(1)(B)(ii) of the Act. The discussion of the proposed
recognition and application of standards in this part to PCCM entities
is described in section I.B.6.e. of this proposed rule. Therefore, we
propose to add PCCM entities to Sec. 438.700(a), (c), and (d)(2);
Sec. 438.704(a), Sec. 438.708, and Sec. 438.722.
In Sec. 438.700(a), we propose to clarify that the intermediate
sanctions specified in Sec. 438.702 ``may'' be used by the state,
rather than providing that these ``must'' be the sanctions that the
state establishes. The current regulation could be interpreted to mean
that the specific intermediate sanctions enumerated must be used by the
state, even though section 1932(e)(1) of the Act only stipulates that
intermediate sanctions be in place for the specified violations, and
that such intermediate sanctions may include those specified in section
1932(e)(2) and set forth in Sec. 438.702. The standard in section
1932(e)(1) of the Act that is a condition for having or renewing a MCO
contract is only that there be intermediate sanctions in place.
In Sec. 438.700(c), we propose to delete PIHPs and PAHPs from the
state's determination that unapproved or misleading marketing materials
have been distributed as provided for in the last sentence of section
1932(e)(1) of the Act. In the 2002 final rule, we included PIHPs and
PAHPs in the regulation text implementing this sentence but have
determined that this provision, by its terms only applies to a
``managed care entity.'' While a PCCM may be both a managed care entity
and a PAHP, if it is paid on a risk basis, it would only be subject to
this provision based on its managed care entity status, and not based
on its status as a PAHP. In this paragraph, we propose to add PCCM
entities consistent with the discussion of PCCM entities in the opening
paragraph of this section of this proposed rule, and with the fact that
the definition of managed care entity includes a PCCM.
In Sec. 438.702(a)(4), we propose to delete the phrase ``after the
effective date of the sanction,'' and insert ``after the date the
Secretary or the State notifies the MCO or PCCM of a determination of a
violation of any standard under sections 1903(m) or 1932 of the Act.''
The proposed language is identical to the statutory standard in section
1932(e)(2)D) of the Act and we believe that the current language did
not fully reflect the statutory directive.
Currently, Sec. 438.706 discusses special rules for temporary
management and, in paragraph (a), we reference ``onsite survey,
enrollee complaints, financial audits, or any other means'' as
acceptable ways to determine if an MCO must be subjected to temporary
management. However, this language is inconsistent with language at
Sec. 438.700(a) that references ``onsite surveys, enrollee or other
complaints, financial status, or any other source'' as a means to
determine imposable sanctions. We propose to correct this inconsistency
by revising Sec. 438.706(a) to incorporate the language of Sec.
438.700(a).
In Sec. 438.724(a), we propose to delete the reference to
``Regional Office,'' consistent with proposed changes in Sec. 438.3(a)
and Sec. 438.7(a).
Section 438.730 currently addresses sanctions imposed by us on MCOs
and paragraphs (e)(1) and (e)(2) use the term ``HMO.'' The Balanced
Budget Act of 1997 (BBA) replaced the term ``Health Maintenance
Organization (HMO)'' with ``Managed Care Organization (MCO).'' We
propose to correct these obsolete references to HMO in paragraphs
(e)(1) and (2) by replacing the term with ``MCO.'' In addition, current
Sec. 438.730 uses ``State agency'' or ``agency,'' which is
inconsistent with references to the state in subpart H as well as our
proposal to create a uniform definition for ``state'' in Sec. 438.2.
We therefore propose revisions to address this.
We also propose to correct several inaccurate cross-references to
other provisions of the regulations text. In Sec. 438.730(f)(1), the
reference to ``paragraph (b)'' would be revised to reference
``paragraph (c).'' In Sec. 438.730(f)(2)(i) and (ii), the reference to
``(d)(2)(ii)'' would be revised to reference ``(d)(2)'' and the
reference to ``(c)(1)(ii)'' would be revised to reference
``(d)(1)(ii).'' Finally, in Sec. 438.730(g)(1), the reference to
``paragraph (c)(1)(i)'' would be revised to reference ``paragraph
(c)(1).''
e. Deferral and/or Disallowance of FFP for Non-Compliance With Federal
Standards (Sec. 438.807)
We propose to add a new Sec. 438.807 to specify that we may defer
and/or disallow FFP for expenditures under a MCO contract identified in
section 1903(m)(2)(A) of the Act when the state's contract, as
submitted for our approval or as administered, is non-compliant with
standards therein, with section 1932 of the Act, or with the provisions
of 42 CFR part 438 implementing such standards. These standards include
whether final capitation rates, as specified in the contract and
detailed in the rate certification, are consistent with the standards
of actuarial soundness proposed in Sec. Sec. 438.4 through 438.7. The
proposed process for issuance of a deferral or a disallowance is the
same as the process identified in Sec. 430.40 and Sec. 430.42,
respectively.
Section 1903(m)(2)(A) of the Act specifies that if the requirements
set forth in paragraphs (i) through (xiii) therein are not satisfied,
no federal financial participation (FFP) is authorized for expenditures
incurred by the state for services under a prepaid capitation or other
risk-based contract under which the payment is for inpatient hospital
services and any other service described in paragraph (2), (3), (4),
(5), or (7) of section 1905(a), or for the provision of any three or
more of the services described in such paragraphs. We have previously
interpreted this to mean that if the state fails to comply with any of
the listed conditions, there could be no FFP at all for payments under
the contract, even for amounts associated with services for which there
was full compliance with all requirements of section 1903(m)(2)(A) of
the Act. This interpretation has resulted in a potential penalty that
in some cases would be out of proportion to the nature of the
violation, under which FFP would be withheld for payment amounts
representing services which are in compliance.
We interpret section 1903(m)(2)(A) of the Act that the enumerated
services are for purposes of defining the minimum scope of covered
services under a comprehensive risk, or MCO, contract. We propose that
deferrals and/or disallowances of FFP can be targeted to all services
under the MCO contract even if not listed explicitly in section
1903(m)(2)(A), rather than FFP in the full payment amount made under
the contract. Specifically, we are proposing in Sec. 438.807 to
interpret section 1903(m)(2)(A) of the Act to condition FFP in contract
payment amounts on a service by service basis, so that, for example, if
the violation involved the payment amount associated with coverage of
inpatient hospital costs and that is the only portion of the payment
amount that is not actuarially sound, then FFP in only that portion of
the payment would be deferred or disallowed. This approach is supported
by an interpretation of section

[[Page 31133]]

1903(m)(2)(A) of the Act that the phrase ``no payment shall be made
under this title to a State with respect to expenditures incurred by it
for payment . . . for services provided by any entity'' is read to
place the emphasis on ``payment for services provided by any entity''
without regard to what the services are, so long as the minimum scope
of covered services for a MCO contract is satisfied. Under our
proposal, we would be able to defer and/or disallow partial FFP under
the contract associated with only a particular service category if a
violation involves only that category of services and not the delivery
of services generally. Such determinations may be made prospectively,
for example, when the contract or rate certification is submitted for
CMS' review and approval, or on a retroactive basis based on how the
contract is operationalized or if it is determined through audit that
the rate development standards supporting the rate certification were
not compliant with the requirements proposed in this part. We believe
that this proposal would result in a more fair and measured penalties
for violations, and lead to more expedient resolution of compliance
actions.
The deferral of FFP would be taken against the state's request for
grant awards attributed to managed care contracts on the CMS-37. States
must request the grant award 45 days prior to the start of the quarter.
The CMS-64, which reconciles the amount of the grant award to actual
expenditures, is due within 30 days of the expiration of the quarter.
The timeframe for the CMS-64 submission overlaps with the timeframe for
the grant request on the CMS-37 for the next quarter. We provide the
following example to illustrate when the deferral would be applied for
a noncompliant contract effective on January 1. The state would have
included the expenditures under the managed care contract on the CMS-37
no later than November 15. In the interim, we would conduct a review of
the contract and rate certifications and identify any compliance
issues. The state submits the CMS-64 for the first quarter of the
calendar year by April 30, and the CMS-37 grant request for the second
quarter was submitted by February 15. Assuming that CMS and the state
were unable to resolve the compliance issue according to the process
set forth in the regulation, we would assess the deferral of FFP
against the CMS-37 request for the third quarter of the calendar year
in a proportionate amount of the contract rate that reflects the non-
compliant activity. We seek comment on these proposals.
f. Exclusion of Entities
Section 438.808 implements the requirements in section 1902(p)(2)
of the Act for the types of organizations or entities that the state
must not contract with in order for the state to receive federal
payments for medical assistance. The existing regulation in paragraph
(a) includes MCOs but does not incorporate the statutory directive in
section 1902(p)(2) of the Act to similarly exclude ``an entity
furnishing services under a waiver approved under section 1915(b)(1)''
that would fall under the entities that must be excluded in paragraph
(b) of this section. We propose to include such entities in paragraph
(a) to clarify that PIHPs, PAHPs, PCCMs or PCCM entities that have
contracts with the state under a section 1915(b)(1) waiver would also
be subject to the this provision. There is no requirement in the
statute that MCO contracts be tied to a specific managed care authority
so we propose that all MCO contracts under any authority be subject to
this provision.
5. Beneficiary Protections
a. Enrollment (Sec. 438.54)
In this section we address a gap in the current managed care
regulations regarding the enrollment process. Other than the default
enrollment standards currently in Sec. 438.50(e) and (f) for MCOs and
PCCMs, there are no federal regulations governing enrollment of
beneficiaries into managed care programs. In the absence of specific
federal regulatory provisions, states have used a number of different
approaches to enrolling beneficiaries into voluntary and mandatory
managed care programs. The variation in proposed processes revealed a
need for guidance to ensure an appropriate, minimum level of
beneficiary protection and consistency across programs. In this
section, we propose basic federal standards for enrollment while
continuing to permit state flexibility in designing enrollment
processes for Medicaid managed care programs.
Among states currently operating voluntary Medicaid managed care
programs, which allow each beneficiary to choose to receive services
through either a managed care or FFS delivery system, states have
generally used a passive enrollment process to assign a beneficiary to
a managed care plan immediately upon being determined eligible.
Typically, the beneficiary is provided a period of time to elect to
opt-out of enrollment from the state-assigned managed care plan and
select a different managed care plan or elect to opt-out of managed
care completely and, instead, receive services through a FFS delivery
system. If the beneficiary does not make an affirmative choice, the
beneficiary remains enrolled in the state-assigned managed care plan
during the period of Medicaid eligibility and enrollment. Our
experience shows the rate of potential enrollees that opt-out is
generally very low.
In a mandatory Medicaid managed care program, beneficiaries must
receive Medicaid benefits from managed care plans. Under section
1932(a)(4)(A)(ii)(I) of the Act, beneficiaries in a mandatory managed
care program have the right to change plans without cause within 90
days of enrolling in the plan and every 12 months; enrollees may also
change plans for cause at any time. When the beneficiary does not
actively select a managed care plan in the timeframe permitted by the
state, states have generally used the default assignment process to
assign individuals into plans. Section 1932(a)(4)(D) of the Act and
current implementing regulations at Sec. 438.50(f) outline the process
that states must follow to implement default enrollment (also commonly
known as auto-assignment) in a mandatory managed care program.
In both voluntary and mandatory managed care programs, we believe
that beneficiaries are best served when they affirmatively exercise
their right to make a choice of delivery system or plan enrollment.
Optimally, this involves both an active exercise of choice and
requisite time and information to make an informed choice. Given the
sensitive nature of this transition from FFS to managed care or from
one managed care system to a new managed care system and the often
complex medical, physical and/or cognitive needs of Medicaid
beneficiaries, we believe that enrollment processes should be
structured to ensure that the beneficiary has an opportunity to make an
informed choice of managed care plan and that state processes support a
seamless transition for an enrollee to managed care.
Our goal of alignment prompted us to consider how enrollment is
conducted in the commercial market and in other public programs. We
note that MA is a voluntary managed care program, in which
beneficiaries actively select the MA organization during the annual
open enrollment period with limited exceptions for passive enrollment.
A quarter of all Medicare beneficiaries (approximately 14 million in
2013) are enrolled in MA organizations; of that

[[Page 31134]]

number, 1.6 million are enrolled in special needs plans.\11\
---------------------------------------------------------------------------

\11\ Kaiser Family Foundation Medicare Advantage Fact Sheet
(http://kff.org/medicare/fact-sheet/medicare-advantage-fact-sheet/),
accessed April 15, 2014.
---------------------------------------------------------------------------

To promote integration of care for dually eligible (Medicare and
Medicaid) beneficiaries, the section 1115A demonstrations under the
capitated financial alignment model operated by the Medicare-Medicaid
Coordination Office (MMCO) are using a form of passive enrollment. The
enrollment processes generally require notifying dually eligible
individuals that they can select a Medicare plan 2 months before they
would be enrolled in the plan, but if no active choice is made,
enrollment into the plan identified through the passive process takes
effect.
We note that some states have re-examined their Medicaid managed
care enrollment processes due to an interest in alignment with
Marketplace enrollment procedures. Enrollment into a QHP in either the
FFM or SBM requires an active selection of a health plan, and in some
cases premium payment. Consequently, the online application for the FFM
at Healthcare.gov provides the option to select a QHP at the time of
application. The FFM single, streamlined application requires follow-up
by the individual to enroll in a QHP. SBMs, as well as Medicaid and
CHIP agencies, are permitted to develop an alternative single,
streamlined application that must be approved by CMS. A few states with
mandatory Medicaid managed care programs have included a section in
their alternative benefit application that requires applicants to
select a Medicaid managed care plan at the time of application. While
this approach aligns the processes for Medicaid, CHIP and QHPs, it also
eliminates the traditional approach of providing a choice period to
select a managed care plan for Medicaid beneficiaries already eligible
for FFS coverage.
We are proposing a new Sec. 438.54 to apply a consistent standard
for all managed care enrollment processes. At the same time, we are
proposing to move and revise, as noted below, the existing provisions
in Sec. 438.50(e) and (f) to our new Sec. 438.54. Under these
proposed changes, states would implement a set of enrollment standards
that are consistent with section 1932(a)(4) of the Act and that promote
high quality managed care programs. The goals of this approach are to
promote accurate and timely information to beneficiaries about their
managed care options; to enable and encourage active beneficiary choice
periods for enrollment; and to assure the state's ability to conduct
intelligent default enrollments into a managed care plan when
necessary.
Through the changes discussed below, we propose to set broad
parameters for a state's enrollment process rather than dictate
specific elements. In paragraph Sec. 438.54(a) we propose to clarify
that the provisions of this section apply to all authorities under
which a state may enroll beneficiaries into a managed care delivery
system to ensure a broad and consistent application. We note that this
includes voluntary managed care programs under section 1915(a) of the
Act, as well as mandatory or voluntary programs under sections 1932(a),
1915(b) or 1115(a) of the Act.
We propose in paragraph (b) that the state have an enrollment
system for both voluntary and mandatory managed care programs, and
propose definitions for those programs, respectively, in paragraphs
(b)(1) and (b)(2). These proposals support clarity and consistency.
Proposed paragraph (c) specifies the standards for programs using a
voluntary managed care program. In (c)(1), we propose that the state
may use either an enrollment system that provides the beneficiary time
to make an affirmative election to receive services through a managed
care or FFS delivery system or a passive enrollment process. We propose
to define a passive enrollment process as one in which the State
selects a MCO, PIHP, PAHP, PCCM, or PCCM entity for a potential
enrollee but provides a period of time for the potential enrollee to
decline the managed care plan selection before enrollment. Using either
option, the state must comply with the standards proposed in paragraphs
(c)(2) through (c)(8).
In paragraph (d), we propose to set forth standards for enrollment
systems for mandatory managed care programs. In (d)(1), we propose that
such a system must meet certain standards, listed in proposed
paragraphs (d)(2) through (d)(7). We discuss the remaining proposals
for (c) and (d) together below as these proposed standards are
substantially similar.
In paragraph (c)(2) and (d)(2), we propose a specific enrollment
standard applicable to both voluntary and mandatory managed care
programs that all states must provide a period of time of at least 14
calendar days of FFS coverage for potential enrollees to make an active
choice of their managed care plan. We acknowledge that this 14-day
choice period would not be necessary in mandatory programs when there
is only one contracted managed care plan within a service area as
permitted in Sec. 438.52(b) for rural areas or through a specific
authority within a section 1115(a) demonstration program. We believe
this minimum time period is important since, similar to enrollees in a
commercial insurance product, Medicaid enrollees can be `locked in' to
their selected health plan for up to 1 year. This minimum 14-calendar
day period would have to occur between the date that the notice
specified in (c)(3) and (d)(3) is sent and the date on which the
enrollee becomes covered under the applicable managed care entity. We
propose to clarify in (c)(2)(i), that if the state does not use a
passive enrollment process and the potential enrollee does not make a
choice, then the potential enrollee is enrolled into a managed care
plan selected by the state's default process when the choice period has
ended. In proposed (c)(2)(ii), we clarify that if the state does use a
passive enrollment process and the potential enrollee does not make a
choice, then the potential enrollee is enrolled into the managed care
plan selected by the state's passive enrollment process when the choice
period has ended. In the mandatory program, the minimum 14-day period
would have to occur before any default enrollment process is used.
However, we are not proposing any passive enrollment mechanism for
mandatory managed care programs because the default enrollment
mechanism provides the same measure of administrative flexibility. We
believe that 2 weeks is sufficient time given that, elsewhere in this
proposed rule, we are encouraging states to move to more rapid methods
of communicating with enrollees. While we are proposing to require a
minimum of 14 days for the choice period, we understand that the state
may end the choice period when the potential enrollee actively makes a
plan selection prior to the 14th day.
We appreciate that states may want to effectuate managed care
enrollment in mandatory programs as soon as possible after eligibility
determination, and recognize that providing a minimum active choice
period will be a change in process for some states. States would need
to provide a period of FFS coverage for beneficiaries between their
date of eligibility and their date of managed care enrollment. To
minimize any further delay in managed care enrollment, we would allow
states to operationalize the 14-day active choice period by advising
beneficiaries of the managed care plan they will be enrolled into
through the default process if they

[[Page 31135]]

do not make an active choice of managed care plan in that 14-day
period. According to this process, states would complete the default
enrollment process outlined in Sec. 438.54(d)(5) prior to beginning
the notice and education process described in paragraph (d)(3) with
beneficiaries, and ensure that adequate and appropriate information is
provided to beneficiaries regarding the implications of not making an
active managed care plan selection. It also enables beneficiaries to
override default enrollments by exercising their ability to make an
active choice of health plan.
We request comment on the impact of this new standard on managed
care program costs and operations, as well as the operational
flexibility we are providing to relieve beneficiaries of the burden of
receiving too many mailings, which can create confusion, before making
the default enrollment permitted in Sec. 438.54. We also invite
comment on whether a 14-day period is necessary, provides sufficient
time for beneficiaries to make an election, or whether a longer minimum
period, such as 30 days or 45 days, should be adopted.
We note that all beneficiaries, regardless of whether enrollment is
mandatory or voluntary, must be given the information, education, and
opportunity to participate actively in their choice of managed care
plan. Paragraphs (c)(3) and (d)(3) propose that states develop
informational notices to clearly explain to the potential enrollee the
implications of not actively making the decisions available to them and
allowing the passive or default enrollment to take effect. Proposed
(c)(3)(i) and (d)(3)(i) would provide that the notices comply with
Sec. 438.10 and proposed (c)(3)(ii) and (d)(3)(ii) would provide that
the notices have a postmark or electronic date stamp that is at least 3
calendar days prior to the first day of the 14-day choice period. We
believe this provides reasonable time for either postal delivery or the
potential enrollee to read the electronic communication and still have
14 days to make an active selection.
Priority for enrollment into a managed care plan is currently in
Sec. 438.50(e); however, for better organization, the text is being
deleted from Sec. 438.50 and is proposed as (c)(4) and (d)(4). No
other changes are proposed to this text.
We propose in paragraphs (c)(5) and (d)(5) that states assign
potential enrollees only to a qualified MCO, PIHP, PAHP, PCCM, or PCCM
entity. This concept is currently addressed in Sec. 438.50(f)(2) but
only to the extent of excluding those MCOs and PCCMs that are subject
to the intermediate sanction in Sec. 438.702(a)(4). In proposed
(c)(5)(i) and (d)(5)(i), we propose to exclude MCOs, PIHPs, PAHPs,
PCCMs, or PCCM entities subject to sanction under Sec. 438.702(a)(4)
and to add paragraph (c)(5)(ii) and (d)(5)(ii) to ensure that a
qualified MCO, PIHP, PAHP, PCCM, or PCCM entity has the capacity for
new enrollments.
In proposed paragraphs (c)(6) and (d)(6), we address standards that
are currently reflected in Sec. 438.50(f) which provides that states
have a default enrollment process for assigning a MCO or PCCM when the
potential enrollee does not make an active managed care plan selection.
As defined in statute, section 1932(a)(4)(D) of the Act provides that a
state conduct such enrollments in a manner that takes existing
provider-individual relationships into consideration, and if that
approach is not possible, to equitably distribute individuals among the
participating health plans. While the 2002 final rule strictly
interpreted the provisions of section 1932(a)(4)(D) of the Act
regarding default enrollment to apply only to enrollment that occurred
under state plan authority in section 1932(a) of the Act, we believe
that the enrollment processes currently specified in Sec. 438.50(e)
and (f) should not be limited only to entities subject to section
1932(a)(4)(D). Allowing potential enrollees sufficient time to make
informed decisions about their managed care plan is an important
protection that should not exclude potential enrollees of PIHPs and
PAHP as well all those subject to voluntary programs that utilize a
passive process. Therefore, we propose to make these provisions
applicable to all managed care authorities and to both passive and
default processes. We add existing text from Sec. 438.50(f)(2) through
(f)(4) in proposed paragraphs (c)(6) and (d)(6). While Sec. 438.50(f)
currently only applies to default enrollment in mandatory managed care
programs, we believe that enrollees in voluntary programs that utilize
a passive enrollment process should also benefit from being assigned to
a plan based on existing provider relationships or other criteria
relevant to beneficiary experience. Therefore, we propose to add
standards in (c)(6) for voluntary programs that mirror the standards
for mandatory programs using default enrollments.
In proposed paragraphs (c)(7) and (d)(7), we set forth provisions
from existing Sec. 438.50(f)(2) that provide that if a state cannot
preserve existing provider-beneficiary relationships and relationships
with providers that traditionally serve Medicaid, then enrollees must
be equitably distributed. Proposed paragraphs (c)(7)(i) and (d)(7)(i)
set forth a standard that states may not arbitrarily exclude a MCO,
PIHP, PAHP, PCCM, or PCCM entity from the assignment process. We
interpret ``equitable distribution'' in section 1932(a)(4)(D)(ii)(II)
of the Act to mean not only that the criteria applied to make default
enrollments are fair and reasonable, but that the pool of contractors
eligible to receive default enrollments is not based on arbitrary
criteria. Section 438.50(f) in the 2002 final rule implemented this
statutory provision verbatim, but in response to comments on this
provision, we clarified that ``states must have the flexibility to
consider other factors in the design of a default enrollment process
that best meets the needs of the individual,'' (67 FR 41020, June 14,
2002). We believe that the flexibility to use additional criteria
related to the beneficiary when making default assignments, such as the
geographic location of the beneficiary, enrollment preferences of
family members, previous plan assignment of the beneficiary, quality
assurance and improvement performance, procurement evaluation elements,
and other reasonable criteria that support the goal of the Medicaid
program, should be provided for in the regulation. Further, we believe
that such criteria can be part of an equitable distribution by ensuring
fair treatment for enrollees and managed care plans. We note that, an
informal survey of state default enrollment practices revealed that
some states currently utilize such criteria in their default enrollment
process.
For voluntary programs only that use passive enrollment, paragraph
(c)(8) proposes that states send confirmation notices to enrollees of
their plan selection that contain information explaining the enrollee's
right to disenroll from that MCO, PIHP, PAHP, PCCM, or PCCM entity
within 90 days. We note that many states use a voluntary model when
first starting to introduce managed care, which means the beneficiaries
are not as familiar with the limitations of managed care plan
enrollment. This additional confirmation notice may help limit
unintended plan selections before they take effect.
b. Disenrollment Standards and Limitations (Sec. 438.56)
We propose to retain the majority of the regulation text currently
in Sec. 438.56, with four substantive exceptions:
We propose, as discussed in more detail in section
I.B.5.e. of this proposed rule, to add references to ``PCCM entity'' as
applicable;

[[Page 31136]]

We propose to revise the text in paragraph (c)(2)(i)
concerning the start of the statutorily mandated 90-day period during
which an enrollee may disenroll without cause;
We propose to explicitly provide that a state may impose
either oral or written requests for disenrollment; and
We propose in (d)(2)(iv) to specify an additional cause
for disenrollment. We also propose grammatical and clarifying
corrections to the regulation text.
Paragraphs (a) through (c)(1) are unchanged except for the addition
of PCCM entity. In paragraph (c)(2)(i), we propose to modify our
approach to an enrollee's 90-day without cause disenrollment period.
Section 1932(a)(4)(A) of the Act specifies that a state plan must
permit disenrollment without cause from a managed care entity during
the first 90 days of enrollment under mandatory managed care programs.
As part of the 2002 final rule, we exercised authority under section
1902(a)(4) of the Act to extend this standard to state plans with
voluntary managed care programs and to PIHPs and PAHPs (whether
voluntary or mandatory). As finalized in 2002, we interpreted the
clause ``90 days following the date of the beneficiary's initial
enrollment'' to mean enrollment with a particular MCO, PIHP, PAHP, or
PCCM. That interpretation was intended to allow an enrollee to
disenroll from a MCO, PIHP, PAHP, or PCCM every 90 days until he or she
had exhausted all contracted MCO, PIHP, PAHP, or PCCM options for which
he or she is eligible. We believe that this provision has been applied
in an inconsistent manner, and that such an approach is disruptive to
the goals of establishing enrollee-provider relationships that support
a coordinated delivery system and contribute to medical and
administrative inefficiencies. We propose in paragraph (c)(2)(i) to
revise the regulation to limit the 90-day without cause disenrollment
period to the first 90 days of an enrollee's initial enrollment into
any MCO, PIHP, PAHP, or PCCM offered through the state plan; therefore,
an enrollee would have only one 90-day without cause disenrollment per
enrollment period. We believe that the revised approach is consistent
with the intent of section 1932(a)(4)(A)(ii) of the Act, represents
current practice in the states, and supports efficiency under the
Medicaid program. We propose no changes to paragraphs (c)(2)(ii)
through (iv).
We propose to add the phrase ``as required by the state'' to Sec.
438.56(d)(1) to clarify that this section of the regulation was
intended to give states the flexibility to accept disenrollment
requests either orally, or in written form, or both ways if the state
so desires. We intend to interpret ``written request'' for purposes of
this regulation to include online transactions or requests conducted
with an electronic signature. A state could also accept requests
orally, but require written confirmation of the oral request. Under our
proposal, the state's standard for the form of disenrollment requests
would have to be clearly communicated to enrollees to take advantage of
this flexibility.
We propose two minor grammatical corrections to paragraph (d) of
this section. In paragraph (d)(1)(ii), the term ``PIHP'' is in its
singular form, but must be changed to plural to conform to other terms
in the paragraph. We also propose to use the possessive form for MCO,
PIHP, and PAHP where applicable. In paragraph (d)(2)(iv), we propose to
add a new cause for disenrollment: The exit of a residential,
institutional, or employment supports provider from an enrollee's MCO,
PIHP, or PAHP network. Provider network changes can have a significant
impact on those enrolled in MLTSS programs, since such providers are
typically integral to residential and work services and supports.
Therefore, if the state does not permit participants enrolled in MLTSS
to switch managed care plans (or disenroll to FFS), at any time, states
must permit enrollees to disenroll and switch to another managed care
plan or FFS when the termination of a provider from their MLTSS network
would result in a disruption in their residence or employment. We
propose to codify this additional cause for disenrollment as Sec.
438.56(d)(2)(iv) and to redesignate the existing text at that paragraph
to (d)(2)(v). In paragraph (d)(3), we propose to add text to clarify
that disenrollment requests that the MCO, PIHP, PAHP, PCCM, or PCCM
entity does not approve would have to be referred to the state for
review. This would not change the meaning but we believe it would
improve the readability of the sentence. The existing text is otherwise
retained in paragraph (d)(5), except to add PCCM entities to its scope
as discussed elsewhere.
In paragraph (e)(1), we propose changes for clarification.
Currently in paragraph (e)(1) of this section, the timeframe for a
state to process a disenrollment request is intended to apply to
enrollee requests for disenrollment. The timeframe applies regardless
of whether the enrollee submits the request--directly to the state or
to the MCO, PIHP, PAHP, PCCM, or PCCM entity (if permitted by its
contract with the state.) However, Sec. 438.56(d)(1)(ii) permits
states to allow MCOs, PIHPs, PAHPs, and PCCMS to process disenrollment
requests. In these instances, the health plan can approve the request,
but it cannot actually disapprove the request. Instead, per Sec.
438.56(d)(3), it must forward the request to the state. In these
instances, the timeframe for the state to process a disenrollment
request referred by the plan is the same as if the enrollee had
submitted it directly to the state. To clarify this intent, in
paragraph (e)(1), we propose to insert the term ``requests'' after the
term ``enrollee'' and replaced the term ``files'' with ``refers.'' No
changes are proposed in paragraphs (f) and (g).
c. Beneficiary Support System (Sec. 438.71)
In existing regulations at Sec. 438.10, we acknowledged the
importance of information and disclosure in helping the beneficiary
choose a managed care plan. However, we recognize that some
beneficiaries may need additional assistance when evaluating their
choices. This additional assistance includes having access to
personalized assistance--whether by phone, internet, or in person--to
help beneficiaries understand the materials provided, answer questions
about options available, and facilitate enrollment with a particular
health plan or provider. Some states have found that having such
personalized assistance has helped to limit the number of beneficiaries
assigned through their default enrollment process.
This personalized assistance concept is similar to existing
programs in the Marketplace or State Health Insurance Programs (SHIPs)
for Medicare beneficiaries, with someone assisting the beneficiary in a
helpful, neutral and non-coercive way to make an informed choice that
best suits their health care needs. Choice counseling is currently
defined in Sec. 438.810 and we propose to move the definition to Sec.
438.2 and define the term as the provision of information and services
designed to assist beneficiaries in making enrollment decisions; it
includes answering questions and identifying factors to consider when
choosing among managed care health plans and primary care providers.
Choice counseling does not include making recommendations for or
against enrollment into a specific MCO, PIHP, or PAHP.
We propose a new Sec. 438.71, entitled Beneficiary Support System.
Proposed paragraph (a) establishes the standard that a state develops
and implements a beneficiary support system to provide

[[Page 31137]]

support before and after managed care enrollment. Paragraph (b)
proposes four minimum functions for a beneficiary support system:
Paragraph (b)(1)(i) would ensure that the provision of choice
counseling is made available to all beneficiaries, paragraph (b)(1)(ii)
would add training on the type and availability of community based
resources and supports, paragraph (b)(1)(iii) would require assistance
to all beneficiaries in understanding managed care, and paragraph
(b)(1)(iv) would add assistance for enrollees who receive or desire to
receive LTSS. In paragraph (b)(2), we propose that the system be
available to the beneficiaries in multiple ways including phone,
internet, in-person, and via auxiliary aids and services when
requested. As we discussed in the Collection of Information (COI)
section of this proposed rule, we support the use of traditional and
electronic means of communicating with beneficiaries.
We propose to add a standard at Sec. 438.71(c)(1) for states to
provide choice counseling services for any potential enrollee (that is,
prior to first enrollment in managed care) or to managed care enrollees
when they have the opportunity to change enrollment or must change
enrollment as described in Sec. 438.56(b) and (c). States have the
flexibility to decide who can provide choice counseling. However, in
paragraph (c)(2), we clarify that any individual or entity providing
choice counseling services is considered an enrollment broker under our
regulations, and therefore, must meet the independence and conflict of
interest standards of Sec. 438.810 to provide those services. This
means the entity cannot have a financial relationship with any MCO,
PIHP, PAHP, PCCM, or PCCM entity which operates in the state where the
entity is providing choice counseling. This would include participating
with the MCO, PIHP, PAHP, PCCM, or PCCM entity as a contracted
provider. In states where the county is acting as a managed care plan,
the county may not provide choice counseling as serving in both
capacities is incompatible with the conflict of interest and
independence standards. We understand that some entities may receive
federal grant funding distinct from Medicaid funding that may require
those entities, such as FQHCs or Ryan White providers, to conduct
activities similar to those that would fall under the definition of
choice counseling. (This is not an exhaustive list of federal grantees
and is provided for illustrative purposes). If those entities do not
have a memorandum of agreement or contract with the state to provide
choice counseling on the state's behalf, such entities would not be
required to adhere to the conflict of interest standards in 438.810
under our proposal at Sec. 438.71(c)(2). We request comment on whether
entities that provide non-Medicaid federally-financed protections to
beneficiaries that includes representation at hearings should be
allowed to also contract with the Medicaid agency to provide choice
counseling as long as appropriate firewalls are in place; we do propose
in paragraph (e)(3)(i) a similar exemption and firewall requirement for
such grantees to represent enrollees receiving LTSS from the managed
care entity. We would expect such requirements to include appropriate
firewalls in both staff responsibilities and billing practices for
choice counseling services. We also seek comment on what should
constitute the minimum firewall standards between the choice counseling
and other federally funded advocacy functions to preserve the
independence of the choice counseling.
In proposed paragraph (d), the beneficiary support system would
provide training to MCO, PIHP, and PAHP staff and network providers on
community based resources and supports that can be linked with covered
benefits. Community services often facilitate or promote compliance
with service or treatment plans and thus, the managed care plan,
provider and beneficiary all benefit from the state ensuring that
information on available resources is known and understood by all
parties providing or coordinating care for beneficiaries.
We understand that states may include many of these services
already within their Medicaid program and we do not intend that states
develop a new system of delivering all the functions proposed in Sec.
438.71(e) for MLTSS. Under our proposal, states would be permitted to
draw upon and expand, if necessary, those existing resources to meet
the standards of this section.
In paragraph (e), we propose four elements for a beneficiary
support system specific to beneficiaries who use, or desire to use,
LTSS: (1) An access point for complaints and concerns about enrollment,
access to covered services, and other related matters; (2) education on
enrollees' grievance and appeal rights, the state fair hearing process,
and rights and responsibilities; (3) assistance, upon request, in
navigating the grievance and appeal process and appealing adverse
benefit determinations made by a plan to a state fair hearing; and (4)
review and oversight of LTSS program data to assist the state Medicaid
Agency on identification and resolution of systemic issues. Proposed
paragraph (e)(1) applies to enrollees of MCOs, PIHPs, PAHPs, PCCMS, and
PCCM entities while (e)(2) through (e)(4) apply only to MCOs, PIHPs,
and PAHPs since they reference the grievance and appeal process which
PCCMs are not required to have.
Given the increased complexity of care and service needs for
beneficiaries receiving, or in need of, LTSS, we believe this added
level of support is appropriate. The proposed changes to this paragraph
are discussed in more detail in section I.B.6.e. of this proposed rule.
Finally, we note that the proposed scope of services for LTSS
beneficiary supports may include what has been traditionally considered
``ombudsman'' services; however, rules concerning Medicaid-reimbursable
expenditures remain in place, so we caution that not all ombudsman
activities traditionally found in a Long-Term Care Ombudsman office may
be eligible for Medicaid payment under this proposal. We issued an
informational bulletin on June 18, 2013, entitled ``Medicaid
Administrative Funding Available for Long-Term Care Ombudsman
Expenditures,'' that provided guidance on this issue. The informational
bulletin is available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/CIB-06-18-2013.pdf. We request comments on our
overall approach to Sec. 438.71.
d. Coverage and Authorization of Services and Continuation of Benefits
While the MCO, PIHP, or PAHP Appeal and the State Fair Hearing Are
Pending (Sec. 438.210 and Sec. 438.420)
We group together our discussion of proposals for Sec. Sec.
438.210 and 438.420 because they address related benefit issues about
the receipt and provision of covered services. Section 438.210
establishes standards for authorization periods set by managed care
plans and Sec. 438.420 addresses the duration of continued benefits
pending appeal resolution. Although the current regulation at Sec.
438.210 addresses MCOs, PIHPs, and PAHPs, the current regulation at
Sec. 438.420 addresses only MCOs and PIHPs. We propose to add PAHPs to
the subpart F appeal and grievance regulations as discussed in the
Appeals and Grievance section of this proposed rule (I.B.1.b.).
Under existing regulations, continuation of benefits during an
appeal is tied to coverage and authorization decisions made by the MCO,
PIHP, or PAHP. As more managed

[[Page 31138]]

care programs include enrollees with ongoing and chronic care needs,
including LTSS, we believe it is important that authorization periods
for such services reflect the ongoing need for these services to avoid
disruptions in care.
While we recognize that MCOs, PIHPs, and PAHPs have flexibility in
applying utilization management controls for covered services,
exercising that flexibility could result in the inappropriate
curtailment of necessary services, particularly for those requiring on-
going and chronic care services, including LTSS. We acknowledge that
our current standards reflect an acute care model of health care
delivery and do not speak to the appropriate medical management of
individuals with ongoing or chronic conditions, or the authorization of
non-clinical services that maximize opportunities for individuals to
have access to the benefits of community living and the opportunity to
receive services in the most integrated setting. Therefore, we propose
to modernize the language in Sec. 438.210 governing the coverage and
authorization of services and establish standards for states through
the managed care contract to ensure that MCOs, PIHPs, and PAHPs employ
utilization management strategies that adequately support individuals
with ongoing or chronic conditions or who require long-term services
and supports.
As background, the foundation of coverage and authorization of
services is that services in Medicaid must be sufficient in amount,
duration, or scope to reasonably be expected to achieve the purpose for
which the services are furnished, and services must not be arbitrarily
denied or reduced because of the diagnosis or condition of the
enrollee. Our proposal would permit a MCO, PIHP, or PAHP to place
appropriate limits on a service on the basis of criteria applied under
the state plan, such as medical necessity, or for the purpose of
utilization control, provided that the services furnished can
reasonably achieve their purpose. This is the same standard applied to
a state's coverage decisions under the state plan, see Sec. 440.230
and we propose to reflect this by revising pertinent text in Sec.
438.210(a).
We propose no changes to Sec. 438.210(a)(1) and (2). In paragraph
(a)(3)(i), we propose to delete ``be expected to'' as it is used
relative to services reasonably achieving their results and align with
the FFS standard in 42 CFR 440.230.
We propose that existing paragraph (a)(3)(iii) be redesignated as
(a)(4) and existing paragraphs (a)(3)(iii)(A) and (B) be redesignated
without change as paragraphs (a)(4)(i) and (ii), with new paragraphs
(a)(4)(ii)(A), (B) and (C). In paragraph (a)(4)(ii)(A), we propose text
to incorporate the proposed revisions in paragraph (a)(3)(i) deleting
the phrase ``to be expected to'' as it is used relative to services
reasonably achieving their purpose in stating a limit on how
utilization controls may be used. We also propose to add two new
conditions on when and how an MCO, PIHP, or PAHP may impose utilization
controls. First, we propose in paragraph (a)(4)(ii)(B) that the state
must ensure, through its contracts, that service authorization
standards are appropriate for and do not disadvantage those individuals
that have ongoing chronic conditions or needing LTSS. The expectation
is that clinical services that support individuals with ongoing or
chronic conditions, as well as LTSS would be authorized in a manner
that reflects the beneficiary's continual need for such services and
supports. As this would be a contractual standard for managed care
programs that cover both medical and LTSS, we expect states to monitor
MCO, PIHP, and PAHP compliance with setting reasonable authorization
periods, and have included a standard for monitoring utilization
management in our proposed revisions to Sec. 438.66. Second, we
propose that utilization controls may not interfere with the enrollee's
freedom to choose a method of family planning. Specifically, we propose
that utilization controls are permissible so long as family planning
services are provided in a manner that protects the enrollee's freedom
to choose the method of family planning to be used consistent with
Sec. 441.20. We propose this language pursuant with our authority
under section 1902(a)(4) of the Act to ensure that beneficiaries,
whether receiving family planning services through FFS or managed care,
have the same freedom to choose the method of family planning to be
used. This proposal does not alter the state's ability under FFS or a
managed care plan's ability to apply medical necessity criteria for an
individual's request for family planning services but provides that
utilization controls that would interfere with an enrollee's freedom to
choose the method of family planning would not be permitted. We request
comment on this proposal.
We propose that existing paragraph (a)(4) be redesignated as (a)(5)
and paragraph (5)(i) is unchanged. In paragraph (a)(5)(ii), we propose
to revise the criteria for defining medically necessary services by
adding that such criteria must meet the requirements for providing
early and periodic screening and diagnosis of beneficiaries under age
21 to ascertain physical and mental defects, and providing treatment to
correct or ameliorate defects and chronic conditions found (EPSDT). We
believe this addition is necessary to ensure that State definitions of
medical necessity comply with federal EPSDT laws. In paragraph
(a)(5)(iii)(A), we propose to revise the criteria for defining
medically necessary services by adding disease, condition, or disorder
that results in health impairment and/or disability. We believe this is
more comprehensive and more accurately reflects our intent than the
existing provision. In paragraph (a)(5)(iii)(A) through (C), we propose
grammatical revisions to accommodate a proposed new paragraph
(a)(5)(iii)(D) that would add an LTSS focus by requiring that medically
necessary services address the opportunity for an enrollee to have
access to the benefits of community living.
In paragraph (b), we propose to add specificity related to LTSS
services. No changes are proposed for (b)(1) and (2)(i); however, in
(b)(2)(ii) we propose to add ``for medical services'' to address
requests for non-LTSS, and in paragraph (b)(2)(iii) we propose to add a
standard that MCOs, PIHPs, and PAHPs authorize LTSS based on an
enrollee's current needs assessment and consistent with the person-
centered service plan. Paragraph (b)(3) proposes to change from
referencing treating a condition or disease to addressing medical,
behavioral health, or LTSS needs.
The proposed changes in paragraph (c) are to add ``PAHP'' to the
standards of this paragraph and revise notices of adverse action to
notices of adverse benefit determination. As discussed in section
I.B.1.b. of this proposed rule, we propose to add PAHPs to subpart F
and replace ``action'' with ``adverse benefit determination.'' Thus,
both of these are necessary conforming changes.
In paragraph (c), we also propose to correct the heading to reflect
the change from action to adverse benefit determination as discussed in
section I.B.1.b. of this proposed rule. We also propose to remove the
provision that references notices to providers of adverse benefit
determinations need not be in writing as an exception to Sec. 438.404.
Provider notices are not currently addressed in Sec. 438.404, thus
this reference is erroneous.
The only change proposed to paragraph (d)(1) is to delete
``health'' to make ``condition'' more comprehensive.
We propose in Sec. 438.210(d)(2)(i) and (ii) to change the
timeframe for MCOs, PIHPs, and PAHPs to make expedited

[[Page 31139]]

authorization determinations within 72 hours, rather than the current
standard of 3 working days, after receipt of the request for the
service to align expedited authorization determination timeframes with
expedited health plan level appeals in proposed Sec. 438.408(b)(3). We
discuss in section I.B.1.b. of this proposed rule how these proposed
timelines align with the MA and commercial standards for expedited
appeals. We are not proposing any to revisions to Sec. 438.210(e)
In section Sec. 438.420, we propose conforming revisions,
consistent with other proposals throughout subpart F: Specifically, to
change ``action'' to ``adverse benefit determination,'' to add PAHPs to
standards currently applicable only to MCOs and PIHPs, and to specify
all time limits expressed in days as calendar days. To address the
limit on enrollee's access to benefits pending resolution of an appeal,
we also propose to eliminate the link between the duration of continued
benefits pending appeal and the original service authorization period.
Thus, we propose to delete existing Sec. 438.420(c)(4) that permits
MCOs and PIHPs to discontinue coverage of services pending appeal when
the time period or service limits of a previously authorized service
has been met. The removal of this paragraph would mean that an enrollee
must continue to receive benefits without interruption, if elected by
the enrollee, through the conclusion of the SFH process if the enrollee
appeals an MCO's, PIHP's, or PAHP's adverse benefit determination. This
change would apply to all authorized services covered by the MCO, PIHP,
or PAHP as Sec. 438.420. We believe this a critical enrollee
protection given the nature and frequency of many ongoing services,
particularly for enrollees receiving LTSS.
In addition, in Sec. 438.420(d), we propose that the MCO's,
PIHP's, or PAHP's ability for recoupment from the beneficiary under a
final adverse decision be addressed in the contract and that such
practices be consistent across both FFS and managed care delivery
systems within the state. Under both managed care and FFS, the right to
continuation of benefits is not exercised without potential financial
risk to the beneficiary of payment for services provided if the final
decision is adverse to the beneficiary. The decision to hold the
beneficiary financially liable for such services is left to the state
under Sec. 431.230(b) and that decision would be applied equally to
FFS and managed care programs. For example, if the state does not
exercise the authority for recoupment under Sec. 431.230(b) for FFS,
the same practice must be followed by the state's contracted MCOs,
PIHPs, and PAHPs. We request comments on the proposed revisions to
Sec. Sec. 438.210 and 438.420.
e. Continued Services to Beneficiaries and Coordination and Continuity
of Care (Sec. 438.62, Sec. 438.208)
To ensure consistent continuity of care and coordination of
services for beneficiaries, we are proposing revisions to Sec. 438.62
and Sec. 438.208.
The existing regulatory framework for coordination of care focuses
on three elements: (1) All enrollees must have an ongoing source of
primary care; (2) a person or entity will coordinate the care provided
by the MCO, PIHP, or PAHP; and (3) additional assessments and treatment
plans are in place for individuals identified by the state as having
special health care needs. In 2002, when the current regulations were
finalized, the use of managed care for delivery of LTSS or providing
medical services to more complex populations was not prevalent and,
therefore, not substantially reflected in the regulations.
The proposed changes discussed below aim to align the Medicaid
managed care framework with other public and private programs and
improve coordination and continuity of care. To that end, we propose
the following: Set standards for transition plans when a beneficiary
moves into a new MCO, PIHP, or PAHP; expand beyond the emphasis on
primary care when considering care coordination; strengthen the role of
the assigned care coordinator; ensure there is more accurate and timely
data gathering and sharing; and include enrollees with LTSS needs in
the identification, assessment and service planning processes. These
proposed changes would modify sections Sec. 438.62 and Sec. 438.208.
(1) Transition Between Medicaid Delivery Systems (Sec. 438.62)
Our only explicit transition of care standards included in current
Medicaid managed care regulations (codified at Sec. 438.52) focus on
when a beneficiary is mandated into a single MCO, PIHP or PAHP in a
rural area. We believe there should be transition of care standards for
all Medicaid beneficiaries transitioning from one delivery system to
another within Medicaid (even MCO to MCO), and not just rural area
enrollees.
We propose no changes to paragraph (a) other than to add PCCM
entity as discussed elsewhere in this rule. We propose to add a
standard to Sec. 438.62(b) which would require that states have a
transition of care policy in place for individuals moving to managed
care from FFS, or from one MCO, PIHP, PAHP, PCCM, or PCCM entity to
another when an enrollee without continued services would experience
serious detriment to their health or put them at risk of
hospitalization or institutionalization. Under this proposal, states
would define the transition policy, as long as it meets the standards
proposed in paragraph (b)(1), and would have the flexibility to
determine the types of enrollees for which the MCOs, PIHPs, PAHPs,
PCCMs, or PCCM entities would need to provide transition activities.
Paragraph (b)(1) proposes that transition policies include: Permitting
the enrollee to continue to receive the services they are currently
receiving from their current provider for a specified period of time in
paragraph (b)(1)(i); referring the enrollee to an appropriate
participating provider in (b)(1)(ii); assuring that the state or MCO,
PIHP or PAHP comply with requests for historical utilization data in
(b)(1)(iii); and assuring that the enrollee's new provider is able to
obtain appropriate medical records in (b)(1)(iv). We note here that
references to ``services'' mean services covered under the contract,
which would include prescription drugs if the managed care plan is
obligated to provide such services under the contract. We also propose,
at paragraph (b)(1)(v), that additional procedures for the transition
plan may be specified by the Secretary as necessary to ensure continued
access to services for an enrollee to prevent serious detriment to the
enrollee's health or to reduce the risk of hospitalization or
institutionalization. We request comment on these proposed elements and
whether we should propose any other provisions.
In paragraph (b)(2), we propose that states include a transition of
care policy standard in their MCO, PIHP, and PAHP contracts. We propose
to provide flexibility for states to decide whether to apply the state
developed policy consistently to their MCOs, PIHPs, and PAHPs, or
whether to permit the health plans to have different policies, as long
as the state's minimum standards are met. We believe this approach
achieves an appropriate balance between assuring ongoing care for
individuals who have significant needs while permitting states
flexibility to determine how best to implement these transitions. At a
minimum, the transition policies should be included in the state's
comprehensive quality strategy and

[[Page 31140]]

included in information provided to potential enrollees.
(2) Ongoing Source of Primary Care (Sec. 438.208(a))
In the existing Medicaid managed care regulations, there is a
singular focus on establishing primary care relationships between
providers and enrollees. However, this focus does not sufficiently
address an enrollee's need for ongoing sources of all types of care,
including ongoing relationships with behavioral health or LTSS
providers. In consideration of our proposal to ensure continued access
to care appropriate to an individual's needs, we also believe changes
to the exceptions for MCOs, PIHPs, and PAHPs serving dually eligible
individuals are necessary. We propose no changes to paragraph (a)(1).
We propose to delete paragraph (a)(2)(i) as it is redundant to proposed
language in paragraph (b)(1); however, doing this necessitates
incorporating the existing provisions in paragraph (a)(2)(ii) into
(a)(2). We propose minor technical corrections in Sec.
438.208(a)(3)(i) to replace the outdated reference to ``Medicare+Choice
plan'' with ``Medicare Advantage organization.'' Additionally, in Sec.
438.208(a)(3)(ii), we propose that the decision to grant an exception
to a MCO serving dually eligible individuals would be based on the
needs of the population served rather than on what services are covered
under the contract.
(3) Care Coordination Activities (Sec. 438.208(b))
The Agency for Healthcare Research and Quality (AHRQ) defines care
coordination as ``deliberately organizing patient care activities and
sharing information among all of the participants concerned with a
patient's care to achieve safer and more effective care. This means
that the patient's needs and preferences are known ahead of time and
communicated at the right time to the right people, and that this
information is used to provide safe, appropriate, and effective care to
the patient.'' \12\ These concepts are embedded in the regulations
governing the MA program as well as the Marketplaces. Both the MA
program and the Marketplace regulations seek to ensure that the needs
of enrollees are assessed, and that care is coordinated across settings
and with services delivered inside and outside the health plans.
Although we believe most MCOs, PIHPs, and PAHPs are already doing these
activities, we propose to update our regulations to align with the
governing policies of the MA program and the Marketplaces. At the same
time, we propose several modifications to Sec. 438.208(b) and (b)(1):
(1) To revise the language in paragraph (b)(1) from services
``furnished to'' enrollees, to services ``accessed by'' enrollees, to
more adequately describe the entire range of services covered by the
regulations; (2) to remove references to ``primary'' to ensure each
enrollee receives access to an ongoing source of care appropriate to
their needs, regardless of whether the service provider is considered a
primary care provider; and (3) to remove the words ``health care'' to
explicitly recognize that MCOs, PIHPs, and PAHPs may coordinate not
only health care services but a full range of community based support
services to provide services in the most integrated setting to
enrollees.
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\12\ AHRQ Web site: http://www.ahrq.gov/professionals/prevention-chronic-care/improve/coordination/index.html.
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We propose to expand the standards in paragraph (b)(2) so that care
coordination activities at MCOs, PIHPs, and PAHPs involve coordination
between care settings in paragraph (b)(2)(i) and coordination with
services provided outside of the MCO, PIHP or PAHP, including with
another MCO, PIHP, or PAHP in paragraph (b)(2)(ii) and FFS Medicaid in
paragraph (b)(2)(iii). We request comment on including an additional
standard relating to community or social support services in paragraph.
These could include linking enrollees to services through organizations
such as Protection and Advocacy organizations, Legal Aid, Aging and
Disability Resources Centers, Centers for Independent Living, Area
Agencies on Aging, or United Way 311 lines. Given the historically high
rate of utilization of these services by the Medicaid population,
Medicaid managed care plans have experience in facilitating and
coordination access to these services. This language would acknowledge
existing industry practice. We request comment on this approach and on
any potential costs associated with this addition.
We believe that health plans must ensure that appropriate
information is available to, shared with, and maintained by all
providers and the MCO, PIHP, or PAHP that is coordinating the care.
Therefore, we propose to add standards in new paragraphs (b)(3) and
(b)(5) that each MCO, PIHP and PAHP make their best effort to complete
an initial health risk assessment within 90 days of the effective date
of enrollment for all new enrollees and that all providers,
practitioners and suppliers maintain and share an enrollee health
record according to MCO, PIHP, or PAHP standards under our authority at
section 1902(a)(4) of the Act. We also propose to remove phrase ``with
special health care needs'' from existing paragraph (b)(3)
(redesignated at (b)(4)) and change the word ``its'' to ``any'' in that
same paragraph to broaden the standard for sharing assessment results
to avoid duplication of services. The standard of an initial health
assessment is explicit in the MA regulations in Sec. 422.112(b)(4)(i),
so we believe these changes establish consistent standards for MCOs
participating in Medicare and Medicaid, thereby easing administrative
burden. Finally, in the redesignated paragraph (b)(4) regarding the
sharing of the results of an enrollee's need assessment with another
MCO, PIHP, or PAHP that serves the enrollee, we propose to add the
state as a recipient of that information if the state (through FFS)
provides coverage of some services to an enrollee, such as behavioral
health or pharmacy coverage. In addition, we propose that existing
paragraph (b)(4) be moved without change to paragraph (b)(6).
(4) Long-Term Services and Supports (Sec. 438.208(c))
The current Medicaid managed care regulations were written at a
time when a managed care delivery system was not frequently utilized
for LTSS. With states using managed care to deliver covered services to
populations with more complex needs, care coordination that is
appropriate for individuals using LTSS becomes an important component
of managed care. We propose to codify the elements contained in our May
2013 guidance for managed long-term services and supports \13\ programs
operated under section 1915(b) waivers and section 1115(a)
demonstration projects. See section I.B.6.e. of this proposed rule for
more information on the 2013 guidance.
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\13\ http://www.medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/downloads/1115-and-1915b-mltss-guidance.pdf.
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We propose changes in paragraph (c)(1) of Sec. 438.208 to add
enrollees who need LTSS to the populations for which the state must
have mechanisms to identify these enrollees to the MCO, PIHP, or PAHP.
We propose a change to paragraph (c)(1)(i) to reflect that the
mechanisms required in paragraph (c)(1) must be included in the state's
comprehensive quality strategy as defined in proposed Sec. 438.340. We
also propose that states may use their staff, their enrollment brokers,
and the MCOs, PIHPs, and PAHPs as part of these

[[Page 31141]]

identification mechanisms. There are no changes proposed to paragraph
(c)(1)(ii). Other changes we are proposing to paragraph (c) include:
Amending paragraph (c)(2) so that assessments for both
individuals in need of LTSS as well as those with special health care
needs are comprehensive and are conducted by appropriate LTSS service
coordinators having qualifications specified by the state or the MCO,
PIHP, or PAHP, or by health care professionals. We believe this to be a
critical standard to avoid insufficient service or treatment plans or a
disruption in services to enrollees.
Amending paragraph (c)(3) to propose clarifications that
treatment plans would also be considered service plans and that they
are developed for individuals needing LTSS in addition to individuals
with special health care needs.
Amending paragraph (c)(3)(i) to propose that treatment or
service plans are developed by the enrollee's provider or an individual
meeting the health plan or state's service coordination provider
standards in consultation with other health care professionals caring
for the enrollee. This change is intended to permit a MCO, PIHP, or
PAHP to use internal staff for service coordination, even though those
staff would not be considered providers and, thus, not permitted to
perform assessments under current regulation.
Adding new standards under paragraphs (c)(3)(ii) to
propose that treatment or service plans developed for those in need of
LTSS conform with the person centered planning standards found in Sec.
441.301(c)(1) and (2). This proposal is consistent with the HCBS final
rule released in 2014.
Redesignating current paragraphs (c)(3)(ii) and (iii)
without change as paragraphs (c)(3)(iii) and (iv). Proposing a new
standard under paragraph (c)(3)(v) that service and treatment plans be
reviewed and revised upon reassessment of the enrollee's functional
needs, at least every 12 months, when the enrollee's circumstances or
needs change significantly, or at the request of the enrollee.
No changes are proposed for paragraph (c)(4).
f. Advancing Health Information Exchange
Health information technology and the electronic exchange of health
information is an important tool for achieving the care coordination
objectives proposed in section Sec. 438.62, Sec. 438.208, and other
parts of this proposed rule. The Department supports the principle that
all individuals, their families, their healthcare and social service
providers, and payers should have consistent and timely access to
health information in a standardized format that can be securely
exchanged among the patient, providers, and others involved in the
individual's care (HHS August 2013 Statement, ``Principles and
Strategies for Accelerating Health Information Exchange.'') Further,
the Department is committed to accelerating health information exchange
through the use of health information technology (health IT) across the
broader care continuum and across payers. Health IT that facilitates
the secure, efficient and effective sharing and use of health-related
information when and where it is needed is an important contributor to
improving health outcomes, improving health care quality and lowering
health care costs. Health IT can help health care providers recommend
treatments that are better tailored to an individual's preferences,
genetics and concurrent treatments. In addition, it can help
individuals make better treatment decisions and health-impacting
decisions outside of the care delivery system.
In January 2015, the Office of the National Coordinator for Health
Information Technology (ONC) published ``Connecting Health and Care for
the Nation: A Shared Nationwide Interoperability Roadmap'' (available
at http://www.healthit.gov/sites/default/files/nationwide-interoperability-roadmap-draft-version-1.0.pdf) for public comment.
This draft document focuses on how interoperable health IT can enable
better health and wellness for all Americans, regardless of where they
live, learn, work and play.
In addition, ONC has released a draft of the ``2015
Interoperability Standards Advisory'' (available at http://www.healthit.gov/standards-advisory) for public comment; the public
comment period is open until May 1, 2015. This draft document contains
an initial list of the best available standards and implementation
specifications to enable priority health information exchange
functions. Providers, payers, and vendors are encouraged to take these
``best available standards'' into account as they implement
interoperable health information exchange across the continuum of care,
including care settings such as behavioral health, long-term and post-
acute care, and community service providers (e.g., home and community-
based service providers).
We encourage states, MCOs, PIHPs, PAHPs, PCCMs, PCCM entities, and
other stakeholders to utilize health information exchange and certified
health IT to effectively and efficiently help providers improve
internal care delivery practices, support management of care across the
continuum, enable the reporting of electronically specified clinical
quality measures (eCQMs), and improve efficiencies and reduce
unnecessary costs. We welcome comment on how we might reinforce
standards through future rulemaking or guidance to states and plans as
standards become more mature and adoption of certified health IT
increases. For example, as standards become available to electronically
integrate long-term services and supports, we could reference them in
guidance documents that could then inform contractual requirements for
vendors.
g. Managed Long-Term Services and Supports (Sec. 438.2, Sec. 438.3,
Sec. 438.70, Sec. 438.71, Sec. 438.214, Sec. 438.816)
MLTSS refers to an arrangement between state Medicaid programs and
MCOs, PIHPs or PAHPs through which the MCO, PIHP, or PAHP receives a
capitated payment for providing long-term services and supports (LTSS).
MLTSS programs have grown significantly over the past decade and are
expected to increase even more in the coming years. Recognizing this
significant shift in delivery system design, we developed ten key
principles inherent in a strong MLTSS program. These principles were
released on May 21, 2013, in guidance \14\ for states using a section
1915(b) waiver or section 1115(a) demonstration to implement a MLTSS
program. We propose to revise the Medicaid managed care regulations to
ensure that all MLTSS programs, regardless of underlying authority,
operate in accordance with these elements. The elements are
incorporated in proposed changes throughout this part and include LTSS
specific changes in sections discussed below. Some of the changes we
propose--while prompted by MLTSS considerations--apply broadly to all
beneficiaries, and so have been applied to all managed care programs.
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\14\ http://www.medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/downloads/1115-and-1915b-mltss-guidance.pdf.
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(1) Defining Long-Term Services and Supports
We propose to add a definition of LTSS to Sec. 438.2 for purposes
of applying the rules in part 438 of this chapter; however, the
definition would not be applicable to any other part of title 42 of the
CFR. Our proposal defines LTSS as ``services and supports provided to
beneficiaries of all ages who have

[[Page 31142]]

functional limitations and/or chronic illnesses that have the primary
purpose of supporting the ability of the beneficiary to live or work in
the setting of their choice, which may include the individual's home, a
provider-owned or controlled residential setting, a nursing facility,
or other institutional setting.'' We intend for community based
services within the scope of this definition to be largely non-medical
in nature and focused on functionally supporting people living in the
community. Examples of what we would consider community based LTSS
include Home- and Community-Based Services (HCBS) delivered through a
section 1915(c) waiver, section 1915(i), or section 1915(k) state plan
amendments, as well as personal care services otherwise authorized
under the state plan. We note that individuals with chronic illness
that may receive LTSS include individuals with mental health conditions
and substance use disorders.
We considered defining LTSS in a way that references specific
services in title 42 of the CFR such as HCBS and Nursing Facility
services (defined in part 440), but determined that would be too
limiting and not allow for future innovation in what services are
considered LTSS. We request comment on the proposed definition and
whether it is appropriate in scope.
2. Codifying MLTSS Guidance
The principles in CMS' May 2013 guidance were developed after
extensive review of numerous published findings, interviews with states
as to lessons learned in the start-up and implementation of MLTSS
programs, and recommendations from our HHS partners and other external
stakeholders. The 10 elements identified in our 2013 guidance and
proposed for regulation are:
1. Adequate Planning
2. Stakeholder Engagement
3. Enhanced Provision of Home and Community Based Services
4. Alignment of Payment Structures and Goals
5. Support for Beneficiaries
6. Person-centered Processes
7. Comprehensive, Integrated Service Package
8. Qualified Providers
9. Participant Protections
10. Quality
In the following discussion, we describe how we have incorporated
these elements into this proposed rule. As noted previously, the
elements are incorporated in proposed changes throughout this part, and
we reference those sections of this proposed rule where the associated
proposals are further discussed. In this section, we summarize the LTSS
specific proposals in the context of the ten elements of our guidance
and explain how, together, they strengthen MLTSS programs. We request
comment on the incorporation of these proposals.
Element 1: Adequate Planning: We believe the most effective MLTSS
systems are the result of a thoughtful and deliberative planning
process with a clear vision for the program. Thoughtful planning in the
development of MLTSS programs helps to ensure a smooth transition for
persons with LTSS needs as they transition from FFS to managed care
delivery systems. We propose to incorporate this element in the
existing regulatory structure as follows:
Amending Sec. 438.66 to propose that there is appropriate
state monitoring and accountability of the program that includes
readiness reviews. While this standard would apply broadly to all
managed care programs and is discussed in section I.B.6.c. of this
proposed rule, LTSS, as a covered service under the contract, would be
included in this review to the same extent as all other covered
services.
Amending Sec. 438.10 to propose additional standards for
enrollee and potential enrollee materials, including information on
transition of care, who to contact for support and other standards for
provider directories. The specific proposed changes to Sec. 438.10 are
discussed in the Member materials preamble of this proposed rule in
section I.B.6.d. While LTSS is not specifically referenced, states
(under Sec. 438.10(e)) and managed care plans (under Sec. 438.10(g)
and (h)) to provide information on all covered benefits and provider
directory information.
Element 2: Stakeholder Engagement: Successful MLTSS programs have
developed a structure for engaging stakeholders regularly in the
ongoing monitoring and oversight of the MLTSS program. Educated
stakeholders, including beneficiaries, providers, and advocacy groups
inform decisions as to what works and what does not in the managed care
system, allowing the state to design systems that are responsive to the
needs of stakeholders and to address any implementation issues
discovered early in the process. While Medicaid already has a standard
for a Medical Care Advisory Committee (MCAC) outlined in Sec. 431.12
and while in some states this forum has proved to be a useful venue for
actionable feedback regarding a state's managed care program, the MCAC
in other states may not provide the opportunity to receive meaningful
input from MLTSS stakeholders. Our proposed provisions for gathering
stakeholder input are discussed in more detail in section I.B.6.h. of
this proposed rule.
Element 3: Provision of Home and Community Based Services: All
MLTSS programs must be implemented consistent with the Americans with
Disabilities Act (ADA) and the Supreme Court's Olmstead v. L.C., 527
U.S. 581 (1999) decision. Further, all contracts with MCOs, PIHPs, and
PAHPs must comply with all applicable federal and state laws including
the ADA under our current regulations. Proposed Sec. 438.3(o) is
discussed in section I.B.2.a. of this proposed rule.
Element 4: Alignment of Payment Structures and Goals: Payment to
MCOs, PIHPs, and PAHPs should support the goals of MLTSS programs to
improve the health of populations, support the beneficiary's experience
of care, support community integration of enrollees, and reduce costs.
We incorporated this element to propose that states include MLTSS
program elements in the annual program summary report proposed under
Sec. 438.66. These program elements are discussed in section I.B.6.c.
of this proposed rule.
Element 5: Support for Beneficiaries: Support and education,
including enrollment and disenrollment assistance and advocacy support
services, are critical for all beneficiaries in a MLTSS program. As
discussed in more detail in section I.B.5.c of this proposed rule, we
are incorporating this element by proposing Sec. 438.71, which would
have states provide a beneficiary support system, including choice
counseling services. While applicable to all managed care programs, the
proposed changes to Sec. 438.71 would provide assistance to those with
complex needs, such as those receiving LTSS, who would benefit most
from these activities. We also note that under proposed Sec. 438.71(d)
the state would provide training to MCOs, PIHPs, PAHPs, PCCMs, PCCM
entities, and network providers on the specific community-based
resources and supports that can be linked with covered benefits.
Finally, in Sec. 438.71, as described previously, states would
incorporate four beneficiary support functions for all individuals
using, or expressing a desire to use, LTSS within a managed care
program:
Provide an access point for complaints and concerns
pertaining to the MCO, PIHP, PAHP, PCCM, or PCCM entity on the
enrollment process, access to services, and other related matters
(Sec. 438.71(e)(1));

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Educate beneficiaries on the grievance and appeal process,
the SFH process, enrollee rights and responsibilities, as well as
resources outside of the MCO, PIHP or PAHP (Sec. 438.71(e)(2));
Assist in navigating the grievance and appeal process for
MCOs, PIHPs and PAHPs or SFH excluding providing representation (Sec.
438.71(e)(3)); and
Review and oversight of LTSS program data to assist the
state Medicaid Agency on identification, remediation, and resolution of
systemic issues (Sec. 438.71(e)(4)) .
We also incorporate this element by proposing a new for cause
reason for disenrollment for enrollees receiving LTSS in Sec.
438.56(d)(2)(iv), which is discussed in section I.B.5.b. of this
proposed rule. This proposal recognizes that provider network changes
can have a significant impact on those enrolled in MLTSS programs,
since some providers are integral to residential and employment
services and supports. Therefore, if the state does not permit
participants enrolled in MLTSS to switch managed care plans (or
disenroll to FFS), at any time, states should permit MLTSS enrollees to
disenroll and switch to another MCO, PIHP, PAHP, or FFS when the
termination of a provider from their MLTSS network would result in a
disruption in the enrollee's use of that provider. Under this proposal,
an enrollee would be permitted to change their MCO, PIHP, or PAHP if
their residential, institutional, or employment supports provider
terminates their participation with the enrollee's current MCO, PIHP,
or PAHP.
Finally, we are incorporating this element in our proposed new
section Sec. 438.816 Expenditures for Independent Consumer Support
Services for Enrollees using LTSS that would describe the conditions
that must be met for the state to claim FFP for the LTSS-specific
beneficiary support system activities proposed in Sec. 438.71(e). We
have modeled this standard, in part, on current rules for
administrative services claiming and, in part, on the current rules for
enrollment broker services. We propose, consistent with our current
policy, that beneficiary support services for MLTSS enrollees are
eligible for administrative match subject to certain standards.
Specifically, in paragraph (a), we propose that costs must be supported
by an allocation methodology that appears in the state's Public
Assistance Cost Allocation Plan; in paragraph (b) that the costs do not
duplicate payment for activities that are already being offered or
should be provided by other entities or paid by other programs; in
paragraph (c) that the person or entity providing the service must meet
independence and conflict of interest provisions applicable to
enrollment brokers in Sec. 438.810(b) standard; and in paragraph (d)
that the initial contract or agreement for services in this section be
reviewed and approved by CMS. More specific guidance around claiming
for Ombudsman services can be found in the CMCS Informational Bulletin
released on June 18, 2013, available at http://medicaid.gov/Federal-Policy-Guidance/Downloads/CIB-06-18-2013.pdf.
Element 6: Person Centered Process: Ensuring that beneficiaries'
medical and non-medical needs are met and that they have the quality of
life and level of independence they desire within a MLTSS program
starts with person-centered processes including comprehensive needs
assessments and service planning policies. We are incorporating this
element through proposed changes to Sec. 438.208(c) requiring
identification, assessment, and treatment/service planning for
individuals receiving LTSS who are enrolled in a MCO, PIHP or PAHP.
This proposal is discussed in section I.B.4.e. of this proposed rule
and would have an overall effect of shifting from a strictly medical,
acute care focus to one that addresses all covered services.
Element 7: Comprehensive, Integrated Service Package: In instances
in which a state managed care program divides services between
contracts or delivery systems, it is important that there is robust
coordination and referral by the managed care plan to ensure that the
beneficiary's service plan, which may include LTSS, is comprehensive
and person-centered. We incorporate this element by proposing to expand
Sec. 438.208(b)(2), so that MCOs, PIHPs, and PAHPs coordinate an
enrollee's care between settings of care, with services received from
another MCO, PIHP, or PAHP, and with services received from FFS. This
proposal is discussed more fully in section I.B.5.e. of this proposed
rule.
Element 8: Qualified Providers: As with traditional managed care
programs, MCOs, PIHPs, and PAHPs in a MLTSS program must have an
adequate network of qualified providers to meet the needs of their
enrollees. While current credentialing and network adequacy systems
have been developed based on an acute and primary care service delivery
model, managed care networks also meet the needs of MLTSS
beneficiaries, including adequate capacity and expertise to provide
access to services that support community integration, such as
employment supports, and the provision of training and technical
assistance to providers. We propose the following changes to
incorporate this element:
Amending Sec. 438.68(b)(2) to propose that states
establish time and distance standards specifically for MLTSS programs.
This proposal addresses time and distance standards for LTSS provider
types in which the enrollee must travel to the provider and the use of
standards other than time and distance for LTSS provider types that
travel to the enrollee to deliver the service. We believe it is
important to recognize that standards must reflect the high utilization
of services outside of the traditional medical office setting by
enrollees using LTSS. Other changes to Sec. 438.68 are discussed in
section I.B.6.a. of this proposed rule.
Amending Sec. 438.206(c)(3) to propose that MCOs, PIHP,
and PAHPs ensure that network providers have capabilities to ensure
physical access, accommodations, and accessible equipment for enrollees
with physical and mental disabilities. Given the high number of
enrollees with a disability receiving some LTSS, we believe this to be
an important factor when evaluating qualified providers in a MLTSS
program. Other changes to Sec. 438.206 are discussed in section
I.B.6.a. of this proposed rule.
Amending Sec. 438.207(b)(1) to propose that MCOs, PIHPs,
or PAHPs submit documentation to the state to demonstrate that it
complies with offering the full range of preventive, primary care,
specialty care, and LTSS services adequate for the anticipated number
of enrollees. Under this proposal, the state would review the submitted
documentation and certify its adequacy in paragraph (d) of this
section. These changes are discussed in section I.B.6.a. of this
proposed rule.
Amending Sec. 438.214(b)(1) to propose that each state
establish a credentialing and re-credentialing policy that addresses
all the providers, including LTSS providers, covered in their managed
care program regardless of the type of service provided by such
providers. We propose this to emphasize the importance of a
credentialing and re-credentialing policy for all provider types for
the services covered under the contracts. We also propose that each
MCO, PIHP, and PAHP must follow the state policy but do not propose to
prohibit additional policies at the state or managed care plan level.
Elements 9 and 10: Participant Protections and Quality: Participant
health and welfare is an important tenet in a program providing LTSS.
We are

[[Page 31144]]

incorporating these two elements by proposing to add a contract
standard in Sec. 438.330(b)(6) that MCOs, PIHPs, and PAHPs participate
in state efforts to prevent, detect, and remediate all critical
incidents. We intend this standard to be interpreted to apply to
incidents that adversely impact enrollee health and welfare and the
achievement of quality outcomes described in the person centered plan.
Under this proposal, states would specify the MCO, PIHP, or PAHP's
roles and responsibilities related to these activities in the MCOs,
PIHPs, and PAHP's contract.
We believe that a quality system for MLTSS is fundamentally the
same as a quality system for a state's entire managed care program, but
should include MLTSS-specific quality elements. Other revisions
previously discussed in this section address the delivery of MLTSS
services in a high-quality manner, and we specifically propose to amend
Sec. 438.330(b)(5) to include references to specific MLTSS quality
considerations. Under proposed paragraph (b)(5), the MCO, PIHP, or PAHP
would have mechanisms to assess the quality and appropriateness of care
provided to LTSS enrollees including between settings of care and as
compared to the enrollee's service plan. In addition, under Sec.
438.330(e)(1)(iii), we propose that the state includes the results of
any rebalancing efforts by the MCO, PIHP, or PAHP for individuals using
LTSS in its annual program review. These provisions are discussed in
more detail in section I.B.6.b. of this proposed rule.
These ten elements are the basis for many of our proposals related
to LTSS provided through a managed care delivery system. We solicit
comment on the extent to which our proposals--those discussed
specifically above and the other LTSS-specific provisions in this
proposed rule--incorporate the elements.
h. Stakeholder Engagement in LTSS
Since stakeholder engagement plays a critical role in the success
of a MLTSS program, we propose that states and managed care plans must
have appropriate minimum mechanisms in place to accomplish this.
Therefore, we propose to add a new Sec. 438.70 regarding the state's
creation and maintenance of a stakeholder group so that opinions of
beneficiaries, providers, and other stakeholders are solicited and
addressed during the design, implementation, and oversight of the MLTSS
program. We propose significant flexibility for states in meeting this
standard, specifically that states set the composition of the
stakeholder group and the frequency of meetings to ensure meaningful
stakeholder engagement. Our proposal specifically uses a
``sufficiency'' standard rather than setting quantitative parameters
for the composition of the group or the frequency of meetings. We
request comments on the overall approach for these changes, as well as
on the composition of the stakeholder group, stakeholder group
responsibilities, and approach to meeting frequency for both states and
managed care plans.
In concert with the new Sec. 438.70, we also propose a new Sec.
438.110. While the stakeholder group proposed in Sec. 438.70 is
maintained by the state, each MCO, PIHP, and PAHP should establish a
regular process to solicit direct input on the enrollees' experiences.
Therefore, in paragraph (a), we propose that for any MCO, PIHP, or PAHP
contract that includes LTSS, the MCO, PIHP, or PAHP must establish and
maintain a member advisory committee. Paragraph (b) proposes that the
committee include a reasonably representative sample of the covered
LTSS populations. We included PAHPs in this standard, because we
understand there are some PAHPs in operation that cover LTSS.
6. Modernize Regulatory Standards
a. Availability of Services, Assurances of Adequate Capacity and
Services, and Network Adequacy Standards (Sec. 438.206, Sec. 438.207,
Sec. 438.68, Sec. 440.262)
Assessment of the network adequacy of contracted MCOs, PIHPs, and
PAHPs is a primary component of our determination of a state's
readiness to implement and sustain managed care programs. Under section
1932(b)(5) and (c)(1)(A)(i) of the Act, respectively, an MCO must
provide assurances about its capacity and ability to provide services
and a state must develop a quality assessment and improvement strategy
for its managed care program that includes access standards for
enrollees. Relying on this authority and on section 1902(a)(4) of the
Act, we established in the 2002 Medicaid managed care final rule
standards for the availability of services and assurances of adequate
capacity from MCOs, PIHPs, and PAHPs. Since that time, our ongoing work
with states has revealed variation in how states define adequate health
plan networks and the frequency with which states evaluate MCO, PIHP,
and PAHP network adequacy. The OIG conducted a study of network
adequacy standards used by states and confirmed our findings regarding
a high level of variation in evaluation method and frequency: http://oig.hhs.gov/oei/reports/oei-02-11-00320.pdf. We propose a new
regulation section and revisions to existing regulations to establish
minimum standards in this area. The proposed changes aim to maintain
state flexibility while modernizing the current regulatory framework to
reflect the maturity and prevalence of Medicaid managed care delivery
systems, promote processes for ensuring access to care, and align,
where feasible, with other private and public health care coverage
programs. To that end, we propose to set standards to ensure ongoing
state assessment and certification of MCO, PIHP, and PAHP networks, set
threshold standards for the establishment of network adequacy measures
for a specified set of providers, establish criteria for developing
network adequacy standards for MLTSS programs, and ensure the
transparency of network adequacy standards. These proposed changes
would create a new Sec. 438.68 specific to the development of network
adequacy standards for medical services and LTSS and modify Sec.
438.206 and Sec. 438.207.
(1) Requirements for the Network Adequacy Standards Set by the State
for a Specified Set of Providers (Sec. 438.68)
As discussed above, our current regulatory framework provides
states with significant flexibility to determine whether an MCO, PIHP,
or PAHP adequately makes services accessible and available to enrollees
under the managed care contract. In addition, our regulations were
developed at a time when managed care for the delivery of LTSS was
extremely limited and involved only a handful of programs limited in
geographic scope. We propose to establish standards for states to
follow in the development of Medicaid managed care network adequacy
standards that address medical services, behavioral health services,
and LTSS. In accordance with our underlying goal to align Medicaid
managed care standards with other public programs where appropriate, we
analyzed the network adequacy standards applicable under the
Marketplace and the MA program to inform our proposed rule. As
background, we provide a short summary of the standards utilized by
these programs below.
A health plan offered by an issuer must be certified as a Qualified
Health Plan (QHP) to offer coverage in the Marketplace. To meet QHP
certification standards, health plans must maintain a network that: (1)
Includes essential community providers; (2) is sufficient in number and
types of providers,

[[Page 31145]]

including providers that specialize in mental health and substance use
disorder services, to assure that all services would be accessible
without unreasonable delay; and (3) is consistent with the network
adequacy provisions of section 2702(c) of the PHS Act. See 45 CFR
156.230(a). The Marketplace standard of requiring a health plan to
ensure a sufficient number and types of providers is included in a
network to ensure accessibility of services is similar to Medicaid
managed care standards. To ensure this standard is met, the Federally
Facilitated Marketplace (FFM) receives attestations from organizations
applying for certification of their health plans as QHPs. During 2014,
the FFM utilized a combination of issuer accreditation status, the
identification of states with review processes at least as stringent as
the QHP certification standard, and network access plans as part of its
evaluation of health plans' network adequacy. In the Final 2015 Letter
to Issuers, the FFM discussed its policies about network adequacy and
accessibility of services in connection with QHP certification. (http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf, pp.17-18). For 2015 and 2016
certification, the FFM has moved to assessing provider networks using a
``reasonable access'' standard to identify networks that fail to
provide access without unreasonable delay, focusing on those areas
which have historically raised network adequacy concerns, including
hospital systems, mental health providers, oncology providers, and
primary care providers.
CMS has a detailed approach for setting standards in the MA program
that includes the minimum number of providers, maximum travel time, and
maximum travel distance per county for all provider types covered under
the MA organization contract. To determine the minimum number of
providers per county, we calculate the 95th percentile of beneficiaries
to cover based on annual MA enrollment and the designation of a county
as large metro, metro, micro, rural or Counties with Extreme Access
Criteria (CEAC). To establish minimum provider ratios for all provider
types in MA organizations, CMS relies on primary and secondary research
on utilization patterns and clinical needs of the covered population to
calculate the number of providers per 1,000 beneficiaries per county.
We also set time and distance criteria by interfacing mapped
beneficiary residence locations against provider practice locations.
Health plans applying for MA participation must ensure that at least 90
percent of the beneficiaries residing in a county have access to at
least one provider or facility of each type within the published time
and distance criteria and must complete a comprehensive worksheet
demonstrating compliance with these standards per desired counties. If
an applicant's network does not meet the criteria, we would issue a
deficiency notice, which would trigger the applicant's ability to
request an exception to the minimum number of providers and/or maximum
time/distance criteria for a particular provider type. A template
outlines specific supporting documentation that the applicant must show
that local community patterns of care support the proposed provider
network for which the applicant is requesting an exception. For a
further guidance on the network adequacy criteria for MA organizations,
see http://www.cms.gov/Medicare/Medicare-Advantage/MedicareAdvantageApps/Downloads/CY2014-HSD-Provider-and-Facility-Specialties-Criteria-Guidancev2.pdf.
In the existing rules for Medicaid managed care and the rules
finalized for Marketplaces and QHPs, the network adequacy standards are
similar in that we did not establish detailed and specific time and
distance standards or provider to enrollee ratios but deferred to each
Marketplace or state to develop specific standards; our regulatory
framework in both cases relies heavily on attestations and
certifications from the applicable health plan, with supporting
documentation, about the adequacy of the network. Consistent with the
primary role of states in this, we intend to keep that general approach
for the Medicaid program, rather than taking the more detailed approach
used in the MA program. This approach is also consistent with our role
in the Medicaid managed care context compared to MA; while we have an
oversight and administrative role in both cases, the state has the
primary responsibility for administering and monitoring the Medicaid
managed care program. We propose to add a new Sec. 438.68 that would
stipulate that the state must establish, at a minimum, network adequacy
standards for specified provider types.
Proposed paragraph (a) specifies that a state that contracts with
an MCO, PIHP, or PAHP must develop network adequacy standards that
satisfy the minimum parameters in Sec. 438.68. This proposed provision
is the counterpart to our proposal at Sec. 438.206 that the state
ensures that enrollees of MCOs, PIHPs, and PAHPs have access to all
services covered under the state plan in a manner that is consistent
with the state-set standards for access and availability. These
proposed regulations would apply to contracts that cover medical
services, behavioral health services, and LTSS; the standards for LTSS
proposed in (b)(2) and (c)(2) are described in the MLTSS-specific
discussion at the end of this section.
Proposed paragraph (b)(1) would stipulate that states must
establish time and distance standards for the following network
provider types: Primary care (adult and pediatric); OB/GYN; behavioral
health; specialist (adult and pediatric); hospital; pharmacy; pediatric
dental; and additional provider types when it promotes the objectives
of the Medicaid program for the provider type to be subject to such
time and distance standards. We intend this proposal to be applicable
only to the services covered under the MCO, PIHP, or PAHP contract. We
propose that states, at a minimum, establish time and distance
standards as such standards are currently common in the commercial
market and many state Medicaid managed care programs; further, we
believe time and distance standards present a more accurate measure of
the enrollee's ability to have timely access to covered services than
provider-to-enrollee ratios. We request comment on whether we should
propose a different national type of measure for states to further
define, such as provider-to-enrollee ratios, or whether we should
permit states the flexibility to select and define the type of measure
for the network's adequacy of the specified provider types.
Additionally, we request comment on whether we should define the actual
measures to be used by states such that we would set the time and
distance or provider-to-enrollee ratio standard per provider type, per
county, or other appropriate geographic basis.
Given the large number of pediatric Medicaid enrollees, we believe
it is important for states and plans to specifically include pediatric
primary, specialty, and dental providers in their network adequacy
standards. Network adequacy is often assessed without regard to
practice age limitations which can mask critical shortages and increase
the need for out-of-network authorizations and coordination. We request
comment on whether standards for behavioral health providers should
distinguish between adult and pediatric providers. We considered adding
family planning providers to the list of providers that would be
subject to time and distance standards but declined to do so because
section 1902(a)(23) of the Act guarantees freedom of choice of

[[Page 31146]]

family planning providers and providers of family planning services
would include physicians and OB/GYNs. We request comment on this
approach.
Appreciating that provider networks can vary between geographic
areas of a state and states have different geographic areas covered
under managed care contracts, as proposed in paragraph (b)(3), states
would have to establish time and distance standards for specified
provider types that reflect the geographic scope of the program. Our
proposal would permit states to vary those standards in different
geographic areas to account for the number of providers practicing in a
particular area. Our proposal would not limit states to only the
mandatory time and distance standards but also would have states
consider additional elements when developing network adequacy
standards.
Proposed paragraph (c)(1) specifies the minimum factors a state
must consider in developing network adequacy standards; most of the
elements proposed here are currently part of Sec. 438.206(b)(1) as
considerations for MCOs, PIHPs, and PAHPs in developing their managed
care networks. These are: Anticipated Medicaid enrollment; expected
utilization of services; taking into account the characteristics and
health needs of the covered population; number and types of health care
professionals needed to provide covered services; number of network
providers that are not accepting new Medicaid patients; and the
geographic location and accessibility of the providers and enrollees.
Disparities in access to care related to demographic factors such
as race, ethnicity, language, or disability status are, in part, a
function of the availability of the accessible providers who are
willing to provide care and are competent in meeting the needs of
populations in medically underserved communities. Additionally, new
enrollees in Medicaid managed care, including those who are dually
eligible for Medicare and Medicaid, may present with multiple chronic
conditions and need the services of multiple specialists. Absent an
adjustment for new populations enrolled in a state's Medicaid managed
care program, existing plan networks may be inadequate to meet new
enrollees' needs.
Accordingly, we propose changes to the factors that we are
proposing to move from current Sec. 438.206(b)(1). We propose to make
existing Sec. 438.206(b)(1)(ii) into separate factors that the state
must consider: Expected utilization and the characteristics and health
needs of the covered population; these would be codified as Sec.
438.68(c)(1)(ii) and (iii) and use substantially the same language as
in the current regulation. Similarly, we propose two separate factors,
to be codified at Sec. 438.68(c)(1)(vi) and (viii), in place of the
current Sec. 438.206(b)(1)(v), which are geographic location and
accessibility. Although we propose to use the same language regarding
geographic considerations, we propose in Sec. 438.68(c)(1)(viii) that
each state must also consider the ability of providers to ensure
physical access, accommodations, and accessible equipment available for
Medicaid enrollees with physical or mental disabilities, with proposed
additional standards that the accommodations be reasonable and that the
ability of providers to ensure culturally competent communication be
considered as well. Also, we propose to add a new element, at proposed
paragraph (c)(1)(vii), so that states must also consider the ability of
network providers to communicate with limited English proficient
enrollees in their preferred language when the state is developing time
and distance access standards.
In effect, our proposal is that the states develop standards by
which to review the provider networks used in Medicaid managed care,
which should ensure that these elements are also taken into
consideration by MCOs, PIHPs, and PAHPs that maintain and monitor the
provider networks. We intend that compliance with our proposal would be
best met if states look to standards established by the insurance
regulator (for example, Department of Insurance, or similar agency
within the state) for commercial insurance, and the standards set under
the MA program, as well as historical patterns of Medicaid
utilization--including utilization specific to sub-populations that may
be more relevant to the Medicaid program than in commercial or Medicare
markets--to inform the standards the state establishes for Medicaid
managed care programs under Sec. 438.68. The time and distance
standards per county are published annually in the MA Health Services
Delivery (HSD) Reference file, which is accessible at the MA
Applications page at http://www.cms.gov/Medicare/Medicare-Advantage/MedicareAdvantageApps/index.html?redirect=/MedicareAdvantageApps/.
While we are not proposing to dictate the particular time and distance
standards or set a quantitative minimum to be adopted by a state, we
intend to assess the reasonableness of the particular standard adopted
by a state under our proposed Sec. 438.68 within the context of other
existing standards should the need for such evaluation arise.
We recognize that situations may arise where a MCO, PIHP, or PAHP
may need an exception to the state established provider network
standards. A number of states currently permit exceptions, and have a
process for seeking exceptions, under the state standards imposed on a
managed care entity under existing Sec. Sec. 438.206 and 438.207.
Therefore, proposed Sec. 438.68(d) provides that, to the extent a
state permits an exception to any of the provider network standards,
the standard by which an exception would be evaluated must be specified
in the contract and must be based, at a minimum, on the number of
health care professionals in that specialty practicing in the service
area. Under our proposal, the state must monitor enrollee access to
providers in managed care networks that operate under an exception and
report its findings to us as part of its annual managed care program
monitoring report provided under proposed Sec. 438.66. We invite
comment on our proposal related to exceptions a state may grant to its
network adequacy standards established by the state for Medicaid MCOs,
PIHPs, or PAHPs.
Finally, in proposed paragraph (e), to promote transparency and
public input for these managed care network adequacy standards, states
would have to publish the network adequacy standards developed in
accordance with Sec. 438.68 on the Medicaid managed care Web site
under Sec. 438.10. In addition, states would have to make these
standards available at no cost, upon request, to individuals with
disabilities through alternate formats and using auxiliary aids and
services.
(2) Criteria for Developing Network Adequacy Standards for MLTSS
Programs (Sec. 438.68(b)(2) and (c)(2))
Unlike medical and behavioral health services, there are no
commonly used access standards for LTSS in the commercial market or in
Medicare, as LTSS are primarily covered through Medicaid. As states
have begun to deliver LTSS through managed care, they have created
standards for their individual programs, which vary widely. Likewise,
the level of oversight by the state that is necessary to enforce
network adequacy standards for LTSS provided through managed care
contracts varies, ranging from a minimal level of effort to an in-depth
review of

[[Page 31147]]

service plan authorizations compared to actual claims experience. We
expect that, as MLTSS programs mature, states and managed care plans
would develop innovative ways to ensure access to a high quality
network of LTSS providers. As those initiatives evolve, we propose here
minimum standards for how states adopt network adequacy standards to
ensure the availability of critical services and supports for
beneficiaries as more of them transition to MLTSS programs.
LTSS is commonly thought of as being provided in a beneficiary's
home, like personal care services, but LTSS can also be delivered in a
provider's office, in various community locations, such as places of
employment or recreation, and in an institution. Therefore,
considerations for setting network adequacy standards should include
time and distance, and other standards for ensuring access to adequate
services. In Sec. 438.68(b)(2), we propose that states set standards
that encompass time and distance and other measures of access when
delivering LTSS through their managed care plans; the type of standard
that the state would have to adopt under our proposal depends on
whether the enrollee or the provider must travel to provide the
services. While we do not specify a specific set of providers in our
LTSS-specific proposal, we expect the state to consider all LTSS
delivered through managed care when developing the standards which may
include, but are not limited to, institutional, community-based,
residential, and employment supports providers, depending on the
program. Proposed paragraph (c)(2) sets forth the elements that states
would have to consider when developing standards for LTSS in a managed
care program. Under our proposal, when developing time and distance
standards, states would consider the same elements as when setting
medical services network standards and also consider strategies to
ensure the health and welfare of enrollees using LTSS and to support
community integration of individuals receiving LTSS. LTSS enrollees may
have different needs than those enrollees only using acute, primary,
and behavioral health services. For example, assessing network adequacy
for individuals receiving LTSS in their place of residence may be based
on enrollee-to-provider ratios. Additionally, the ability of the
enrollee to choose a provider is a key protection that must be
considered when developing network standards for MLTSS so we propose to
include that here. Supporting health and welfare and choice of provider
are important tenets already in place in the LTSS FFS system and MLTSS
should maintain those protections. Finally, our proposal includes a
substantive standard which we would apply to determine if states must
include other considerations under Sec. 438.68(c)(2)(iv).
(3) Availability of Services (Sec. 438.206 and Sec. 440.262)
Currently, in Sec. 438.206, states have to ensure that all
services covered under the state plan are available and accessible to
enrollees of MCOs, PIHPs, and PAHPs. Throughout Sec. 438.206, we
propose to use the terms ``network provider'' and ``health care
professional'' as applicable to be consistent with the proposed new
definitions of these terms (see section I.B.8. of this proposed rule)
and to provide greater clarity to our regulations. We consider such
proposed changes largely technical in nature.
We propose to revise paragraph (a), which currently sets forth the
basic rule for the availability of services, to add a new sentence such
that states must ensure that MCO, PIHP, and PAHP provider networks for
services covered under the MCO, PIHP, or PAHP contract meet the state's
network adequacy standards established under proposed Sec. 438.68. In
this paragraph, we also propose to clarify that services are to be made
available and accessible in a timely manner. The timeliness standard is
currently in paragraph (b)(4), pertaining to access to out-of-network
providers, and in paragraph (c)(1); therefore we believe it is
appropriate to incorporate timeliness into the general rule for
availability of services in paragraph (a).
In paragraph (b), we propose substantive changes only to (b)(1) and
(b)(5). We propose to move the second sentence of (b)(1) and the
provisions at existing paragraphs (b)(1)(i) through (b)(1)(v) to the
new Sec. 438.68(c) so that all regulatory standards related to the
measurement of adequate MCO, PIHP, and PAHP provider networks are
contained in one section. We propose to add text to (b)(1) to clarify
that the sufficiency and adequacy of the provider network and access to
services is for all enrollees, including those with limited English
proficiency and physical or mental disabilities. We propose to amend
paragraph (b)(5) to include PAHPs in the payment standard for covered
services that are provided out-of-network. We consider this a technical
correction as the preamble for the 2002 final rule refers to PAHPs (67
FR 41038) and we believe PAHPs were inadvertently excluded from the
final regulatory text.
Currently, in paragraph (c)(1), MCOs, PIHPs, or PAHPs have to
follow state-defined timely access standards for services covered under
the contract, and such standards must be enumerated in the MCO, PIHP,
or PAHP contract. We do not propose any substantive changes to existing
paragraph (c)(1) but are proposing changes to improve the readability
and clarity of the regulation text. We also clarify our intent to
interpret and apply the provisions here as requiring states to set
standards for timely access to all state plan services covered under
the managed care contract. For purposes of setting timely access
standards, state plan services may be reasonably classified as routine,
urgent, or emergency care. We believe that for access standards to be
effective, states will need to have mechanisms in place for ensuring
that those standards are being met by the managed care plan networks.
We considered requiring a mix of approaches, such as conducting
enrollee surveys, reviewing encounter data, calculating and reporting
of HEDIS measures related to access, implementing secret shopper
efforts, and a systematic evaluation of consumer service calls. We
request comment on approaches to measuring enrollee's timely access to
covered services and to evaluating whether managed care plan networks
are compliant with such standards. We also request comment on the value
of requiring some or all of these mechansims for ensuring that access
standards are being met.
In paragraph (c)(2), we propose to add to the standards to ensure
that MCOs, PIHPs, and PAHPs participate in states' efforts to promote
access in a culturally competent manner to all enrollees. This includes
those with limited English proficiency, diverse cultural and ethnic
background, disabilities, and regardless of an enrollee's gender,
sexual orientation, or gender identity. We are also proposing to add a
corresponding standard in a new Sec. 440.262 so that the state would
similarly ensure nondiscrimination in access to services under FFS. We
believe that the obligation for the state plan to promote access and
delivery of services without discrimination is necessary to assure that
care and services are provided in a manner consistent with the best
interest of beneficiaries under section 1902(a)(19) of the Act. The
best interest of beneficiaries is appropriately met when access is
provided in a non-discriminatory manner; adopting these additional
methods of administration is also necessary for the proper operation

[[Page 31148]]

of the state plan under section 1902(a)(4) of the Act.
We propose to add a new paragraph (c)(3) to emphasize the
importance of network providers having the capabilities to ensure
physical access, accommodations, and accessible equipment for the
furnishing of services to Medicaid enrollees with physical or mental
disabilities. This is mirrored in proposed Sec. 438.68(c)(1)(vii)
relating to considerations for developing network adequacy standards.
(4) Assurances of Adequate Capacity and Services (Sec. 438.207)
Currently in Sec. 438.207(a), states have to ensure, through the
contracts and submission of assurances and documentation from managed
care entities, that the managed care health plans have the capacity to
serve the expected enrollment in accordance with state-set standards
for access to care; under current Sec. 438.207(b), the specified
documentation must demonstrate the adequacy of the range of covered
services and the provider network. We propose to keep the existing
regulation text in paragraphs (a) and (b) substantially the same, with
a minor amendment to specify in paragraph (b)(1) that supporting
documentation must also address LTSS. This change is consistent with
the broader proposal to incorporate LTSS throughout part 438, where
applicable. Although we do not specifically reference LTSS anywhere
else in our proposals for Sec. 438.206 or Sec. 438.207, the standards
outlined in those sections are applicable to all managed care programs,
including MLTSS.
Under current Sec. 438.207, states, through their contracts, must
stipulate that MCOs, PIHPs, and PAHPs to submit documentation that
their network is sufficient in number, mix, and geographic distribution
to meet, in accordance with state-set standards, the needs of
anticipated enrollees. Under paragraph (c), such documentation must be
submitted at least at the time MCOs, PIHPs and PAHPs enter into a
contract with the state or at any time there has been a significant
change in operations that would affect the adequacy of the network. The
state has a corresponding responsibility, under paragraph (d), to
review the documentation and certify to CMS that the applicable MCO,
PIHP, or PAHP meets the state's standards for availability of services.
Appreciating that health plan networks are not static, we have
considered the periodicity at which network adequacy documentation
should be submitted by plans to be reviewed and certified by states. We
propose to amend Sec. 438.207 so that health plans have to submit
documentation and the state to certify the adequacy of the provider
networks on at least an annual basis. We request comment on the
appropriate timeframe for submission and review of network
certification materials.
To implement this proposal, we propose to amend paragraph (c)(2) to
add annual submission of the documentation and to redesignate the
regulation text currently at Sec. 438.207(c)(2) as (c)(3), which,
stipulates submission of documentation of adequate networks when there
has been a significant change in the health plan's operations that
would affect capacity and services; we consider such changes as
warranting a reexamination of provider networks outside of an annual
cycle. As in the existing regulation, changes such as enrollment of a
new population or changes in benefits, service area, or payment would
trigger a submission of documentation. We propose that a significant
change in the composition of a MCO, PIHP, or PAHP's network itself
would also trigger a submission of documentation to be codified in
Sec. 438.207(c)(3)(i). For example, a significant change in the
composition of the provider network would occur when the only
participating hospital terminates the provider contract, or similarly
when a hospital that provides tertiary or trauma care exits a health
plan network. We also propose minor edits to introductory text in
paragraph (c)(3) to improve the readability of the paragraph.
In paragraph (d) of Sec. 438.207, addressing the obligation of the
state to review documentation from the MCO, PIHP, or PAHP and submit an
assurance to us that the managed care plan meets the state's standards
for access to services, we propose to add an explicit standard that the
submission include documentation of the analysis supporting the
certification of the network for each contracted MCO, PIHP, or PAHP. We
believe that this is appropriate because it would demonstrate to us how
the state evaluates plan compliance with state standards and that the
state's assurance is supported by the data. In addition, we are
proposing to replace the word ``certify'' with ``submit an assurance of
compliance'' to more clearly describe the responsibility of the state
under paragraph (d). Finally, we are not proposing any revision to
Sec. 438.207(e), which establishes our right to inspect the
documentation provided under Sec. 438.207. We request comments on the
overall approach to Sec. 438.207.
b. Quality of Care (Subparts D and E of Part 438)
Section 1932(c) of the Act established quality assurance standards
for Medicaid managed care programs, specifically, a quality assessment
and improvement strategy and an external independent review of
contracting MCOs. Regulations at 42 CFR part 438, subparts D (Quality
Assessment and Performance Improvement) and E (External Quality Review)
implemented this statute; subpart D became effective on August 13, 2002
(67 FR 40989) and subpart E became effective on March 25, 2003 (68 FR
3586). Based on our authority under section 1902(a)(4) of the Act, we
expanded the scope of the regulations to capitated entities in addition
to MCOs. The existing regulations describe quality standards for all
states contracting with MCOs, PIHPs, and in some cases PAHPs, for the
delivery of Medicaid services to beneficiaries. This proposed rule
would modify these standards.
Approaches to assessing quality, access, and timeliness of care
have evolved significantly over the past 10 years. At the federal
level, CHIPRA, the American Recovery and Reinvestment Act (ARRA), the
Affordable Care Act, the National Quality Strategy, and the CMS Quality
Strategy all build on one another to decrease burdens, improve
alignment, and encourage innovative approaches to quality measurement
and improvement. In developing this proposed rule, we recognized how
states have expanded the use of managed care for the delivery of
primary care, acute care, behavioral health services, and LTSS to
Medicaid beneficiaries. Throughout the rule, we propose changes to
maximize the opportunity to improve health outcomes over the lifetime
of individuals. Specifically, we propose to strengthen quality
measurement and improvement efforts in managed care by focusing on the
following three principles:
1. Transparency: Public reporting of information on quality of care
is a widely recognized tool for driving improvements in care. A key
component in designing health care quality transparency initiatives is
the use of meaningful and reliable data that is comparable across
health plans, providers, and programs. The regulatory changes proposed
here are intended to improve transparency with the goal of increasing
both state and health plan accountability in the quality of care
provided to Medicaid beneficiaries. This would help stakeholders
(including consumers) to engage in informed advocacy, compare the
performance of

[[Page 31149]]

providers and health plans, and make informed program and plan choices.
2. Alignment with other systems of care: Aligning, where
appropriate, quality standards for Medicaid managed care with that of
MA and the Marketplace would result in a simplified and integrated
approach to quality measurement and improvement. The regulatory changes
proposed here would incorporate the theme of alignment by improving
oversight and strengthening programmatic operations to result in more
comprehensive, coordinated care across states, and a reduction of
administrative burden where possible.
3. Consumer and Stakeholder Engagement: Consumer and stakeholder
engagement is particularly important when designing an approach to
measuring quality for Medicaid managed care, including programs
delivering LTSS. Providing consumers with information about their
health plan is one tool for engaging them in health care decision-
making; however, another useful tool is consumer participation in the
development of state strategies for improving care and quality of life.
The regulatory changes proposed here would strengthen the role of the
consumer in health care decision-making through new tools to enhance
active engagement.
(1) Proposed Revisions of Subpart D
(a) Subpart D Title and Sub-Headings
As discussed in the proposed revisions to subpart E below, sections
related to the quality strategy found in subpart D would be moved to
subpart E. We propose to make minor conforming changes to subpart D and
to change the name from ``Quality Assessment and Performance
Improvement'' to ``MCO, PIHP, and PAHP Standards.'' We believe this
change would more accurately describe the remaining sections of subpart
D, which address MCO, PIHP, and PAHP activities, some of which are
measured as part of the state quality strategy. Additionally, we
propose to remove the subheadings found in subpart D to be consistent
with the remaining subparts in part 438. These subheadings would no
longer be necessary because the section titles discuss what types of
standards are found in subpart D.
(b) Removal of Sec. 438.200, Sec. 438.202, Sec. 438.218, and Sec.
438.226
As mentioned in section I.B.6.b(1)(a), the proposed consolidation
of all quality-related standards under subpart E would render Sec.
438.200, which describes the quality-centric scope of subpart D,
unnecessary. We propose to remove Sec. 438.200 in its entirety.
We propose to remove Sec. 438.202, due to the standards we propose
in the new part 431, subpart I.
We propose to remove Sec. 438.218, which incorporates enrollee
information standards in Sec. 438.10 into the state's quality
strategy. Proposed changes to both enrollee information standards at
Sec. 438.10 and the elements of a state's comprehensive quality
strategy at Sec. 438.340 would render Sec. 438.218 duplicative and
unnecessary.
Similarly, we propose to remove Sec. 438.226, which incorporates
the enrollment and disenrollment standards in Sec. 438.56 into the
state's comprehensive quality strategy. Because we propose deleting
these elements from inclusion in a state's comprehensive quality
strategy (see Sec. 438.340), it would render Sec. 438.226
unnecessary.
(2) Proposed Revisions of Subpart E
(a) Scope (Sec. 438.310)
This section currently explains the basis, scope, and applicability
of subpart E, which provides details on the external quality review
(EQR) process for MCOs and PIHPs. Generally, subpart E covers the
selection of EQR reviewers, their qualifications, types of EQR-related
activities, the availability of EQR results, and the circumstances in
which a Medicare or private accreditation review may be used to satisfy
elements of the EQR. Because we propose to move and revise the existing
standards related to both the managed care quality strategy and the
quality assessment and performance improvement program from subpart D
to subpart E, we propose in paragraph (a) to include section 1932(c)(1)
of the Act as part of the statutory basis for the quality strategy
provisions. In addition, we propose to include section 1902(a)(19) of
the Act as part of the statutory basis, which maintains that each state
``provide such safeguards as may be necessary to assure that
eligibility for care and services under the plan will be determined,
and such care and services will be provided, in a manner consistent
with simplicity of administration and the best interests of the
recipients.'' We believe this authority would be applicable to both
existing provisions of the regulation and some of our proposed changes.
Under the existing quality provisions, states contracting with MCOs
and PIHPs must draft and implement a quality strategy and all MCOs and
PIHPs must undergo an annual EQR. As states expand their use of managed
care for other services or populations, it is increasingly important to
develop a comprehensive approach to measuring and improving quality.
Because some PAHPs might provide dental or behavioral health services,
we propose that states address such plans in the state's comprehensive
quality strategy, with performance results publicly available in the
EQR technical reports. Therefore, we propose to rely on the authority
of section 1902(a)(4) of the Act to apply the quality standards of
section 1932(c) of the Act to PAHPs and PIHPs. Throughout subpart E, as
well as in Sec. 438.10, we propose the addition of ``PAHPs'' as
necessary to reflect this proposal. Currently, some PAHPs function as
brokers of non-emergency medical transportation (NEMT), so much of
subparts D and E would not apply to these NEMT PAHPs. The provisions
that apply to NEMT PAHPs are discussed in the proposed changes to Sec.
438.9.
We also propose to delete the specific reference to health insuring
organizations (HIOs), throughout this subpart E because with the
exception of those HIOs that are expressly exempt by statutory law,
HIOs under our proposal would be treated in the same manner as a MCO.
We propose in Sec. 438.310(b) to identify the scope of subpart E,
including specifications for a process ensuring review and approval of
managed care plans, quality ratings, the quality strategy, and external
quality reviews. In paragraph (c)(1), we propose that these
specifications apply to MCO, PIHPs, and PAHPs (including certain HIOs
as mentioned in this proposed rule). Finally, we propose in Sec.
438.310(c)(2) to address the elements related to quality assessment and
improvement for states contracting with PCCM entities. Specifically, we
propose that states assess the performance of PCCM entities consistent
with Sec. 438.3(r); such assessment would include a review of at least
the mechanisms to detect under- and over-utilization of services,
performance measures, and program review (by reference to specific
provisions proposed at Sec. 438.330).
(b) Definitions (Sec. 438.320)
This section currently defines terms related to the EQR process,
including EQR, EQRO, financial relationship, quality, and validation.
We do not propose to change the definitions for EQR, financial
relationship, and validation, other than the addition of ``PAHP'' as
necessary. Because the EQR process involves an analysis and evaluation
of the quality, timeliness, and access to services that a health plan
furnishes, we propose adding a

[[Page 31150]]

definition for access and to update the definition of quality. We also
propose to clarify the definition of ``external quality review
organization.''
The current regulations do not include a definition for access;
however, there are availability of services standards in Sec. 438.206
and proposed network adequacy standards in Sec. 438.68. We propose a
new definition for access, as it pertains to EQR, by referring to the
timely provision of services in accordance with the network adequacy
standards proposed in Sec. 438.68 and availability of services
standards in Sec. 438.206.
The current regulations define ``external quality review
organization'' (EQRO) in terms of its qualifications and the services
it performs, namely the competence and independence standards in Sec.
438.354, and the EQR and other EQR-related activities set forth in
Sec. 438.358. We propose revising this definition to clarify that an
entity must also hold an active contract with a state to perform EQR or
EQR-related activities to be considered an EQRO. Therefore, an entity
itself would not be considered an EQRO if it has not yet entered into
an EQRO arrangement with a state even if it meets all qualifications
for entering into such a contract. We believe that this is implicit in
our current regulations and propose this primarily as a clarification.
The current regulations define quality, as it pertains to EQR, as
``the degree to which a MCO or PIHP increases the likelihood of desired
health outcomes of its enrollees through its structural and operational
characteristics and through the provision of health services that are
consistent with current professional knowledge.'' We propose to modify
this definition to reflect that this professional knowledge be
evidence-based and supported by current science. We believe that
modifying the definition in this way would recognize the current
efforts that states and their plans engage in to stay up-to-date on the
latest scientific findings and translate those findings into effective
clinical practices. We also propose to modify this definition by tying
performance measure trends and performance improvement outcomes to the
definition of quality (which, for individuals receiving MLTSS, would
include considerations around quality of life). We believe this would
highlight the importance of the relationship between these efforts and
overall plan quality and is supported by our proposed use of
standardized performance measurement tools.
(c) Quality Assessment and Performance Improvement Program (Sec.
438.330, Formerly Sec. 438.240)
The current Sec. 438.240 describes standards related to a quality
assessment and performance improvement program. In our proposed Sec.
438.330(a)(1), we would carry over this standard, and again, propose
incorporating PAHPs for the reasons mentioned elsewhere in this
preamble. Since the finalization of the managed care rules in 2002, the
scope of managed care in states has greatly expanded. We propose
including the word ``comprehensive'' to signal that states should
consider all populations and services covered by managed care when
developing quality assessment and performance improvement standards for
their contracted managed care health plans.
In Sec. 438.330(a)(2), we propose to revise the existing
regulatory language at Sec. 438.240(a)(2) to permit us, in
consultation with states and other stakeholders, to specify
standardized performance measures and topics for performance
improvement projects (PIPs) for inclusion alongside state-specified
measures and topics in state contracts with their MCOs, PIHPs, and
PAHPs. We propose to add that we would also establish a methodology for
quality ratings, which is discussed in more detail below in connection
with our proposed Sec. 438.334. Our proposed addition of ``through a
public notice and comment process'' would clarify the manner in which
CMS would proceed with this set of performance measures and/or PIP
topics. We propose this would be accomplished after notice and public
comment to ensure that states, beneficiaries, and other stakeholders
have the opportunity to provide input during the measure selection
process. However, our proposal would also continue to support
flexibility for states to adopt state-specific performance measures and
performance improvement topics for their managed care plans.
We propose, in Sec. 438.330(a)(2)(ii), to adopt a mechanism for an
exemption from the nationally identified PIP topics and metrics for
states that request one. Reasons for an exemption might be if a
selected measure is not applicable to the population enrolled in a
state's managed care program (for example, a measure related to
behavioral health services, but the state carves those services out of
managed care); if the number of enrollees for a particular measure is
too small to calculate the measure; or if a MCO's, PIHP's, or PAHP's
performance on a particular measure has exceeded the 90th percentile
for more than 3 years in a row. We are considering whether these or
other criteria are appropriate for the exemption process and invite
comment on other instances in which a state may believe an exemption
would be necessary.
In paragraph (b), we propose to recodify and slightly reorganize
the substance of existing Sec. 438.240(b) consistent with our proposal
to move all quality program provisions to subpart E. In paragraph
(b)(1), for purposes of reorganization and consolidation of standards
related to PIPs, we propose moving the description of what PIPs are
designed to achieve to paragraph (d). This would result in having all
PIP-specific details in one place. In paragraph (b)(2), we propose to
modify the existing language from ``submit performance measurement
data'' to ``collect and submit performance measurement data.'' We
believe this change would clarify that the collection of relevant data
is necessary as part of the submission process.
We recognize that MCOs, PIHPs, and PAHPs delivering LTSS should
evaluate and measure the quality and appropriateness of services in a
manner that is designed for LTSS and the population receiving those
services (for example, inclusion of quality of life measures when
selecting performance measures). Because of this, we propose in
paragraph (b)(5) that MCOs, PIHPs, and PAHPs have specialized
mechanisms to assess the quality and appropriateness of care furnished
to enrollees receiving LTSS. This would include an assessment of the
care that individuals receive when moving to different service
settings, such as residential to community (or vice versa) or
residential to hospital (or vice versa). We encourage states to
consider including language in their MCO, PIHP, and PAHP contracts that
incorporates the use of surveys to assess the experience of
beneficiaries receiving LTSS as a key component of the plan's LTSS
assessment process. We solicit comment on the current use of such
surveys and how they may best be used to improve the delivery of LTSS
to beneficiaries and to improve their experience of care. We also
propose that MCOs, PIHPs, and PAHPs compare the services that an
individual receiving LTSS has obtained with those that were in the
individual's LTSS treatment plan. Lastly, we propose in paragraph
(b)(6) that MCOs, PIHP, and PAHPs participate in efforts by the state
to prevent, detect, and remediate critical incidents, based on
applicable standards on the state for home and community based waiver
programs.

[[Page 31151]]

In paragraph (c)(1), we propose to delete the reference to Sec.
438.204(c), as we propose removing this from the managed care elements
for inclusion in a state's comprehensive quality strategy, as described
in the proposed Sec. 438.340 (currently Sec. 438.204); our other
proposed revisions to paragraphs (c)(1) through (c)(3) are to conform
it to the remainder of our proposal and to incorporate PAHPs.
We propose the addition of paragraph (c)(4), which would focus on
performance measurement as it relates to LTSS. Under this proposal,
MCOs, PIHPs, and PAHPs that provide LTSS would include, in addition to
other performance measures under paragraphs (c)(1) through (c)(3),
LTSS-specific performance measures that examine, at a minimum,
beneficiaries' quality of life and a plan's rebalancing and community
integration outcomes. We expect these measures would support and align
with a plan's quality assessment and performance improvement program
function as proposed in paragraph (b)(5). States whose MLTSS programs
include a self-direction option should consider including measures
specific to self-direction under this paragraph.
As mentioned above, we propose moving the description of what a PIP
is designed to achieve to paragraph (d)(1) for purposes of better
organization and readability. To streamline quality improvement
standards for plans exclusively serving dual eligible beneficiaries, we
propose the option in paragraph (d)(3) for states to substitute an MA
plan's quality improvement project conducted under Sec. 422.152(d) in
the place of a Medicaid PIP. This would prevent unnecessary duplication
and increase flexibility for plans exclusively serving dual eligibles.
Finally, under our proposal in Sec. 438.330(e), states would
continue to annually review the impact and effectiveness of each MCO's,
PIHP's, and PAHP's quality assessment and improvement program. We also
propose in paragraph (e)(1)(iii), that the state incorporate the
results of any LTSS balancing efforts (community integration) at the
managed care plan level into this program review. This would expand the
program review from a single focus on acute care services, making it
more comprehensive and valuable. We request comment on our approach to
Sec. 438.330.
(d) State Review and Approval of MCOs, PIHPs, and PAHPs (New Sec.
438.332)
This new section proposes that as a condition of entering a
contracting relationship with a state, MCOs, PIHPs, and PAHPs undergo a
review on the basis of performance in accordance with standards that
are at least as stringent as the standards used by a private
accreditation entity approved or recognized by CMS for purposes of
accrediting MA Organizations and QHPs. This process would align
standards of review for Medicaid managed care plans with those found in
other health care coverage options.
As described elsewhere in this preamble, aligning, where
appropriate, Medicaid managed care quality initiatives with those of MA
and the Marketplace would result in a streamlined approach to quality
measurement and improvement. Under Section 1311 of the Affordable Care
Act, QHPs are to be accredited, by a CMS-recognized entity, based on a
number of criteria, including clinical quality measures, patient
experience, utilization management, quality assurance, complaints and
appeals, and network adequacy and access. We have issued regulations at
45 CFR 156.275 to govern the accreditation process for QHPs. In
general, MA Organizations do not have to obtain accreditation; however,
if an MA Organization elects to become accredited by a CMS-approved
accrediting organization it may be ``deemed'' compliant in one or more
of six standards set forth in section 1852(e)(4)(B) of the Act. For
QHPs and MA Organizations, CMS has the ability to recognize or approve
accrediting organizations; to become recognized or approved, the entity
must demonstrate to CMS that its standards are at least as stringent as
those established by Medicare and the Marketplace. In addition,
specialized plans for special needs individuals, per amendments made by
section 3205 of the Affordable Care Act, must receive approval from the
National Committee for Quality Assurance (NCQA).
By proposing a process similar to accreditation for Medicaid
managed care plans, we would align the expectations for these plans in
a manner that is consistent with other coverage options. Alignment of
Medicaid plan review standards with those in other coverage options
would protect beneficiaries by ensuring that plans meet certain
performance levels and continue to do so over time. Furthermore, we
believe this proposal would assist states in identifying plans that
have a commitment to providing high quality care.
While having a set of performance standards for Medicaid managed
care plans will benefit the Medicaid program and its beneficiaries,
state flexibility is critical given the wide variety of state managed
care contracting arrangements. Therefore, we propose to give states a
choice of two options (or a combination of those options) to comply
with our proposal. Both options are mechanisms to achieve the goal of
attracting and retaining higher performing plans for participation in
the Medicaid program.
In paragraph (a)(1), we propose the first option for states, which
is a state review and approval process that would be at least as
stringent as that used by a private accreditation entity. Our proposal
also incorporates the standards used in the Marketplace and MA to set
the parameters for the review and approval process. Specifically, we
propose that the state review and approval be based on standards that
are at least as stringent as those used by the accreditation
organizations that are recognized by CMS in MA or the Marketplace. We
anticipate that states would purchase standards from one of the CMS-
recognized accrediting organizations for this purpose. We propose in
paragraph (a)(2) that states review and reissue approval of each MCO,
PIHP, and PAHP at least once every 3 years. In paragraph (a)(3), we
propose that MCOs, PIHPs, and PAHPs maintain performance with state
standards at the level necessary for approval for as long as they
participate in the state's managed care program.
The second option, proposed in paragraph (b), would allow a state
to elect to use evidence that an MCO, PIHP, or PAHP has obtained
accreditation by one of the CMS-recognized private accrediting entities
to deem compliance with the review and approval standard proposed in
paragraph (a)(1). This would allow states to take advantage of existing
private sector infrastructure for the accreditation process and deem
compliance based on the private independent accreditation of an MCO,
PIHP, or PAHP. While there are costs for health plans associated with
obtaining accreditation, we believe that this would be a valuable
investment for plans, would provide an efficient method of state
oversight, and would increase accountability on the part of Medicaid
health plans. Additionally, the costs associated with private
accreditation may be offset by a reduction in duplicative EQR
processes.
In paragraph (b)(2), we propose that if a state were to elect this
option, the MCO, PIHP, or PAHP would need to authorize the private
accreditation entity to provide the state with copies of its most
recent accreditation survey. This would allow the state to ensure that
the MCO, PIHP, or PAHP has obtained an acceptable level of

[[Page 31152]]

accreditation status (as proposed in Sec. 438.322(b)(2)(i)), review
the actual findings of the survey (as proposed in Sec.
438.322(b)(2)(ii)), and determine when the accreditation is due to
expire (as proposed in Sec. 438.322(b)(2)(iii)).
The two options proposed in this section are not exclusive; a state
may elect to use the first option for one plan and the second option
for other plans. In other words, states would be able to establish
their own review and approval process, but also allow plans that have
obtained private accreditation to submit documentation in accordance
with the second option. We believe that this flexibility will enable
states to use this process in a manner that fits with a state's vision
and resources for managing Medicaid managed care quality and
performance.
Finally, in paragraph (c), we propose that states make the final
approval status of each MCO, PIHP, and PAHP, publicly available on the
state's Medicaid Web site, regardless of whether this is based on the
state review or private accreditation option. Examples of information
that a state might post include: Whether the approval is based on state
review or the accreditation deeming process; if accreditation, which
entity has accredited the plan and what level of accreditation the plan
obtained; the expiration date of the approval, etc. We solicit comment
on this approach to achieving our goals of attracting and retaining
higher performing plans for participation in the Medicaid program and
ensuring that performance standards are aligned across the health care
system. We request comments on our approach to Sec. 438.332.
(e) Medicaid Managed Care Quality Rating System (New Sec. 438.334)
This new section proposes minimum standards that all states
contracting with MCOs, PIHPs, and PAHPs would use in developing and
implementing a Medicaid managed care quality rating system. The
publication of standardized, reliable, and meaningful quality
information for each MCO, PIHP, and PAHP would increase transparency
regarding Medicaid managed care health plan performance. Such a system
would support alignment and consumer and stakeholder engagement, and
enable beneficiaries to consider quality when choosing a Medicaid
health plan. States would be able to use this information in
formulating quality improvement goals and objectives, state contracting
and enrollment decisions, and quality oversight of health plans. In
addition, the proposed rating system would also assist states in
evaluating the prior performance of Medicaid health plans looking to
enter new markets.
To develop this proposal, we examined both the quality rating
system established for the QHPs offered through the Marketplaces and
the five-star rating system used for MA and Prescription Drug Plans.
These existing systems were developed through a process that
accommodates public comment. Section 1311(c)(3) of the Affordable Care
Act directed the Secretary to develop a system that would rate QHPs
offered through the Marketplaces and enable consumers to compare such
QHPs based on relative quality, price, and enrollee satisfaction. In a
November 19, 2013 Federal Register notice (78 FR 69418), the Department
solicited comment on a process for selecting and organizing measures
for the QHP quality rating system (http://www.gpo.gov/fdsys/pkg/FR-2013-11-19/pdf/2013-27649.pdf). This notice with comment set forth,
among other things, the proposed general principles of the QHP quality
rating system as well as proposed measures that were evidence-based and
aligned, to the maximum extent possible, with measures in other
federal, state, and private sector health care programs.
In the 2015 Quality Rating System and Qualified Health Plan
Enrollee Experience Survey Technical Guidance (available online at:
http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Health-Insurance-Marketplace-Quality-Initiatives.html), we announced the final domains and measures
that will be used in 2015 to beta test the QHP quality ratings.\15\ The
selected domains and measures are grouped under three summary
indicators, which align with CMS and national priorities under the
National Quality Strategy: (1) Clinical Quality Management; (2) Member
Experience; and (3) Plan Efficiency, Affordability and Management.
Beneath these three summary indicators fall a set of eight domains that
represent important aspects of quality: (1) Clinical Effectiveness; (2)
Patient Safety; (3) Care Coordination; (4) Prevention; (5) Access; (6)
Doctor and Care; (7) Efficiency and Affordability; and (8) Plan
Service. Each domain then has a set of associated performance measures
(19 clinical and 10 survey measures), which all factor in to create a
rating that consumers may use when evaluating health plan options. The
QHP quality rating system uses a five-star scale, similar in style and
format to that of the MA and Prescription Drug Plan rating system.
---------------------------------------------------------------------------

\15\ Some of the measures in the QHP Quality Rating System
measure set will be collected as part of the QHP Enrollee Experience
Survey, which is largely based on items from the Consumer Assessment
of Healthcare Providers and Systems (CAHPS[supreg]) survey.
---------------------------------------------------------------------------

Given that the overall Medicaid population more closely resembles
that of the Marketplace, modeling the quality rating system for
Medicaid on that of the QHPs offered through Marketplaces makes the
most sense; however, there are some instances in which performance
measures from the MA five-star rating system may be appropriate for use
for some Medicaid populations, such as dual eligible beneficiaries or
individuals in need of LTSS (see http://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/CertificationandComplianc/FSQRS.html for
more information on the MA five-star rating system). Alignment with the
rating system currently in place for the QHPs offered through
Marketplaces would minimize the burden on health plans that operate in
both markets and provide data for the various quality rating systems.
The use of a rating system that is consistent in format and scope
with those for QHPs in the Marketplaces and MA plans would make it
easier for beneficiaries, who may be transitioning among these various
coverage programs, to understand the quality rating of their health
plan regardless of the payer. Medicaid consumers would also have useful
and understandable quality information to assist them in making an
informed choice among the health coverage choices available to them in
a state. While some states currently operate performance rating systems
for Medicaid managed care plans and report publicly on plan
performance, this is not the case in all Medicaid programs.
To ensure that states and other stakeholders have ample opportunity
to comment and offer feedback during the development of the proposed
Medicaid quality rating system, we would utilize a robust public
engagement process, similar to that used by CCIIO in the development of
the QHP quality rating system. This may include a series of listening
sessions or town halls, the release of a request for information, and/
or a series of notice and comment periods. Our intention is that the
Medicaid managed care quality rating system standards would be refined
over a period of three to five years prior to implementation. This
would allow CMS time to further identify the respective state and
federal roles in

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implementation and maintenance of the system.
Based on these considerations and desired outcomes, we propose in
Sec. 438.334(a)(1) that states establish a rating system that includes
specific factors outlined in the rest of the section. We propose in
Sec. 438.334(a)(2), that the components of the rating system be based
on the same three summary indicators that are currently used to frame
the QHP quality rating system (clinical quality management, member
experience, and plan efficiency, affordability, and management). In
paragraph (a)(3), we propose that the state's quality rating system
would measure and report on performance data collected from each MCO,
PIHP, and PAHP on a standardized set of measures that will be
determined by CMS, through the public notice and comment process and
published in the Federal Register, as outlined in proposed Sec.
438.330(a)(2). This notice and comment period would allow CMS and the
states to jointly identify measures through a multi-stakeholder process
that includes Medicaid state partners, representatives of MCOs, PIHPs,
and PAHPs, consumer groups, and performance measure experts. This would
also enable CMS, the states, and other stakeholders to give
consideration to the types of measures that are frequently collected by
states, that are reported under other reporting systems, and that are
standardized, validated, and appropriate to the types of services
provided and populations served by Medicaid health plans. We anticipate
that we would propose measures for this purpose and through this
process based on considerations such as importance of underlying
performance, performance gaps, reliability and validity, feasibility,
and alignment. Further, as proposed in paragraph (a)(3), the measures
would be categorized within the components proposed in paragraph
(a)(1), and the state would be able to adopt additional measures.
Paragraph (b) proposes that each state apply a methodology, also
established by CMS under Sec. 438.330(a)(2), to the performance
measures described in paragraph (a)(3) to determine the quality rating
or ratings of each MCO, PIHP, and PAHP. The methodology would also
provide for the use of state-identified measures in determining the
quality rating or ratings for each MCO, PIHP, or PAHP. We invite
comment on the feasibility of adding flexibility for states to change
the way in which a measure is weighted in their quality rating
methodology, as we recognize that there is diversity in state quality
improvement goals and in the populations served by each state's managed
care program. We envision that this measure selection/methodology
development process would occur once every 2 to 3 years, to ensure that
the selected measures and/or methodology be updated or changed if
necessary.
Recognizing the need for state flexibility, we propose in paragraph
(c) that, contingent on CMS approval, states may elect to use an
alternative or preexisting quality rating system in place of the rating
system that we propose in paragraphs (a) and (b) of this new section.
This would allow states that have already invested in the development
and implementation of their own quality rating system the option of
either adopting or modifying the preexisting system. An alternative
rating system would potentially utilize different components than those
described in paragraph (a)(2), incorporate the use of different
performance measures described in paragraph (a)(3), and/or apply a
different methodology from that described in paragraph (b).
To avoid duplication of effort, in paragraph (d), we propose
providing states with the option to default to the MA five-star rating
system for those plans that serve dual eligible beneficiaries only.
Finally, in paragraph (e), we propose that states prominently display
the results of their quality rating system or systems online in a
manner that complies with the language and format standards of Sec.
438.10. This would ensure that beneficiaries have access to the quality
ratings to assist them in making choices among health plans. We solicit
comment on our proposal for a Medicaid managed care quality rating
system, including whether our proposal provides sufficient flexibility
for states, ensures enough alignment of Medicaid managed care plans
with those operating in the Marketplaces and MA, and provides adequate
parameters for the establishment of the quality rating systems.
(f) Comprehensive State Quality Strategy (New Sec. 431.500, Sec.
431.502, Sec. 431.504, Sec. 431.506, and Sec. 438.340)
Under the existing regulation at Sec. 438.202(a), states
contracting with MCOs or PIHPs currently maintain a written strategy
for assessing and improving the quality of managed care services
offered by all MCOs and PIHPs. Regardless of delivery system, it is
important to measure performance to develop a plan to strengthen and
improve the quality of care. Because of this, we propose adding a new
subpart I to part 431 that would extend the comprehensive quality
strategy to all state Medicaid programs.
(1) Basis and Scope (New Sec. 431.500)
With recent developments in delivery system reforms and as state
health information exchanges become more interoperable with state-based
Marketplaces, other payers, and state agencies, we believe each state
should have a quality strategy to address and support efforts to
strengthen quality in a state's Medicaid managed care program
(inclusive of MLTSS programs, where applicable), as well as other types
of delivery systems for Medicaid services. Our proposal below
integrates guidance contained in the State Health Official letter
entitled Quality Considerations in Medicaid and CHIP (SHO #13-007,
available at: http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO-13-007.pdf), which explains how to incorporate a state's
managed care quality strategy into a larger, statewide comprehensive
Medicaid quality strategy. This guidance allows for state flexibility
in how to convert an existing quality strategy into a comprehensive
document; for example, in some cases, LTSS strategies should be aligned
with, but not the same as, acute care strategies.
In Sec. 431.500, we describe the statutory basis and scope of the
proposed new subpart I. Our statutory authority to adopt standards for
a quality strategy is established in section 1932(c) of the Act for
MCOs and based on section 1902(a)(4) of the Act for PIHPs. We rely as
well on section 1902(a)(4) of the Act to establish a standard for a
comprehensive quality strategy for delivery of services to all Medicaid
beneficiaries because such a strategy would promote efficient and
proper administration of the state plan as a whole. We also propose to
rely on section 1902(a)(6), for purposes of the proposed reporting in
Sec. 431.504, which provides that ``the State agency will make such
reports, in such form and containing such information, as the Secretary
may from time to time require, and comply with such provisions as the
Secretary may from time to time find necessary to assure the
correctness and verification of such reports''; section 1902(a)(19),
which obligates the provision of ``such safeguards as may be necessary
to assure that eligibility for care and services under the plan will be
determined, and such care and services will be provided, in a manner
consistent with simplicity of administration and the best interests of
the recipients''; and section 1902(a)(22) which allows CMS to request
that states ``include

[[Page 31154]]

descriptions of . . . other standards and methods that the State will
use to assure that medical or remedial care and services provided to
recipients of medical assistance are of high quality.''
In paragraph (b), we propose that the scope of this new section
establish parameters for states to develop a comprehensive quality
strategy to monitor the delivery of quality health care to Medicaid
beneficiaries. This would include states contracting with MCOs, PIHPs,
or PAHPs, those utilizing a PCCM arrangement, and those that deliver
services through FFS. CMS will provide technical assistance to those
states that do not currently contract with MCOs or PIHPs and thus,
would need to develop a quality strategy if they have not already done
so. We solicit comments on our proposal for a comprehensive quality
strategy.
(2) State Comprehensive Quality Strategy (New Sec. 431.502)
The current Sec. 438.202(a) identifies responsibilities for the
managed care quality strategy for states contracting with MCOs and
PIHPs. Consistent with the goal of supporting quality improvement for
all Medicaid delivery systems, in our proposed Sec. 431.502(a) we
identify a general rule for state comprehensive quality strategies: All
states, regardless of whether they contract with a MCO under section
1903(m) of the Act or another managed care entity under part 438, would
draft and implement a written comprehensive quality strategy to assess
and improve the quality of health care and services provided to all
Medicaid beneficiaries.
In paragraph (b)(1), we propose that the strategy include the
state's goals and objectives for continuous quality improvement, which
must be measurable and take into consideration the health status of all
Medicaid-covered populations in the state. States should take into
account a variety of data (such as population health status, service
utilization and expenditure information, quality of life issues,
quality metrics, etc.) when developing such goals. In paragraph (b)(2),
we propose that states identify the specific quality metrics and
performance targets that they plan to use to measure performance and
improvement; these should be linked to the goals identified in
paragraph (b)(1). Existing, validated quality metrics, such as the CMS
Medicaid/CHIP Child and Adult core measure sets, may serve as a basis
for selecting metrics under this proposed paragraph. CMS will provide
technical assistance to help states in determining minimum performance
levels and/or appropriate performance targets for each metric. Further,
we propose that states annually publish these quality metrics and
performance standards on their Web site.
(3) Comprehensive Quality Strategy Development, Evaluation, and
Revision (New Sec. 431.504)
In the new Sec. 431.504, we propose to recodify and slightly
modify the existing state responsibilities related to the quality
strategy in the current Sec. 438.202(b), (d), and (e), expanding the
application of these standards to the comprehensive quality strategy
and not just the strategy for the managed care program. These state
responsibilities include obtaining public input in the development and
revision of the quality strategy, an evaluation of the effectiveness of
the quality strategy, and submission of the quality strategy to CMS for
review. Our proposal carries over much of the substance of the current
rule.
In developing the comprehensive quality strategy, we believe that
states should continue to work cooperatively with beneficiaries,
stakeholders, and other interested parties, to benefit from their
knowledge, expertise, and unique perspectives with regard to the
delivery of Medicaid services. Stakeholders may possess on-the-ground
knowledge that would benefit states in identifying quality improvement
goals and selecting the best approach to achieve better health
outcomes. Accordingly, we propose in paragraph (a) to add the State
Medical Care Advisory Committee and tribes (through tribal
consultation), as appropriate, to the existing list of persons and
entities from which the state would obtain input when developing the
strategy. We propose that this input be obtained prior to submitting
the comprehensive quality strategy to CMS, to ensure that stakeholder
concerns have been taken into consideration at an early phase in the
quality strategy development process.
In paragraph (b), we propose to expand to the comprehensive quality
strategy the existing standard that states review and update the
document ``as needed'', but replace the word ``periodically'' with a
timeframe to update the strategy at least once every 3 years.
Currently, some states operate under quality strategies that were
drafted more than 5 years ago, and thus may not be reflective of
today's programs and populations. We encourage states to view the
comprehensive quality strategy as a living document, which should be
updated on a regular basis to account for changes in population,
delivery system structure, emerging information system technology, and
benefit design. We also propose to improve clarity by using ``review
and update'' instead of ``conduct reviews . . . and update'' in the
regulation text.
In further support of improved clarity, we propose moving the
evaluation of the effectiveness of the quality strategy into a new
paragraph (b)(1) and, in paragraph (b)(2), we propose that states make
the results and findings of this effectiveness evaluation publicly
available on the state's Medicaid Web site. The language from the
current Sec. 438.202(e)(2) related to the submission of regular
reports on the implementation and effectiveness of the strategy would
be captured in our proposed Sec. 431.504(b)(1) and (b)(2). To
streamline the submission of these regular reports, we propose that
states post these on their Medicaid Web site, rather than submitting
such reports to CMS as the current regulation states.
In paragraph (c)(1), we propose slightly modifying, for purposes of
clarification, the existing language in Sec. 438.202(e)(1) that the
state submit a copy of the initial strategy to CMS. We clarify that
this submission would be for purposes of receiving CMS comment and
feedback before adopting the comprehensive quality strategy in final.
In paragraph (c)(2), we propose that states submit a copy of the
revised strategy whenever significant changes are made. We also propose
that states include their definition of ``significant changes'' within
the body of the quality strategy, as this would improve transparency
regarding the elements that would trigger a revision of the document.
Finally, in paragraph (d), we propose that states make their final
comprehensive quality strategy available on the state's Medicaid Web
site. While this is already the practice of many states, this would
help to increase transparency of a state's quality development and
oversight process, and support our efforts in maintaining an up-to-date
library of state comprehensive quality strategies on Medicaid.gov.
(4) Applicability to Medicaid Managed Care Programs (New Sec. 431.506)
To reduce the burden on states contracting with managed care
entities and to ensure that the comprehensive quality strategy
addresses all populations, we propose to cross-reference the managed
care elements of a quality strategy in part 438 that apply to MCOs,
PIHP, and PAHPs, as well as PCCM entities described in the proposed
Sec. 438.3(r). This section

[[Page 31155]]

proposes that states contracting with one of the aforementioned managed
care entities would be able to create the managed care quality strategy
by incorporating the part 438 elements into the larger, comprehensive
quality strategy. We would be available to provide technical assistance
to managed care states that shift their existing quality strategy from
managed care to a more universal blueprint for quality at the state
level.
(g) Managed Care Elements of State Comprehensive Quality Strategies
(New Sec. 438.340, Formerly Sec. 438.204)
The current Sec. 438.204 identifies the minimum elements of a
managed care state quality strategy, including: (1) MCO and PIHP
contract provisions that incorporate the standards in existing subpart
D; (2) procedures for assessing the quality and appropriateness of care
and services furnished to all enrollees under the contract, providing
information about the race, ethnicity and language of beneficiaries to
MCOs and PIHPs at the time of enrollment, and regular monitoring and
evaluation of MCO and PIHP compliance with the standards in subpart D;
(3) specification of any national performance measures identified by
CMS; (4) arrangements for annual, external independent reviews of
quality outcomes, and timeliness of, and access to, services provided
by each MCO and PIHP; (5) appropriate use of intermediate sanctions for
MCOs; (6) an information system sufficient to support initial and
ongoing operation and review of the state's quality strategy; and (7)
standards, at least as stringent as those under the applicable subpart
D of the regulations.
Consistent with our proposal in part 431, subpart I, and to more
accurately reflect the substance of this section, we propose to title
this section ``managed care elements of the state comprehensive quality
strategy''. In addition, our proposal to extend the quality strategy to
states contracting with PAHPs is reflected throughout the proposed
text. We propose to use the existing format of Sec. 438.204 (elements
of State quality strategies) and list out the minimum elements related
to managed care for inclusion in the state comprehensive quality
strategy; however, we propose to remove some of the existing content
elements and clarify that these are in addition to the other elements
proposed in part 431, subpart I.
In paragraph (a), instead of a reference to the standards in the
current subpart D, we propose that states include only their network
adequacy and availability of service standards and examples of
evidence-based clinical practice guidelines that its managed care plans
follow. We believe this would transition states toward defining metrics
for assessing improvement strategies rather than simply repeating
contractual language. It would also allow stakeholders, including
beneficiaries, to understand state-specific access standards without
having to refer to the MCO, PIHP, or PAHP contract.
We propose to delete the content of the existing Sec.
438.204(b)(1), as we believe that a description of procedures to assess
the quality and appropriateness of care and services furnished to all
Medicaid enrollees under the MCO, PIHP and PAHP contract(s) is captured
in our proposed part 431 subpart I. We propose deleting reference to
the other information currently found in Sec. Sec. 438.204(b)(2) and
(b)(3), as we plan to address this in future guidance related to the
comprehensive quality strategy.
In Sec. 438.340(b), we propose that the state's goals and
objectives developed under our proposed Sec. 431.502(b)(i) incorporate
a description of quality metrics and performance targets that the state
will use to assess Medicaid managed care quality, including any
performance measures in accordance with our proposed Sec. 438.330(c)
and any performance improvement projects in accordance with our
proposed Sec. 438.330(d). We believe this standard would take the
place of the existing element in Sec. 438.204(c). In the event that
the state directs its managed care plans to implement certain
interventions when conducting a performance improvement project, we
propose they include a description of those interventions within the
quality strategy. We believe the provision of this information would
help states and their health plans link the selection of measures and
improvement projects directly to the state's quality improvement goals
and objectives.
We propose redesignating the current Sec. 438.204(d) and (e) to
Sec. 438.340(c) and (d), respectively, and to expand the external
review element to PAHP contracts as well. We propose to eliminate the
text currently found in Sec. 438.204(g), which calls for states to
include standards, at least as stringent as those in subpart D, within
the quality strategy because we believe this is redundant to the
proposed changes we explained in paragraph (a). Finally, in paragraph
(e), we propose that states address how they would assess the
performance and quality outcomes achieved by each PCCM entity, to
conform to other changes made in this part.
(h) External Quality Review (Sec. 438.350)
In Sec. 438.350, we propose to modify the title of the section
that identifies the state's responsibilities related to EQR to clarify
that these responsibilities are specific to the EQR process. In
addition to proposing the application of EQR to PAHPs, consistent with
our proposal discussed in Sec. 438.310, we propose a minor
restructuring of Sec. 438.350 and a few substantive changes. We
propose to redesignate existing paragraphs (a) through (f) as (a)(1)
through (a)(6). In paragraph (a)(3), we propose that information from
Medicare or private accreditation reviews is a permissible source of
information for use in the EQR, in addition to information gathered
from the EQR-related activities as described in Sec. 438.358. We also
propose clarification in (a)(4) that the information gathered from each
EQR-related activity is for use in the EQR and resulting EQR technical
report. Finally, in paragraph (b), we propose to add that if a state
chooses to perform an EQR on a PCCM entity, the standards laid out in
paragraphs (a)(2) through (6) apply. As mentioned earlier in this
proposed rule, based on the range of functions that PCCM entities can
provide to states, states may elect to subject (at their option) each
PCCM entity--specifically, those with contracts which provide for
shared savings or other payment incentives--to the EQR process, but we
believe most of the same standards (as used by MCOs, PIHPs, and PAHPs)
concerning EQR should apply for reasons mentioned elsewhere in this
preamble.
(i) External Quality Review Protocols (Sec. 438.352)
We are not proposing any changes to Sec. 438.352. This section
sets forth the parameters for the EQR protocols. Protocols are detailed
instructions from CMS for personnel to follow when performing the EQR-
related activities. Protocols must specify: (1) The data to be
gathered; (2) the source of the data; (3) the activities and steps to
be followed in collecting the data to promote its accuracy, validity,
and reliability; (4) the proposed methods for valid analysis and
interpretation of the data; and (5) all instructions, guidelines,
worksheets and any other documents or tools necessary for implementing
the protocol. Under section 1932(c)(2)(A)(iii) of the Act, the
Secretary, in coordination with the National Governors' Association,
contracts with an independent quality review organization to develop
such protocols.

[[Page 31156]]

(j) Qualifications of External Quality Review Organizations (Sec.
438.354)
We propose two modifications to Sec. 438.354, which sets forth the
competence and independence standards that an entity must meet to
qualify as an EQRO. First, we propose additional text, consistent with
our overall proposal, to expand EQR to PAHPs. Second, in paragraph
(c)(3)(iv), we propose that an accrediting body may not also serve as
an EQRO for a health plan it has accredited within the previous 3
years. This is due to our proposal that an EQRO be allowed use the
results of an accreditation review to perform the final EQR analyses;
we do not want the financial relationship between a health plan and its
accrediting body to influence the results of the EQR (or the
information that is included in the resulting EQR technical report). We
also propose a corresponding redesignation of existing paragraph
(c)(3)(iv) to (c)(3)(v).
(k) State Contract Options for External Quality Review (Sec. 438.356)
Our proposed revisions to Sec. 438.356 would provide additional
clarification to the existing EQRO contracting process. We propose
changing the title of this section to clarify that it is specific to
EQR contracting. In paragraph (a)(2), we propose adding that other
entities, in addition to or instead of an EQRO (such as the state or
its agent that is not an MCO, PIHP, or PAHP) may conduct the EQR-
related activities to comport with this same flexibility afforded to
states in Sec. 438.358. In paragraph (e), we propose the addition of a
cross-reference to paragraph (a), with the addition of ``with an EQRO''
to make clear that the contract subject to the open, competitive
process is the state's contract with the EQRO. We also, in paragraph
(e), propose to update the cross-reference to the part of 45 CFR that
governs grants to state governments from part 74 to part 75, to reflect
changes that occurred after the existing regulations were finalized.
(l) Activities Related to External Quality Review (Sec. 438.358)
This section sets forth the activities that produce information
that the EQRO must use to conduct the EQR, to draw conclusions
regarding access, timeliness, and quality of services provided by
managed care plans, and to draft the final EQR technical report. There
are currently three mandatory and five optional EQR activities under
this regulation. The three mandatory EQR-related activities are: (1)
Validation of performance improvement projects; (2) validation of
performance measures; and (3) determination of compliance with the
standards set forth in subpart D. The five optional activities are: (1)
Validation of encounter data; (2) administration or validation of
surveys; (3) calculation of additional performance measures; (4)
conduct of additional performance improvement projects; and (5) conduct
focused studies of quality of care. The current regulation also permits
EQROs to provide technical assistance if the state directs. We propose
several changes to this section, including the addition of text to be
consistent with our proposal to extend EQR to PAHPs.
We propose separating the current paragraph (a) into two
paragraphs, the first of which would retain the language in the current
general rule. Our proposed paragraph (a)(2) would clarify that the
information resulting from the performance of the EQR-related
activities would be used in accordance with Sec. 438.350(a)(3) to
complete the EQR. In paragraph (b), we propose minor technical changes
to make clear that the mandatory activities would be performed for each
MCO, PIHP, and PAHP. In paragraphs (b)(1) and (b)(2), we include
reference to the proposed CMS-identified measures and PIPs, which would
be developed by CMS, in consultation with the states and other
stakeholders, through the public process as described in the proposed
Sec. 438.330(a)(2). In paragraph (b)(3) we propose that the mandatory
compliance review would consist of an evaluation of the MCO, PIHP, and
PAHP standards proposed in subpart D, and because we propose moving the
quality assessment and performance improvement program standards to
subpart E (as described in the proposed Sec. 438.330), we reference
that section as well. This does not propose any significant change from
what comprises the current compliance review activity.
We propose the addition of a new mandatory EQR-related activity in
paragraph (b)(4), the analysis of which would be included in the annual
EQR technical report in accordance with Sec. 438.364. This proposed
EQR-related activity, would validate MCO, PIHP, or PAHP network
adequacy during the preceding 12 months to comply with the state
standards developed in accordance with Sec. 438.68. An assessment of
compliance with Sec. 438.206 (availability of services) would occur as
part of the mandatory compliance review described in Sec.
438.358(b)(3); however, because the methods that are frequently used to
do so are limited to the review of policies and procedures and onsite
interviews of personnel, we propose that this proposed EQR-related
activity would go beyond the compliance activity by directly evaluating
and validating network adequacy on an annual basis. While the specifics
of this activity would be identified in a new EQR protocol, we envision
the inclusion of steps such as measurement of how effectively a plan is
meeting a state's specific access standards (for example, time and
distance standards), direct testing to determine the accuracy of
network information maintained by health plans, and telephone calls to
providers that either assess compliance with a specific standard, such
as wait times for appointments, or assess the accuracy of provider
information, such as whether a provider is participating in a plan.
Finally, in paragraph (d), we propose a minor technical change by
clarifying that technical assistance may be provided by the EQRO to
assist health plans in conducting activities that would produce
information for the resulting EQR technical report.
(m) Non-Duplication of Mandatory Activities (Sec. 438.360)
This section is based on section 1932(c)(2)(B) of the Act, which
provides the option for states to exempt health plans from EQR-related
activities that would duplicate activities conducted as a part of a
Medicare review conducted of an MA plan or a private accreditation
survey. To avoid duplication of work, the state may currently use
information about contracted MCOs or PIHPs that is obtained from a
Medicare or private accreditation review to provide information
otherwise gathered from performing the mandatory EQR-related compliance
review, but not for the validation of performance measures or PIPs. In
addition, for plans that exclusively serve dual eligible beneficiaries,
states may use information obtained from the Medicare program in place
of information otherwise gathered from performing the mandatory EQR-
related activities of validating performance measures and validating
PIPs.
We propose giving states the option to rely on information obtained
from a review performed by Medicare or a private accrediting entity in
lieu of performing the three existing mandatory EQR-related activities:
(1) The validation of PIPs, (2) the validation of performance measures,
and (3) the compliance review. The purpose of this proposal is to
prevent duplication of effort for the three EQR-related activities. For
example, MCOs that are accredited by NCQA already collect the
performance measurement data known

[[Page 31157]]

as HEDIS[supreg] measures, and part of the NCQA accreditation process
is for one of its approved vendors to validate the statistical accuracy
of the data. If the measure validation process used by the approved
vendor is consistent with guidance in the CMS EQR protocol on the
validation of performance measures, and each accredited plan submits
their most recent accreditation results to the state, at the state's
option the state or its agent would no longer have to perform the
mandatory EQR-related activity of performance measure validation.
However, the state would still provide the results of the accreditation
survey to the EQRO, so that the EQRO could perform an analysis and
aggregation of data to satisfy the deliverables described in Sec.
438.364.
To effectuate these changes and to clarify the regulatory language,
we propose in paragraph (a) that the state may use information about an
MCO, PIHP, or PAHP obtained from a Medicare or private accreditation
review within the past 3 years in place of the information that would
be obtained by completing one or more of the three existing EQR-related
mandatory activities. We do not propose extending this option for non-
duplication to the fourth, newly proposed EQR-related mandatory
activity for validation of network adequacy, as we do not yet know the
scope of what this newly proposed activity will entail or how well it
would line up with current accreditation standards.
Because of our proposal to extend the non-duplication option to
three mandatory activities, we propose to combine and streamline the
content in the current Sec. 438.360(b) and (c), as it would no longer
be necessary to separately address plans serving only dual eligibles.
In paragraph (b)(1), we propose clarifying that the Medicare or private
accreditation review standards must be substantially comparable to the
standards for the three EQR-related activities to be eligible for non-
duplication. The reason for this is that the information obtained
should be similar enough to that which would be obtained through an
EQR-related activity so that the state's EQRO would be able to
effectively perform an analysis in accordance with Sec. 438.364, as we
specify in the proposed paragraph (b)(2).
Finally, we retain that states identify whether they opt to deem
any of the EQR-related activities under this option, and include the
reasons for doing so, in the comprehensive quality strategy. This
redesignates the current Sec. 438.360(b)(4) and (c)(4) to paragraph
(c).
(n) Exemption From External Quality Review (Sec. 438.362)
This section is based on section 1932(c)(2)(C) of the Act, which
provides that a state may exempt a health plan from undergoing an EQR
if the MCO has a current Medicare contract under part C of Title XVIII
or under section 1876 of the Act, and, for at least 2 years, has had in
effect a Medicaid contract under section 1903(m) of the Act. We propose
the removal of PIHPs, as they are not entities that fall under section
1903(m) of the Act. We also propose to update the phrase
``Medicare+Choice'' to ``Medicare Advantage''.
(o) External Quality Review Results (Sec. 438.364)
This section sets forth the information, or final deliverables,
that annually result from the EQR. We propose several changes to this
regulation to assist CMS and the states in meaningfully assessing the
performance of each health plan. Currently, the EQR activities in Sec.
438.358(b)(1) and (2) only refer to validation of the data. While we
continue to believe that data validation is important and should remain
a core function of the EQR process, a statement of validation alone is
insufficient to provide insight into plan performance on quality,
timeliness, and access to care. Therefore, under Sec. 438.364(a)(1) we
propose that each EQR technical report include performance measurement
data for any collected performance measures and implemented PIPs (in
accordance with each EQR activity conducted in accordance with Sec.
438.358(b)(1) and (2)). There are several benefits from modifying the
EQR technical report, particularly in combination with a standardized
sub-set of EQR topics and measures. First, public reporting on a common
set of measures would align with the approach used by Medicare and the
Marketplace to monitor and support continuous quality improvement.
Second, displaying the performance results of these common measures
would allow beneficiaries and stakeholders to compare the quality of
care across health plans. Finally, sharing this information publicly
would allow states to learn best practices from one another and reveal
lessons learned in dealing with challenges faced by states and plans
when engaged in quality measurement and improvement.
In paragraph (a)(3), we propose the inclusion of recommendations
for how states can target the goals and objectives in the comprehensive
quality strategy to better support improvement in the quality,
timeliness, and access to health care services furnished to Medicaid
beneficiaries. In paragraph (a)(4), we propose deleting the language
that allows the state alone to decide the appropriate methodology of
comparative information about managed care plans, as we believe this
should be a determination made by the state in conjunction with CMS
(via the Protocols, as described in Sec. 438.352).
In paragraph (b)(1), we propose that states contract with a
qualified EQRO to produce the final EQR technical report (that is, we
clarify that there is no other entity which may produce the EQR
technical report) and we propose that this report be completed and
available for public consumption no later than April 30th of each year.
An April 30th submission date would align with the timeframe needed for
the collection and annual reporting of managed care data by the
Secretary each September 30th as prescribed by section 401 of CHIPRA
and section 2701 of the Affordable Care Act. We also propose in this
same paragraph that states may not substantively revise the content of
the final EQR technical report without evidence of error or omission,
or upon requesting an exception from CMS. Allowing states to
substantively alter information in the EQR technical report could
possibly result in a departure from the original statutory intent for
the performance of an external, independent review.
Paragraph (b)(2) proposes that states maintain the most recent copy
of the EQR technical report on the state's Medicaid Web site, proposed
under Sec. 438.10(c)(3). We believe this would serve to facilitate
public access to the EQR technical reports. This would also allow CMS
to directly link the reports to the Medicaid.gov Web site, thus
creating a comprehensive library of state EQR technical reports. We
also propose to separate out the existing language for states to make
the information available in alternative formats for persons with
disabilities in a new paragraph (b)(3). As part of this proposal, we
replace the phrase ``sensory impairments'' with ``disabilities''.
(p) Federal Financial Participation (Sec. 438.370)
This section sets forth the matching rates for expenditures for
EQR, including the production of EQR results and the conduct of EQR-
related activities when performed by a qualified EQRO or other entity.
The changes proposed in this section mark a departure from previous
interpretation of the entities eligible for the enhanced 75 percent EQR
match rate as found in

[[Page 31158]]

section 1903(a)(3)(C)(ii) of the Act. In the 2003 final rule, CMS used
the authority of section 1902(a)(4) of the Act to extend EQR to PIHPs.
We determined that, because we were extending the performance of EQR
under section 1932(c)(2) of the Act to PIHPs, such review could be
considered to be performed ``under'' section 1932(c)(2) of the Act,
even though it was not ``required'' by section 1932(c)(2) of the Act
itself for purposes of qualifying for the enhanced federal match rate
of 75 percent. Upon closer examination of the applicable statutory
language, we have reconsidered that interpretation and now believe the
reference in section 1903(a)(3)(C)(ii) of the Act to review ``under''
section 1932(c)(2) of the Act should be construed to refer to review
``required'' by that section. Therefore, we propose in paragraph (a)
that only EQR or EQR-related activities performed by EQROs for MCOs
with contracts under section 1903(m) of the Act are eligible for the 75
percent match.
In paragraph (b), we propose clarifying that EQR and EQR-related
activities performed on entities other than MCOs (including PIHPs,
PAHPs, primary care case management arrangements, or other types of
integrated care models) would be eligible for a 50 percent
administrative match, regardless of what type of entity performs the
review (that is, the state, its agent that is not an MCO, PIHP, or
PAHP, or an EQRO).
Finally, in paragraph (c), we propose that states submit their EQRO
contracts to CMS prior to claiming the 75 percent match. Although
section 1932(c)(2) of the Act does not require review and approval by
CMS of EQRO contracts, we believe the reason for doing so remains the
same as it is today--to allow CMS to determine if the EQRO contract
complies with the EQR-related provisions of this rule (for example, by
confirming that contracting entities meet the standards set forth in
Sec. 438.354 for qualified EQROs), and, if so, which activities under
the contract are eligible for the 75 percent match.
c. State Monitoring Standards (Sec. 438.66)
Experience since the 2002 final rule has shown that strong state
management and oversight of managed care is important throughout a
program's evolution but is particularly critical when states transition
large numbers of beneficiaries from FFS to managed care or when new
managed care plans are contracted. We have observed that states must
train and deploy staff or utilize vendors to verify that plans have
sufficient provider capacity to serve new enrollees, are ready to pay
provider claims accurately and on time, can respond promptly to
enrollee complaints and problems, and have IT systems that can receive
and generate state data and reports. Further, when a managed care plan
contracts with the state for the first time, states need time to
conduct readiness reviews.
We are proposing modernization of state monitoring standards. We
rely on the authority in section 1902(a)(4) of the Act for the proper
and effective operation of the state plan to strengthen our existing
regulation at Sec. 438.66, noting that many of these practices are
employed by states today. We begin by proposing a minor change in the
title of this regulation section to clarify that the monitoring
required here is a state activity.
In paragraph (a), we propose that the state have a monitoring
system for all of its managed care programs; we intend the term
monitoring to include oversight responsibilities. In paragraph (b), we
propose that the state's monitoring system address, at a minimum,
specific aspects of the managed care program that include:
Administration and management; appeal and grievance systems; claims
management; enrollee materials and customer services; finance,
including medical loss ratio reporting; information systems, including
encounter data reporting; marketing; medical management, including
utilization management; program integrity; provider network management;
quality improvement; the delivery of LTSS; and other items of the
contract as appropriate. Research has highlighted these program areas
as critical for state success. See, for example, the research report by
the AARP Public Policy Institute titled ``Keeping Watch: Building State
Capacity to Oversee Medicaid Managed Long-Term Services and Supports''
\16\ (July 2012).
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\16\ http://www.aarp.org/health/medicare-insurance/info-07-2012/keeping-watch-building-state-capacity-to-oversee-medicaid-managed-long-term-services-and-supports-AARP-ppi-health.html.
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In Sec. 438.66(c), we propose that states use data collected from
its monitoring activities to improve the performance of its managed
care program. While we expect that many states already take this
approach, we propose to set it out here as a baseline standard for all
managed care programs. In this section we provide a list of activities
for which data should be used for performance improvement. This list
encompasses the areas that we believe are fundamental to every managed
care program and for which data is readily available. We do not propose
an exhaustive list in Sec. 438.66(c) of the performance areas about
which data should be used in improvement efforts to provide flexibility
for the state to collect and use additional data they find useful and
pertinent for its program.
In Sec. 438.66(d), we propose to establish a new standard for
states to conduct readiness reviews of MCOs, PIHPs, PAHPs and PCCM
entities prior to the effective date of new or modified managed care
programs, although experience has shown that states employ this
practice today. As proposed in paragraph (d)(1)(i) through (iv),
readiness reviews would have to be conducted prior to the start of a
new managed care program; when a new contractor enters an existing
program; or when the state adds new benefits, populations or geographic
areas to the scope of its contracted managed care plans. We propose in
paragraph (d)(2)(i) and (ii) that these readiness reviews would have to
be started at least 3 months before the State implements any of those
program changes, so that states ensure that critical MCO functions are
operational far enough in advance for successful implementation. In
paragraph (d)(2)(iii), we propose that the results of those readiness
reviews would have to be submitted to us to enable us to determine if
the contract or contract amendment is approved. This would permit both
CMS and the state to review the findings, discuss any possible issues,
and arrive at a mutual understanding of expectations. In paragraph
(d)(3), we propose that the readiness reviews would consist of both a
desk review of documents and an on-site visit that includes (at a
minimum) interviews with staff and leadership that manage key
operational areas. We do not propose to define the key operational
areas but rely on states to reasonably identify those areas in light of
the areas which are identified in proposed paragraph (d)(4). We believe
these are customary in readiness reviews of this kind and have proven
effective in helping states gather all of the information needed.
Finally, proposed paragraph (d)(4) would require four broad areas for
inclusion in the readiness review and outline sub-components within
each area. The broad areas are: (1) Operations and administration; (2)
service delivery; (3) financial management; and (4) systems management.
While a state can add more areas to their review, we believe these
provide a minimum foundation from which to build an effective readiness
assessment.
We note that these standards reflect our current guidance. For
example, our guidance for MLTSS programs under

[[Page 31159]]

section 1915(b) waivers and section 1115(a) demonstration projects set
forth MCO readiness to implement LTSS as a key element under adequate
planning; likewise under Special Terms and Conditions for new or
expanding managed care programs under these waiver and demonstration
authorities, states conduct readiness reviews of their contracted
managed care plans. Health plans participating in the Capitated
Financial Alignment Demonstration have to undergo an extensive
readiness review process before contracts will be signed and enrollment
of dual-eligible beneficiaries will be permitted.
Finally, to address the fragmented program information we currently
receive about states' managed care programs and to help improve our
oversight efforts, we propose in Sec. 438.66(e) that states provide an
annual program assessment report to us. States would have to submit
these to us no later than 150 days after the end of the managed care
plan's period of performance; this is intended to provide flexibility
to states which operate their programs on calendar year, state fiscal
year, or some other basis. We request comment on whether 150 days is
enough time after the end of a program year for the state to provide
the type of information we are proposing. In (e)(1), we propose
flexibility for states which already have to provide an annual report
under section 1115(a) demonstrations to submit that report for this
purpose if the information in the annual report is duplicative of the
information specified here.
We outline in proposed paragraph (e)(2) the areas on which
information and an assessment would have to be submitted by the state
in the report. We propose that the report include information about,
and assessments of the 8 areas of the managed care program detailed in
paragraph (b)(2). We take the opportunity here to emphasize that states
providing LTSS through managed care plans would also have to include
areas specific to MLTSS in this assessment; these could include
alignment of payment rates and incentives/penalties with the goals of
the program, any activities the managed care plans have undertaken to
further the state's rebalancing efforts, and the satisfaction of
enrollees with their service planners. In (e)(3), we also propose that
this annual program assessment would have to be posted publicly and
provided to the Medical Care Advisory Committee and, if applicable the
LTSS stakeholder group specified in Sec. 438.70.
d. Information Standards (Sec. 438.10)
We are concerned that current Sec. 438.10 pertaining to
information standards is not sufficiently clear or direct and does not
reflect current technology advances that provide access to information
more quickly and less expensively. For that reason, we propose to
replace the entire existing regulation section with a more structured
and coherent set of state and managed care plan standards for
beneficiary information. Electronic communications are becoming
typical, and we propose to explicitly permit both states and managed
care plans to make beneficiary information available in electronic
form. Electronic information will need to be disseminated in a manner
compliant with Section 504 of the Rehabilitation Act. In addition, we
believe that this proposed acceptance of electronic information
delivery would further our goal of alignment across insurance
affordability programs by aligning Medicaid managed care beneficiary
information dissemination practices with those of the MA program and
the commercial insurance market. We note that in this proposed rewrite
of Sec. 438.10, we have removed the distinctions among MCO, PIHP and
PAHP information standards. We believe that regardless of the scope of
the managed care plan's benefits, the information that should be
provided to potential enrollees and enrollees is the same for all types
of plans. Consequently, the standards for MCO, PIHP, and PAHP enrollee
handbooks, provider directories, and formularies must be consistent.
States retain the flexibility--within the minimum federal elements--to
tailor the information as needed; for example, specific benefit
explanations for potential enrollees can be provided consistent with
the scope of the managed care program and contracted managed care
plans.
We propose to move the current definitions in paragraph (a) to
Sec. 438.2 because those terms (``potential enrollee'' and
``enrollee'') are used throughout this part. It is important, however,
to note the differences in these definitions: ``Potential enrollee''
refers to a beneficiary that has been determined eligible for Medicaid
but is not yet enrolled in a managed care plan, while ``enrollee''
refers to a beneficiary who is a member of a specific MCO, PIHP, PAHP,
PCCM or PCCM entity. Proposed paragraph (a) would revise the definition
of ``prevalent'' and add a definition of ``readily accessible'' for use
in this section. The term ``prevalent'' is currently defined in Sec.
438.10(c)(1); we propose to amend the current definition of
``prevalent'' to clarify that the non-English languages that are
relevant are those spoken by a significant number or percentage of
potential enrollees and enrollees in the state that are limited English
proficient, consistent with standards used by the Office for Civil
Rights in enforcing anti-discrimination provisions related to
individuals with limited English proficiency.
We propose to add a definition of ``readily accessible'' to clarify
parameters for the provision of electronic information. States, MCOs,
PIHP, PAHPs, and PCCM entities should consult the latest section 508
guidelines issued by the U.S. Access Board or W3C's Web Content
Accessibility Guidelines (WCAG) 2.0 AA (see http://www.access-board.gov/sec508/guide/index.htm and http://www.w3.org/TR/WCAG20/) for
additional information. We believe it is important to specifically
address this issue given the inclusion of more complex populations in
managed care programs.
Proposed paragraph (b) would clarify that the standards in this
section apply to all managed care programs regardless of authority. We
propose this scope deliberately because the distinctions among managed
care programs that operate under the state plan and waivers or
demonstration projects are immaterial for purposes of beneficiary
educational materials that are provided in a managed care program. This
proposed rule incorporates those statutory standards of section
1932(a)(5)(B) through (D) of the Act and proposes to expand upon them
to encompass additional information for all beneficiaries based on our
authority under section 1902(a)(4) of the Act to adopt standards and
standards that are necessary for the proper and efficient operation of
the state plan.
Proposed paragraph (c) lays out basic standards for information in
managed care programs. Several of the proposed standards (that is,
paragraphs (c)(1) through (c)(5)) are applicable to the state as part
of its responsibility for ensuring delivery of critical program
information to beneficiaries. Proposed paragraphs (c)(1), (c)(6) and
(c)(7) are applicable to MCOs, PIHPs, PAHPs, and PCCM entities;
however, PCCMs would need to comply only with paragraph (c)(1).
In proposed paragraph (c)(1), we state the fundamental standard
that each state, enrollment broker, MCO, PIHP, PAHP, PCCM and PCCM
entity provide all information in an easily understood and readily
accessible manner and format, which includes the use of TTY/TDY and
American sign language interpreters; this is similar to the current

[[Page 31160]]

regulation at Sec. 438.10(b)(1) but would add PCCM entities consistent
with our proposal discussed in section I.B.6.e. of this proposed rule.
Except for PIHPs and PAHPs, this language implements the statutory
provision in section 1932(a)(5)(A) of the Act for all enrollment,
informational and instructional materials. We would rely on section
1902(a)(4) of the Act authority to extend such standards on PIHPs,
PAHPs, and PCCMs for the proper and efficient operation of the State
plan to ensure that enrollees and potential enrollees receive
information in a form and manner that they can understand. In paragraph
(c)(2), we propose that states would need to use the beneficiary
support system proposed under Sec. 438.71 in this proposed rule to
provide education and choice counseling to all beneficiaries. We
believe that this cross-reference more clearly expresses what states
should do than the current regulation text. Currently in Sec.
438.10(b)(2), states must have in place a mechanism to help enrollees
and potential enrollees understand the managed care program. We propose
in paragraph (c)(3) that states, as noted earlier in this proposed
rule, would need to operate a Web site for information about the
state's managed care program. We are confident that all states already
operate a Web site and that this proposal would merely codify existing
practices. Proposed paragraph (c)(4) would have states develop
standardized managed care definitions and terminology, and model
enrollee handbooks and notices for use by its contracted managed care
plans. The suggested list of definitions and terminology has been
adapted from the standards for a uniform glossary that commercial
insurers must include as part of their summary of benefits and coverage
(SBC) in 45 CFR part 147. Model handbooks and enrollee notices are
already used by mature managed care programs that have been in
operation for several years and have proven to be a good tool for
ensuring consistent information and tone in enrollee communications
across a variety of managed care plans. In paragraph (c)(5), states
would need to ensure, through their managed care contracts, that MCOs,
PIHPs, PAHPs, and PCCM entities provide the information outlined in
this section.
Proposed paragraph (c)(6) lists the standards for providing
information electronically. Specifically, electronic information would
have to be compliant with all language, formatting, and accessibility
standards; be in a prominent place on the state's, MCO's, PIHP's,
PAHP's, or PCCM entity's Web site; and be able to be retained and
printed. Additionally, all information must be made available to
enrollees and potential enrollees in paper format upon request at no
cost and provided within 5 calendar days. These standards are
consistent with those for QHPs operating in the Marketplace; thus we
believe that by proposing them we further our goal of alignment across
insurance affordability programs.
Proposed paragraph (d) addresses federal standards for the language
and format used for beneficiary information, and largely carries over
existing standards from current paragraph (c). However, we are
proposing to add three new standards, which we believe are important
beneficiary standards and recognize the cultural and linguistic
diversity of Medicaid beneficiaries. The first two changes, proposed in
paragraph (d)(2) and (d)(3), would have materials for potential
enrollees disseminated by the state, as well as enrollee materials
disseminated by MCOs, PIHPs, PAHPs or PCCM entities, to be available in
prevalent languages and include taglines in each prevalent non-English
language and large print explaining the availability of written
materials in those languages as well as oral interpretation in
understanding the materials. We also propose, based on guidance from
the American Printing House for the Blind, Inc., that large print must
be no smaller than 18 pt. We also propose in (d)(3) that written
materials must also be made available in alternative formats and
auxiliary aids and services should be made available upon request of
the potential enrollee and enrollee at no cost. The third change is
proposed in paragraph (d)(3)(i) where we more specifically identify the
`materials' which each MCO, PIHP, PAHP or PCCM entity would have to
make available in each prevalent non-English language in its service
area. To determine the types of materials to which this standard should
apply, we consulted guidance provided by HHS regarding access to
programs and services for persons with LEP: HHS Guidance to Federal
Financial Assistance Recipients Regarding Title VI Prohibition Against
National Origin Discrimination Affecting Limited English Proficient
Persons 68 FR 47,311 (Aug. 8, 2003) and Executive Order 13166,
``Improving Access to Services for Persons with Limited English
Proficiency'' at www.lep.gov. The HHS Guidance urges recipients of
federal financial assistance, such as Medicaid agencies, to ensure that
vital documents are translated into the non-English language of each
regularly encountered LEP group eligible to be served or likely to be
affected by the program or activity. Vital documents are those which
contain information that is critical for obtaining benefits. We are
proposing that provider directories, member handbooks, appeal and
grievance notices and other notices that are critical to obtaining
services be considered vital documents, and therefore would have to be
made available in each prevalent non-English language in its service
area. The current standard for oral interpretation services would
remain mostly unchanged in paragraphs (d)(4) except for adding a
clarification that interpretive services include the use of auxiliary
aids such as TTY/TDY and American sign language. Currently, under
paragraphs (b)(5)(i) and (ii), states have to notify enrollees of the
availability of interpretation and translation services and how to
access them. We propose to add a new (d)(5)(ii) clarifying that
potential enrollees and enrollees must be also be notified that
auxiliary aids and services are available upon request and at no cost
for enrollees with disabilities. This proposed addition would clarify
that interpretive services are not limited to limited English
proficient potential enrollees and enrollees. We propose to redesignate
current paragraph (d)(5)(ii) as (d)(5)(iii). We request comment on the
provisions of this paragraph.
Paragraph (d)(6) includes a standard that the availability of
alternative formats for beneficiary materials must include a large
print tagline and information on how to request auxiliary aids and
services, including the provision of materials in alternative formats.
Auxiliary aids would include but are not limited to the use of TTY/TDY
and American Sign Language interpreters. We also propose, based on
guidance from the American Printing House for the Blind, Inc., that
large print must be no smaller than 18 pt. We believe that the proposed
changes in paragraph (d) represent important protections for
beneficiaries who have limited English proficiency or need materials in
other formats due to disabilities to adequately understand managed care
programs and successfully navigate managed care plan processes.
In paragraph (e), we propose the information that must be provided
to potential enrollees. As this information is provided to
beneficiaries who either have the choice to enroll in the managed care
program or must be enrolled in the managed care program to receive
Medicaid benefits, we believe that it is important for the State to
provide

[[Page 31161]]

enough information for beneficiaries to know and understand the
implications of participating in the managed care program. It is also
important, for purposes of making an active selection of a MCO, PIHP,
PAHP or PCCM entity, that the potential enrollee receive information
about each choice available, including service area, participating
providers, and quality and performance information to the extent
available. We propose in paragraph (e)(1) to provide flexibility to the
states to provide this information in paper or electronic format to
ease the administrative burden and cost of mailing paper materials to
potential enrollees. Interpretation of our current regulations, which
did not provide alternatives to paper, has resulted in compliance
actions against states that did not give these materials to potential
enrollees in paper. States and MCOs are expected to assure effective
communications consistent with the ADA and Section 504 of the
Rehabilitation Act, consistent with applicable DOJ guidance. (See:
http://www.ada.gov/effective-comm.htm), and at a minimum provide
auxiliary aids and services to consumers with disabilities who need
this information in alternative formats, upon request. We request
comment on the flexibility offered to the state on both the information
elements and the provision of this information electronically or on
paper. Proposed paragraphs (e)(1)(i) and (ii) would maintain current
timeframes for the provision of the information.
In paragraphs (e)(2)(i) through (x), we propose a minimum list of
topics that the state would need to provide in the information they
send to potential enrollees; this includes disenrollment rights, basic
features of managed care, populations excluded from enrollment, service
area of each manage care plan, covered benefits, provider directory
information, cost sharing, network adequacy standards, care
coordination services available, and quality indicators for each MCO,
PIHP, PAHP, and PCCM entity.
The next paragraphs of proposed Sec. 438.10 focus exclusively on
information standards for managed care plan enrollees--that is, once
they have selected and enrolled in a managed care plan. Paragraph (f)
proposes general standards for both the state and managed care plans
regarding enrollee information; paragraph (g) proposes the minimum
content of enrollee handbooks and paragraph (h) proposes the minimum
content of provider directories. The products of the standards proposed
in these paragraphs would provide enrollees with a substantial and
valuable source of information on most aspects of how to access care
and fully utilize the benefits of their managed care enrollment. These
documents, whether electronic or hard copy, offer the enrollee an easy
to use reference that can often provide the information they seek. The
proposed language in these paragraphs incorporates elements from the
current regulatory standards for commercial insurers in 45 CFR part 147
regarding the provision of its SBC. While we recognize that electronic
communication is easier and less expensive, we remain concerned that
electronic communication not be the sole method for communicating this
critical information to enrollees. To that end, we provide flexibility
for a range of communication methods, including mail, email, and Web
site posting; however, managed care plans would need to notify
enrollees that these materials are available in paper form and through
auxiliary aids and services at no cost upon request.
As proposed, paragraph (f) would set forth basic standards
applicable to information that must be disclosed to enrollees of MCOs,
PIHPs, PAHPs, and PCCMs. In proposed Sec. 438.10(f)(1), we propose to
redesignate an existing regulatory standard in current Sec.
438.10(f)(5); that standard is that the managed care entity must make a
good faith effort to provide notice of the termination of a contracted
(that is, in-network) provider to each affected enrollee within 15 days
of receipt or issuance of the termination notice. For purpose of these
standards, an affected enrollee is one who received his or her primary
care from the provider or was seen on a regular basis by the provider.
In paragraph (f)(2), we propose to redesignate an existing regulatory
standard in current Sec. 438.10(f)(1); the state must notify all
enrollees of their right to disenroll and clearly explain the process
for doing so and, if enrollment is restricted for 90 days or more,
provide this notice at least 60 calendar days in advance of each
enrollment period. We propose to add ``calendar'' to remove ambiguity.
Lastly, in proposed paragraph (f)(3), MCOs, PIHPs, PAHPs, and when
appropriate PCCM entities, would have to provide any physician
incentive plans in place as specified in Sec. 438.3(i), upon request.
The regulatory standards in proposed paragraphs (g), (h), and (i)
address enrollee handbooks, provider directories, and formularies
because we believe these are foundational tools to help enrollees
utilize the benefits and services available to them from their managed
care plan. Since the majority of Medicaid beneficiaries use managed
care plans to access covered benefits, we believe it is critical for
enrollees to have the information necessary to understand their rights,
maximize their benefits, and be an effective self-advocate when
necessary. We have declined to propose regulatory standards for other
types of plan-enrollee communications, recognizing that those decisions
are best made at the state level based on the maturity and structure of
each state's managed care program.
Proposed paragraph (g) outlines minimum content standards for the
enrollee handbook and we have attempted to align with commercial
insurance standards by reflecting similarities to the SBC in both
content and appearance. In proposed paragraph (g)(1), each MCO, PIHP,
PAHP or PCCM entity would have to provide an enrollee handbook to each
enrollee within a reasonable time after receiving the enrollment notice
from the state. While the information proposed to be included in the
handbook (in proposed paragraph (g)(2)) already exists in current Sec.
438.10, it is currently not well organized or all in one section for
easy reference. Paragraph (g)(2) proposes to compile all of the
existing elements in one paragraph for easy reference. Taken together,
these elements will be referred to as a ``handbook'' consistent with
how the term is typically used in Medicaid managed care. While some
minor grammatical revisions have been made for clarity, the elements
remain the same as in current regulation. Paragraph (g)(3) proposes to
clarify the circumstances under which the MCO, PIHP, PAHP, or PCCM
entity would be considered to have provided the information in
paragraph (g)(2). We propose mail, email if enrollee consent obtained,
Web site with paper and electronic notification, auxiliary aids and
services at no cost (upon request), and any other method that can
reasonably be expected to result in the enrollee receiving the
information. We propose this last method to provide flexibility for
communication methods not commonly used, such as alternative
communication devices for persons with disabilities, and other
technological advances in communication not yet widely available.
Proposed paragraph (g)(4) continues the current standard that enrollees
be notified 30 days in advance of any significant change to any of the
information in paragraph (g). This is an important enrollee protection
as it allows the enrollee, if impacted, time to seek additional
information or assistance and make appropriate decisions. Consistent
with other

[[Page 31162]]

proposed revisions throughout Sec. 438.10, we propose to delete the
standard that this notice be written and let the provisions of
paragraphs (c) and (d) control regarding the standards for the use of
written and electronic communications. Proposed paragraph (h) specifies
the minimum content standards for provider directories. The content and
accuracy of provider directories has long been an issue of contention
between states, managed care plans and stakeholders. The move to
electronic provision of this document would improve the accuracy of the
information; however, even Web-based provider directories can be out of
date quickly without accurate information from participating providers
to the managed care plans. Additionally, there is wide variation in the
information provided in managed care plan provider directories. While
we recognize that our proposed elements may not address every type of
information that may be helpful for enrollees, we have attempted in
this paragraph to balance all perspectives as well as recognize that
managed care plans provide member services call centers and auxiliary
aids and services (including TDY/TTY lines) which can provide more
personalized and timely assistance to enrollees in locating appropriate
providers.
Proposed paragraph (h)(1)(i) through (viii) would include all of
the elements that exist currently in Sec. 438.10(f)(6)(i) but expands
on them in four key ways. In addition to name, address, telephone
number, and open panel status, we propose to add four additional
elements: A provider's group/site affiliation, Web site URL (if
available), the provider's cultural and linguistic capabilities, and
the accessibility of the provider's office to enrollees with physical
disabilities. Physicians' affiliation with a group/site would assist
enrollees in more quickly identifying physicians they are searching
for; likewise, a group practice/site Web site can be a good source of
information for enrollees. Finally, accommodations available for
persons with physical disabilities as stipulated by the Americans with
Disabilities Act and Section 504 are critical for managed care plans,
which increasingly provide services to individuals with disabilities.
This is important both operationally so that enrollees with limited
vision and other impairments can reasonably access that information
online as well as on paper, as well as in the delivery of services. It
also is important for deaf and hard of hearing enrollees who may need
in-person ASL interpreters as well as the use of TTY/TDY lines and/or
relay services. We believe that meaningful access for those enrollees
is available only when they can utilize the full scope of services at a
provider's office. We request comment on these new elements, which
deviate from the elements that are generally included in provider
directories provided by MA plans and group health and private insurers.
Paragraph (h)(2)(i) through (v) proposes five provider types that would
have to be included in the directory, if applicable under the contract:
Physicians, hospitals, pharmacies, behavioral health, and LTSS. In
paragraph (h)(3) we propose that paper provider directories must be
updated at least monthly and electronic directories within 3 business
days of receiving updated provider information. Lastly, to align
managed care with both QHPs and MA, in paragraph (h)(4), we propose
that provider directories be made available on the MCO's, PIHP's,
PAHP's, or if applicable, PCCM entity's Web site. The current rule for
MA plans (Sec. 422.111(h)) requires such plans to post provider
directories online. In a recent final rule (80 FR 10873), HHS finalized
a requirement for QHPs in a federally facilitated Marketplace to post
provider directories in a machine readable format specified by the
Secretary. The purpose of establishing machine readable files with
provider directories would be to provide the opportunity for third
parties to create resources that aggregate information on different
plans. We believe posting machine readable formats of directories will
increase transparency by allowing software developers to access this
information and create innovative and informative tools to help
enrollees better understand the availability of providers in a specific
plan. Therefore, we are proposing here that MCOs, PIHPs, PAHPs, and if
applicable, PCCM entities must post provider directories on their Web
sites in a machine readable file and format specified by the Secretary.
We invite comment on this proposal.
Going forward, we believe that the accuracy and usefulness of
provider directories could be improved by requiring that their data be
held in a standardized format and be exposed through open and
standardized application programming interfaces (APIs). Specifically,
we are considering requiring the best available provider directory
standard as listed in the ONC draft of the ``2015 Interoperability
Standards Advisory'' published for public comment (available at http://healthit.gov/standards-advisory); that advisory lists the IHE IT
Infrastructure Technical Framework Supplement, Healthcare Provider
Directory (HPD), Trial Implementation Profile. This would allow CMS,
State Medicaid, or private third parties to ``plug into'' the provider
directories to perform automated accuracy checks. This could be done by
comparing the directories against other data sources with bidirectional
connections and interfaces, such as death registries and licensure
registries. Provider directories with standardized APIs could also be
leveraged by developers to create applications that are more useful for
consumers than static, non-standardized Web sites. We invite comments
on this strategy.
We also propose a new paragraph (i), Information for all enrollees
of MCOs, PIHPs, PAHPs, and PCCM entities--Formulary. This proposed
paragraph would have MCOs, PIHPs, PAHPs, and PCCM entities provide
their medication formularies electronically or paper, if requested.
Under proposed paragraph (i)(1) and (i)(2), the formulary must display
all covered medications, both generic and brand name, and have the tier
of each medication. We are proposing this paragraph because
understanding how medications are covered by the managed care plan is
important information for enrollees, particularly for those with
chronic conditions or on-going needs. Additionally, we propose that
formulary drug lists be made available on the MCO's, PIHP's, PAHP's, or
if applicable, PCCM entity's Web site in a machine readable file and
format as specified by the Secretary for the same reasons discussed in
this section of this proposed rule in connection with provider
directories. Machine readable files with formulary drug lists would
provide the opportunity for third parties to create resources that
aggregate information on different plans. We believe this will increase
transparency by allowing software developers to access this information
and create innovative and informative tools to help enrollees better
understand formulary drug lists across specific plans. We invite
comment on this proposal.
e. Primary Care Case Management (Sec. 438.2, Sec. 438.3, Sec.
438.330, Sec. 438.340, and Sec. 438.350)
Primary Care Case Manager (PCCM) services have a unique status in
the Medicaid program. PCCM services are considered a State-plan covered
benefit through section 1905(a)(25) of the Act. Section 1905(t) of the
Act defines PCCM services, the providers that may furnish them, and the
standards for a PCCM contract--one of which is that the State's
contract with the PCCM complies with applicable sections of

[[Page 31163]]

1932 of the Act (the managed care rules in the Act). A primary care
case manager, as defined in section 1905(t)(2) of the Act, is
considered a managed care entity under section 1932(a)(1)(B)(ii) of the
Act. Current regulatory standards in part 438 have minimal standards
that PCCM programs have to meet; they generally mirror the statutory
standards specified in section 1932 of the Act.
Current regulations reflect the prevailing PCCM program design that
existed in 1998. At that time, virtually all PCCM programs were
intended to layer a `gatekeeper' model on top of states' FFS programs.
Each primary care provider who acted as a PCCM was paid a small monthly
fee (typically less than $5.00) per beneficiary in recognition of the
provision of PCCM services, in addition to any direct service payment
the provider might also receive from the state, to coordinate access to
primary care services and manage referrals to specialty care for
Medicaid beneficiaries. The Medicaid provider was not held accountable
for quality or health outcomes for that enrollee. We believe the
current regulatory structure still works reasonably well for these
`gatekeeper' PCCM programs, which generally are very small and remain
exclusively focused on individual primary care providers.
Over the past 8 years, however, states have determined that they
need additional tools to better manage utilization of Medicaid
services. Some states have added a more intensive care coordination
function to their PCCM programs and these care coordination/case
management activities have generally been provided, under contract,
with regional non-profit networks in some states or for-profit
organizations in others. Such entities typically oversee the case
management/care coordination activities performed by the primary care
case managers and administer provider financial incentives, provider
profiling, and performance and quality reporting. The activities
performed by the broader entity and the additional responsibilities and
incentives available to primary care case managers built upon the early
PCCM model; therefore, this expanded approach to primary care case
management has been generally referred to as the ``enhanced'' PCCM
model. Current regulations in part 438 do not explicitly address these
entities as they were not a common model when the current regulations
were drafted. Typically, a more robust PMPM fee has been paid to these
entities, depending upon the scope of activities under the contract;
however, these payments are not considered risk-based capitation
payments subject to the actuarial soundness standards of Sec. 438.4
through Sec. 438.7 because the entities are not responsible for the
provision of medical services under the state plan. Rather, the state
continues to pay for medical services on a FFS basis. As these PMPM
fees are not subject to the actuarial soundness standards, federal
review and approval of these payments has been limited. In this rule,
we propose to adopt a term for these more intensive care case
management entities: PCCM entities. Our proposed term reflects our view
that these entities are PCCMs subject to the statutory minimum
standards for PCCMs but by distinguishing these entities from the
traditional PCCM model--one based on the use of individual providers to
act as gatekeepers--we can effectively exercise our authority under
section 1902(a)(4) of the Act to adopt additional standards for those
PCCM entities that provide more intensive case management and care
coordination, measure performance outcomes and quality improvement
activities, and receive higher reimbursement.
In at least seven states, PCCM entities provide many administrative
functions of health plans--such as network management, data analysis,
quality improvement support (including HEDIS measures and enrollee
satisfaction surveys), utilization and case management of a whole range
of services including behavioral health and LTSS. Finally, in a few
instances, the state has built in shared savings or other incentive
payment arrangements with the PCCM entity and that entity's
participating providers which result in the PCCM entity realizing
profits from its effective exercise of its functions. In essence, the
only difference between an MCO and PCCM entity in these states is that
the PCCM entity does not accept financial risk for acute care or LTSS
services. However, if the entity receives shared savings or other
payments as a result of decreasing costs for those services through the
provision of primary care case management services, the entity shares
the same financial incentives as managed care plans.
In 2009, the Center for Health Care Strategies, Inc., produced a
report analyzing what they termed `enhanced' PCCM programs in five
states: North Carolina, Pennsylvania, Oklahoma, Indiana and
Arkansas.\17\ Since that time, both Colorado and Louisiana have
implemented enhanced PCCM programs. These programs focus on intensive
care management strategies coupled with financial incentives, provider
profiling, and performance and quality reporting.
---------------------------------------------------------------------------

\17\ http://www.chcs.org/usr_doc/EPCCM_Full_Report.pdf.
---------------------------------------------------------------------------

The benefit to these arrangements is that the state is able to
receive FFP for payments to the PCCM entities, because primary care
case management services are a state plan covered service under section
1905(a)(25) of the Act, rather than the 50 percent administrative match
they would receive if the state conducted these case management
activities, network management, data analysis, and quality improvement
support (including HEDIS measures and enrollee satisfaction surveys)
themselves. However, these activities are significantly more involved
than those PCCM services described in the current regulatory definition
of a PCCM: ``locating, coordinating and monitoring primary care
services.'' Consistent with our goal of modernization, we propose to
update our regulatory structure to recognize these expanded set of
services, but couple that modernization with new standards on PCCM
entities that have the same operational responsibilities and financial
incentives as managed care plans--absent the financial risk for medical
services.
We propose to also distinguish the PCCM programs that are
considered managed care, and therefore, subject to the specified
standards of part 438, from other health care delivery systems, such as
integrated care models, patient-centered medical homes, and accountable
care organizations which would remain outside the purview of the
regulatory changes we are proposing in this rule. State Medicaid
Director Letters (SMDL) issued in 2012 outlined new flexibilities for
states to implement integrated care models that fall on the spectrum
between unmanaged FFS and full-risk managed care. SMDL #12-002
specifically highlighted that primary care case management is a state
plan service, which does not necessarily have to be a managed care
delivery system, available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SMD-12-002.pdf.
Notwithstanding the guidance in those SMDLs, states continue to
seek clarification on the attributes of a PCCM program that make it
``managed care'' and they perceive that there are additional burdens if
the program is considered a managed care program. We clarify in this
preamble that states may operate PCCM programs--under the rubric of
integrated care models, accountable care organizations or other similar
terms--without triggering the standards of part 438 (which include
additional contractual obligations) as long as enrollees' freedom of
choice is not constrained and any willing and

[[Page 31164]]

qualified provider can participate--that is, where traditional FFS
rules for provider participation remain in place. For such programs
that use FFS provider participation, only the statutory standards in
section 1905(t) of the Act that apply to PCCM contracts will apply, and
not our further interpretations and applications of the provisions of
section 1932 of the Act. We request comment on this proposal and our
underlying analysis; further, we request comment on whether we should
consider further rule-making to better explain these differences.
The framework we are using to modernize the managed care standards
for PCCM programs (consistent with the discussion above) distinguishes
between PCCM programs that utilize individual provider approaches to
provide a basic level of primary care case management and PCCM programs
that are using entities to provide a more robust set of administrative
functions similar to that of a managed care plan. To clarify these
distinctions, we propose in Sec. 438.2 to exercise our flexibility
under section 1902(a)(4) of the Act--to ensure proper and efficient
management of the state plan--to update definitions for primary care
case management and primary care case manager. We propose to modify the
existing definition in Sec. 438.2 for a ``primary care case management
system'' as a system under which a state contracts either with an
individual (primary care case manager) to provide case management
services or when a state contracts with an entity to furnish case
management services or a defined set of functions that go beyond case
management services. We also propose to remove the reference to an
``entity'' under the existing definition of ``primary care case
manager'' as an ``entity'' that provides primary care case management
services is defined in the proposed new definition of ``PCCM entity''
that would permit a broader scope of functions to be provided than
those focused on primary care case management services; these include
such activities as intensive case management, development of enrollee
care plans, execution of contracts and/or oversight responsibilities
for the activities of FFS providers, provision of payments to FFS
providers, enrollee outreach and education, operation of a customer
service call center, provider profiling and quality improvement and
measurement, coordination with behavioral health providers, and
coordination with LTSS providers. We believe these functions are
inclusive of the range of functions that current PCCM programs cover.
Throughout this document and in the revisions to part 438, we have
included a reference to a PCCM entity wherever there was an existing
standard on PCCMs. We have also identified those standards that only
apply to PCCM entities when they undertake certain responsibilities on
behalf of the state.
Existing law at Sec. 438.6(k) (which we propose above to move to
Sec. 438.3(q)) implements the statutory provisions in section 1905(t)
of the Act for PCCM contracts, which does not include a standard for
our review and approval of those contracts. While we encourage states
to submit them to us to assess compliance with the contract standards
in this paragraph, most states do not do so. However, based on the
range of functions that PCCM entities, as we have defined them, can
provide to states as noted above, we believe that contract review and
approval--similar to that of PIHPs and PAHPs under our authority under
section 1902(a)(4) of the Act--is appropriate in this context. We
believe our review would improve oversight and understanding of these
programs. Therefore, we propose a new Sec. 438.3(r) to have states
obtain our approval of PCCM entity contracts. This proposed paragraph
also specifies new standards that we propose elsewhere in this rule.
For PCCM entities that have the same administrative responsibilities
and financial incentives as MCOs, PIHPs, and PAHPs, states which hold
their PCCM entities accountable for provider behavior and quality
outcomes would have to monitor and evaluate the performance of their
networks accordingly. Specifically, those PCCM entity contracts which
provide for shared savings or other payment incentives--the same
financial incentives that managed care plans have--should be held to
higher standards in terms of enrollee information and quality
improvement.
This proposed approach is consistent with the guidance that CMS has
provided for integrated care models in SMDL #13-005 and SHO #13-007,
available at http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SMD-13-005.pdf and http://medicaid.gov/Federal-Policy-Guidance/Downloads/SHO-13-007.pdf. The SMDL and SHO letter expressed our
interest in achieving improved health, quality care and reduced costs.
We noted that quality improvement and measurement are the foundation
for payment models that can improve care and reduce costs, and
encouraged states to develop statewide quality strategies that can
guide efforts to improve quality across state Medicaid programs.
Further, we laid out our expectations that states pursuing models that
rely on measurable improvements as the basis for validation of payment,
be able to articulate a comprehensive quality strategy that describes
their overall goals and interventions. The difference in regulatory
authority between integrated care models operating under the state plan
and PCCM entities operating as a managed care entity should not result
in differential treatment or expectations when the activities and
responsibilities under an integrated care model and a PCCM entity are
similar.
We have proposed changes to the following sections to effectuate
these new standards related to PCCM entities that are also discussed in
proposed Sec. 438.3(r) at section I.B.2. of this proposed rule: Sec.
438.10; Sec. 438.330; Sec. 438.340; and Sec. 438.350. However, we do
not propose to subject traditional PCCMs to these standards because
PCCMs are not responsible for the activities that PCCM entities are
responsible for under our proposed framework. In Sec. 438.10, we
propose to treat PCCM entities like MCOs, PIHPs and PAHPs in areas
including oral and written translation standards; general and
miscellaneous enrollee information standards; and enrollee handbook and
provider directory content standards. In Sec. 438.330, Sec. 438.340
and Sec. 438.350, we propose small modifications in each section, as
follows, to propose new standards for PCCM entities:
In Sec. 438.330, we propose that states assess the
performance of each PCCM entity to detect over- and underutilization of
services; performance measurement using standard measures; and conduct
a program review.
In Sec. 438.340, we propose that the state's quality
strategy, consistent with the guidance provided in SMDL #13-007,
describe how the state is assessing the performance and quality
outcomes achieved by each PCCM entity.
In Sec. 438.350, we propose--based on inquiries received
by states with PCCM entities--that the state may have their EQRO
perform an external quality review of each PCCM entity. Since EQRs of
MCOs, PIHPs, and PAHPs focus on the operation of the managed care plan,
we believe that applying similar review principles to PCCM entities is
reasonable and appropriate.
f. Choice of MCOs, PIHPs, PAHPs, PCCMs, and PCCM Entities (Sec.
438.52)
One of the key principles in federal statute and regulations is
that enrollees--to the maximum extent possible--have a choice of more
than one managed care plan. Section 1932(a)(3) of the Act requires that

[[Page 31165]]

choice be an element of a mandatory managed care program for MCOs and
PCCMs and we adopted, in the 2002 final rule at current Sec. 438.52,
an application of that standard for PIHPs and PAHPs. By statute,
enrollees in a mandatory managed care program must be given the choice
of at least two ``managed care entities,'' a term defined as PCCMs and
MCOs.
We are proposing modifications to Sec. 438.52(a) to clarify
current standards regarding the choice of two entities. Under the
current regulation, states must give enrollees a choice of two MCOs,
PIHPs, PAHPs, or PCCMs if enrollment with such an entity is necessary.
In paragraph (a)(1), we propose to remove the reference to PCCM and
provide that states that enroll beneficiaries in an MCO, PIHP or PAHP
must give those beneficiaries a choice of at least two MCOs, PIHPs or
PAHPs. As background, elsewhere in this proposed rule, we propose to
separate PCCMs that are an individual physician (or physician assistant
or certified nurse mid-wife) or a physician group practice from an
entity or organization that employs such health care professionals and
performs services on the state's behalf in addition to basic primary
case management services. That proposal underlies the proposed
amendments here for how the statutory choice standards would be
implemented for PCCMs and PCCM entities. In paragraph (a)(2), we
propose that in a primary care case management system, as currently
defined in Sec. 438.2, beneficiaries must be permitted to choose from
at least two primary care case managers (PCCMs) employed by or
contracted with the state. In paragraph (a)(3) we propose that
beneficiaries who must enroll in a PCCM entity may be limited to one
PCCM entity, but beneficiaries must be permitted to choose from at
least two primary care case managers employed by or contracted with the
PCCM entity. When a state's primary care case management system uses
individual providers (physicians, physician assistants, etc.), for the
provision of primary care case management services, beneficiary choice
is exercised at that level. We recognize that for programs which use
PCCM entities, virtually all states employ either regional
organizations that serve every enrollee residing in that region or a
single statewide organization. We believe that the statutory standard
for choice is satisfied when a beneficiary is provided a choice of
actual manager, namely that a beneficiary has the right under section
1932(a)(3) of the Act to select either a care manager/care coordinator
employed by the entity or a primary care provider contracted with the
entity (or in some cases, by the state directly). Our proposed changes
explicitly permit such an approach.
In addition, section 1932(a)(3)(B) of the Act provided an exception
to the standard that an enrollee have the choice of at least two MCOs,
or PCCMs, if applicable, for states with rural areas. This exception is
reflected in the current regulations at Sec. 438.52(b), wherein the
exception to choice was extended to PIHPs and PAHPs. We propose two
significant changes to the implementation of the rural area exception.
First, as a consequence of our proposal to change the implementation of
the enrollee choice standards, we propose to eliminate the rural
exception for PCCMs.
Second, we propose to change the definition of a rural area for
purposes of the state option to contract with one MCO, PIHP, PAHP, or
PCCM under mandatory Medicaid managed care programs. The current
definition of a rural area at Sec. 438.52(b)(3) is any area other than
an ``urban'' area as specified in the Office of Management and Budget's
(OMB) delineation of Metropolitan Statistical Areas (hereinafter OMB
Bulletin). The OMB Bulletin produces geographic distinctions focused on
a core population center that has a high degree of social and economic
integration with adjacent territories as measured by commuting ties,
which can include less densely populated areas within a Metropolitan
Statistical Area (MSA). OMB has consistently warned against the non-
statistical use of the delineations within the OMB Bulletin, noting
that: ``Metropolitan and Micropolitan Statistical Area Standards do not
produce an urban-rural classification, and confusion of these concepts
can lead to difficulties in program implementation [for programs that
rely on such distinctions].'' See for example 75 FR 37236 (June 28,
2010).
Our experience working with states that have sought to exercise the
rural exception to choice gives credence to OMB's statement. We have
encountered a number of states seeking to contract with one MCO, PIHP,
PAHP, or PCCM system in sparsely populated counties that are classified
as part of an MSA and cannot meet the current regulatory definition for
a rural area. We believe the intent of the provision was to recognize
the health care access challenges unique to rural areas as well as the
likelihood that MCOs, PIHPs, and PAHPs could not sustain their
financial model in areas with low Medicaid enrollment.
To better reflect the intent of the provision, we propose to adopt
Medicare's county-based classifications to set network adequacy
standards under the MA program. Medicare establishes population and
density parameters based on approaches taken by the Census Bureau in
defining ``urbanized areas'' and OMB's delineation of ``metropolitan''
and ``micropolitan'' areas. These parameters are then used to set
nationwide county designations as ``large metro,'' ``metro,''
``micro,'' ``rural,'' or ``Counties with Extreme Access Considerations
(CEAC).'' The county designations are published annually in the MA
Health Services Delivery (HSD) Reference file, which is accessible at
the MA Applications page at http://www.cms.gov/Medicare/Medicare-Advantage/MedicareAdvantageApps/index.html?redirect=/MedicareAdvantageApps/. We propose that a county with a designation
other than large metro or metro would fall under the definition of a
rural area for purposes of the rural exception to choice. We believe
that the Medicare county designations would be easy for states to
research and for us to confirm a county's classification as rural. In
addition, we believe that a number of states that were barred from
exercising the rural exception to choice under the existing standard
would see greater flexibility with the proposed change. We believe that
the modification to the definition of a ``rural'' area for purposes of
exercising the exception to choice of health plans addresses past
challenges faced by some states. However, consistent with the key
principle in favor of plan choice outlined earlier, we continue to
encourage the provision of such choice to beneficiaries where feasible.
We considered adopting the geographic distinctions used by the
Office of Rural Health Policy (ORHP) within the Health Resources and
Services Administration (HRSA) for purposes of determining a provider's
eligibility for grant funding available through that agency. ORHP's
definition of a rural area identifies lower population counties or
census tracts within a county that otherwise fall under OMB's
delineation of MSAs. Census tracts are defined at the zip code rather
than county level, so it is possible for a county to include multiple
census tracts of different population densities. If we were to adopt
ORHP's approach, we would need to establish a review standard for a
county that as a whole did not qualify as rural and states would have
the burden of researching the

[[Page 31166]]

nature and scope of the census tracts to meet the standard.
g. Non-Emergency Medicaid Transportation PAHPs (Sec. 438.9)
As states' managed care programs have matured, states have used
PAHPs for a broader scope of services than was initially considered
when the Medicaid managed care rules were finalized in 2002. With that
in consideration, we propose additional provisions throughout part 438
to address PAHPs providing medical services (as currently defined in
Sec. 438.2) which are discussed throughout the preamble of this
proposed rule. However, we understand that states may also use a PAHP
structure to deliver only Non-Emergency Medical Transportation (NEMT)
services when they are not using the state plan brokerage option
authorized through section 1902 of the Act or providing NEMT through
Medicaid FFS or as an administrative activity. We do not believe that
states and PAHPs providing only NEMT services should have to comply
with the full scope of PAHP provisions included in part 438. Therefore,
we propose to amend the existing Sec. 438.8 to include only the
specific provisions applicable to NEMT PAHPs.
First, we propose to change the section number of Sec. 438.8 to
Sec. 438.9 because of additional sections added to the beginning of
the subpart. Second, in an effort to avoid duplicative information, we
propose to delete the existing language in paragraphs (a) and (b) as
all the PIHP and PAHP provisions listed in the existing paragraphs are
specified throughout the regulatory text of part 438 and, therefore, it
is unnecessary to include a separate section listing the standards
applicable to PIHPs and PAHPs. We propose a new paragraph (a) which
defines an NEMT PAHP as an entity that provides only NEMT services to
enrollees under contract with the state on a pre-paid capitated basis
or other payment arrangement that do not use state plan payment rates.
If a state chooses to use a PAHP to provide NEMT services along with
any other ambulatory medical service, that PAHP would then be
considered a traditional PAHP as defined in Sec. 438.2 and all the
PAHP provisions throughout part 438 would apply. Lastly, in paragraph
(b) we list the specific provisions in part 438 that would apply to
NEMT PAHPs in the same way they apply to any other PAHP. The provisions
that apply include contracting provisions, actuarial soundness
standards, information standards, anti-discrimination provisions,
certain state responsibility provisions, certain enrollee rights and
responsibilities, certain PAHP standards, right to fair hearings, and
certain program integrity standards. We believe this list achieves the
appropriate balance of beneficiary protections and administrative
efficiency for States and NEMT PAHPs.
h. State Plan Standards (Sec. 438.50)
Section 438.50 governs state plan standards for programs with
mandatory managed care enrollment and currently has a reference to
``managed care entities.'' Although defined in the statute, ``managed
care entities'' is an undefined term in the regulation. Because this
provision only applies to MCOs and PCCMs as referenced later in Sec.
438.50, we propose to replace the term ``managed care entities'' with
``MCOs, PCCMs, or PCCM entities, as applicable.''
In addition, we propose to delete paragraphs (e) and (f), which
addressed priority and default enrollments for managed care programs
operated under section 1932(a) of the Act. These processes, along with
other general standards for enrollment, that are applicable to all
authorities for managed care programs are provided in the proposed new
Sec. 438.54.
7. Implementing Statutory Provisions
a. Encounter Data and Health Information Systems (Sec. 438.2, Sec.
438.242 and Sec. 438.818)
Sections 6402(c)(3) and 6504(b)(1) of the Affordable Care Act
reorganize, amend, and add to the provisions of sections 1903(i)(25)
and 1903(m)(2)(A)(xi) of the Act by adding provisions related to
routine reporting of encounter data as a condition for receiving
federal matching payments for medical assistance. Section 1903(i)(25)
of the Act mandates that, effective March 23, 2010, federal matching
payments to the states must not be made for individuals for whom the
state does not report enrollee encounter data to us. Further, section
1903(m)(2)(A)(xi) of the Act specifies that an MCO must report
``patient encounter data'' for contract years after January 1, 2010, to
the state in a timeframe and level of detail specified by the
Secretary. As discussed below, the data that must be collected and
reported under these provisions is the same, but the population of
``enrollees,'' compared to ``patients,'' includes enrollees of PIHPs
and PAHPs under our interpretation.
Since effective monitoring of all programs from which enrollees
receive services is a critical function, we are proposing to expand the
contract standards that apply the provisions of section
1903(m)(2)(A)(xi) of the Act to PIHPs and PAHPs by utilizing authority
under section 1902(a)(4) of the Act to ensure the proper and efficient
operation of the State plan.
In issuing these provisions, we propose to add the following:
A definition of enrollee encounter data in Sec. 438.2;
Additional MCO, PIHP, and PAHP contract standards defining
enrollee encounter data submission and maintenance standards;
Clarifications to better align the basic elements of a
health information system with the Affordable Care Act; and
Standards on the state to report accurate, complete, and
timely enrollee encounter data to us as a condition for receiving
federal matching payments on its MCO, PIHP, and PAHP contract
expenditures.
In Sec. 438.2, we propose to define enrollee encounter data as the
information relating to the receipt of any item(s) or service(s) by an
enrollee under a contract between a state and a MCO, PIHP, or PAHP that
is subject to the standards of Sec. Sec. 438.242 and 438.818.
We propose to revise Sec. 438.242 to clarify and align the basic
elements of a MCO, PIHP, or PAHP health information system with the
Affordable Care Act. The size and scope of today's Medicaid programs
need robust, timely, and accurate data to ensure the highest financial
and program performance, support policy analyses, and maintain ongoing
improvement that enables data-driven decision making. In August 2013,
we released SMDL #13-004 that issued guidance to states on the
Transformed Medicaid Statistical Information System (T-MSIS) http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SMD-13-004.pdf. We
intend to review whether managed care entities provide timely and
accurate encounter data to facilitate the transition to T-MSIS. Future
guidance and revisions to the CMS EQR protocols would reflect this
ongoing effort. In paragraph (a) we use authority in section 1902(a)(4)
of the Act for the proper and efficient administration of the state
plan and propose to include PAHPs as being subject to the standards.
This is in alignment with the reasoning for expanding numerous other
standards throughout this part to PAHPs; that is, the services they are
contracted to provide are important and they must be held as fully
accountable as MCOs and PIHPs and enrollees of PAHPs must be afforded
the same protections as MCO and PIHP enrollees. Additionally, the
reference to having sufficient data to

[[Page 31167]]

achieve the objectives of ``this subpart'' is changed to ``this part''
to emphasize the critical role data plays in achieving the objectives
throughout part 438.
In Sec. 438.242(b)(1), we propose a specific reference to the new
standard in section 6504(a) of the Affordable Care Act, which would
mandate that state claims processing and retrieval systems be able to
submit data elements to us deemed necessary for Medicaid program
integrity, oversight, and improvement. Existing paragraph (b)(1) is
redesignated as paragraph (b)(2) and proposes to add ``all'' to clearly
indicate that data collected by the State would have to include all
services furnished to an enrollee. To further support our intent, in
paragraph (b)(3)(i), we propose to add ``including capitated
providers'' as this is currently a data weakness for many states, MCOs,
PIHPs, and PAHPs. Utilization data from capitated providers is
frequently less robust, or in some cases non-existent. This data is
equally as important as the data from providers paid on a FFS basis and
must be incorporated and utilized in all MCO, PIHP, and PAHP functions.
We propose a new Sec. 438.242(c) to add enrollee encounter data
standards that would have to be incorporated in all MCO, PIHP, and PAHP
contracts. Contracts would have to specify that enrollee encounter data
must: include rendering provider information; be submitted in a manner
compliant with our specifications and in accordance with the standards
of Sec. 438.818; and be submitted to the State in a format consistent
with the industry standard ASC X12N 835, ASC X12N 837, and NCPDP
formatting. In paragraph (c)(2), we propose that MCOs, PIHPs, and PAHPs
submit data at a level of detail to be specified by CMS. To retain
flexibility to adapt to changes in payment practices over time, we
anticipate issuing clarifying guidance in the future to provide
specificity. At a minimum, we expect the initial guidance to include
standards for MCOs, PIHPs, and PAHPs to submit to the state: enrollee
and provider identifying information; service, procedure and diagnosis
codes; allowed/paid, enrollee responsibility, and third party liability
amounts; and service, claim submission, adjudication, and payment
dates.
We propose to add a new Sec. 438.818 entitled Enrollee Encounter
Data to implement the standard for enrollee encounter data reporting by
the state. In this section, we propose that federal matching payments
would not be available for states that do not meet established data
submission benchmarks for accuracy, completeness, and timeliness.
Timeliness and frequency of reporting encounter data is a key issue in
terms of alignment between the managed care delivery system and the FFS
Medicaid delivery system. We released guidance in 2013 \18\ that
clarified the data elements, reporting structure for, and frequency of
enrollee encounter data in the Medicaid Statistical Information System
(MSIS). Those standards mandate monthly submission for all FFS and
managed care data.
---------------------------------------------------------------------------

\18\ http://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SMD-13-004.pdf.
---------------------------------------------------------------------------

In addition to receipt of data in a timely manner, receipt of data
that is accurate and complete is integral to our administration and
oversight of state Medicaid programs. This means that encounter data
submitted to us must represent all services received by an enrollee
regardless of payment methodology, including services sub-capitated by
a MCO, PIHP, or PAHP to a provider. In proposed Sec. 438.818(a), we
restate the statutory provision prohibiting FFP unless the state meets
the standards for submitting encounter data. Proposed paragraph (a)(1)
would have the submission of encounter data be compliant with current
HIPAA security and privacy standards and in the format needed by the
Medicaid Statistical Information System (MSIS) or any successor format.
MSIS and T-MSIS are the repositories of all encounter data for the
Medicaid program and although submission of data to MSIS has been a
standard for years, states have not always invested the resources
needed to ensure the quality of the submissions. We propose these
changes to support efforts currently underway to improve the accuracy,
timeliness, and completeness of submissions. In proposed paragraph
(a)(2), the state would have to validate enrollee encounter data before
each submission to us. States may use various methods to ensure the
accuracy and completeness of the encounter data. One such method may be
to use the protocol defining the optional External Quality Review (EQR)
activity for Encounter Data Validation. States that use their EQRO to
conduct Encounter Data Validation can receive 75 percent match for
those contract expenses as specified in section 1903(a)(3)(C)(ii) of
the Act. We expect that if a State chooses a different method, it will
ensure that there is sufficient analytic rigor in the chosen method. We
request comment on other possible methods for achieving validated data
in each submission.
Proposed Sec. 438.818(a)(3) would reinforce the importance of
complying with all MSIS encounter data reporting standards as a
condition for receipt of FFP. Encounter data is just one piece of a
complete MSIS submission. To maximize our ability to fully integrate
and utilize all MSIS data for comprehensive analysis and oversight,
encounter data needs to be fully compliant. In Sec. 438.818(b) and
(c), we propose to review each encounter data submission for accuracy
and potentially defer or disallow payment to a state if it is
determined that the enrollee encounter data set is not complete,
accurate, and timely. If, after review of an encounter data submission,
we determine that it does not comply with established criteria, we
propose to provide the State with a reasonable opportunity to make the
submission compliant. If the State is unable to make the submission
compliant within the time allowed, we propose to defer and/or disallow
FFP for the MCO, PIHP, or PAHP contract in question. We believe that
the statute contemplates a per-enrollee disallowance for a failure to
report enrollee encounter data. We believe it is more accurate to
calculate the deferral and/or disallowance amount based on the enrollee
and the specific service type of the non-compliant data. Using this
methodology, only the portion of the capitation payment attributable to
that enrollee for the service type of the non-compliant data would be
considered for deferral and/or disallowance. For example, if the non-
compliant encounter data is for inpatient hospital services, then only
the inpatient hospital portion of the capitation payment for that
enrollee would be subject to deferral and/or disallowance.
Any reduction in FFP would be effectuated through the process
outlined in Sec. 430.40 and Sec. 430.42.
In Sec. 438.818(d), we are proposing that within 90 calendar days
of the effective date of the final regulation, states would have to
submit to us a detailed plan of their procedures to ensure that
complete and accurate data are being submitted timely. We would work
with the states to develop a comprehensive and workable procedure and
would review and approve the states' plans for compliance.
b. Standards for Contracts Involving Indians, Indian Health Care
Providers and Indian Managed Care Entities (Sec. 438.14)
This section implements section 5006(d) of the American
Reinvestment and Recovery Act of 2009, which created section 1932(h) of
the Act governing the treatment of Indians, Indian health care
providers and Indian

[[Page 31168]]

managed care entities, participating in Medicaid managed care programs.
We had previously provided guidance on this statutory provision in a
State Medicaid Director Letter on January 22, 2010 (SMDL #10-001, ARRA
#6) http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SMD10001.PDF. The regulations proposed below implement that guidance
consistent with statutory language. To ensure the proper and efficient
operation of the state plan, we are proposing to expand the standards
that apply the provisions of section 1932(h) of the Act to PIHPs and
PAHPs through the authority under section 1902(a)(4) of the Act.
In this section and for this purpose, we propose in paragraph (a)
to define the following terms: ``Indian,'' ``Indian health care
provider (IHCP),'' and ``Indian managed care entity (IMCE)'' consistent
with statutory and existing regulatory definitions.
In paragraph (b), we propose that each MCO, PIHP, PAHP, and PCCM
entity's contract must demonstrate sufficient IHCPs in the managed care
network and that Indian enrollees be able to obtain services from them;
that IHCPs be paid for covered services provided to Indian enrollees
who are eligible to receive services from such providers whether the
IHCP participates in the managed care network or not; permit any Indian
who is enrolled in a non-Indian managed care entity and eligible to
receive services from a participating IHCP to choose that IHCP as his
or her primary care provider, as long as that provider has capacity to
provide the services; permit Indian enrollees to obtain covered
services from out-of-network IHCPs; and in any state where timely
access to covered services cannot be ensured due to few or no IHCPs, a
MCO, PIHP or PAHP would be considered to have met the standard for
adequacy of IHCP providers if either Indian enrollees are permitted to
access out-of-state IHCPs, or the state deems the lack of IHCP
providers to justify good cause for an Indian's disenrollment from both
the MCO, PIHP or PAHP and the State's managed care program in
accordance with Sec. 438.56(c). We believe the criteria established in
proposed paragraph (b)(5) complies with section 1932(h)(2)(A)(ii) of
the Act which provides for the Secretary to establish procedures for
determining compliance with this standard.
We invite comment on other possible ways to approach this issue.
Proposed Sec. 438.14(c) outlines payment standards. Proposed
paragraph (c)(1) specifies that when an IHCP is enrolled in Medicaid as
a FQHC but is not a participating provider with a MCO, PIHP or PAHP, it
must be paid FQHC payment rates, including any supplemental payment due
from the state. Where the IHCPs is not enrolled in Medicaid as a FQHC,
proposed paragraph (c)(2) would have the MCO, PIHP, or PAHP payment be
the same payment as it would receive using a FFS payment methodology
under the State plan or the applicable encounter rate published
annually in the Federal Register by the Indian Health Service,
regardless of its contracting status with the MCO, PIHP or PAHP.
Proposed paragraph (d) would implement the statutory provision
permitting an IMCE to restrict its enrollment to Indians in the same
manner as Indian Health Programs may restrict the delivery of services
to Indians, without being in violation of the standards in Sec.
438.3(d).
This proposed rule has tribal implications and is therefore,
subject to the CMS Tribal Consultation Policy (November 2011) http://www.cms.gov/Outreach-and-Education/American-Indian-Alaska-Native/AIAN/Downloads/CMSTCP_FINAL_11_17_11.pdf. Consistent with this policy, we
held an All Tribes' Call on May 7, 2014 and considered tribal comments
received at that time. In addition, prior to publication of the final
rule, we will conduct further tribal consultation. This consultation
process is in addition to the notice and opportunity for comment
otherwise provided in the rulemaking process. We provided a detailed
review of the provisions proposed in Sec. 438.14 as well as a brief
overview of the entire scope of changes being made to the part. One
participant provided feedback on two areas: the applicability of these
provisions to PIHPs and PAHPs; and the applicability of the prompt
payment provisions to the state for wrap payments. Our staff explained
that the proposed regulations would apply to PIHPs and PAHPs to the
same extent as they would apply to MCOs. We also clarified that the
prompt payment provisions proposed in Sec. 438.14(d) do not apply to
payments made by the state; however, section 1902(bb)(5)(B) of the Act
addresses prompt payment standards for states.
We seek comment on the overall approach to this provision,
including as to whether these proposals are adequate to ensure that
Indian enrollees have timely and integrated access to covered services
consistent with section 5006 of the ARRA. We seek comment on how to
facilitate a coordinated approach for care for Indian enrollees who
receive services from a non-participating IHCP and who need Medicaid
covered services through a referral to a specialty provider. Also, we
seek comment on the potential barriers to contracting with managed care
plans for IHCPs and what technical assistance and resources should be
made available to states, managed care plans, and IHCPs to facilitate
these relationships. Such resources might include an I/T/U contract
addendum, similar to those created for the QHPs and organizations
delivering the Medicare Part D benefit. See https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/Model_QHP_Addendum_Indian_Health_Care_Providers_04-25-14.pdf and http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/Downloads/2014-Part-D-Application.pdf, at
Appendix XVII.
c. Emergency and Post-Stabilization Services (Sec. 438.114)
We propose to revise portions of Sec. 438.114 to make technical
corrections to the existing regulations. We are not proposing any
changes to paragraph (a), (d), and (f).
We propose to correct an error in the current regulations at
paragraph (b) by removing paragraph (2) which refers to PCCMs with a
risk contract. This provision is inconsistent with the rest of our
managed care regulatory structure, in that a PCCM which accepts risk
for medical services--including the emergency services referenced in
this section--would be considered either a PAHP or PIHP (depending on
the scope of medical services at risk). Because a PCCM would never be
responsible for coverage and payment of emergency services, we have
struck that reference from paragraph (b). A state will always be
responsible for coverage and payment of emergency services if it
operates a PCCM program, which is reflected in the proposed revisions
to paragraph (b)(2), where we propose to move the existing text in
(b)(3) with the addition of ``PCCM entities.''
In paragraph (c)(1), we propose to add PCCM entity to each
reference to ``MCO, PIHP, PAHP, or PCCM'' for consistency with changes
discussed in I.B.6.e of this proposed rule. In paragraph (c)(2), we
propose to redesignate (c)(2)(i) as (c)(2) and delete (c)(2)(ii) for
the reason described previously for paragraph (b).
Currently in paragraph (e), MCOs, PIHPs, and PAHPs must follow MA
guidelines when covering post-stabilization services and be paid in
accordance with Medicare guidelines. However, payment for post-
stabilization services to Medicaid enrollees is governed by Medicaid
and State rules.

[[Page 31169]]

We correct this misleading provision by proposing language that ensures
that hospitals providing post-stabilization services receive payment
consistent with federal and State Medicaid payment standards, not based
on Medicare rates. The resulting language would apply MA coverage
guidelines to MCOs, PIHPs and PAHPs but Medicaid payment standards for
covered post-stabilization services.
8. Definitions and Technical Corrections
a. Definitions
As discussed throughout this proposed rule, we propose to
redesignate and add several definitions to Sec. 438.2 in connection
with changes we have proposed to specific sections and subparts. In
addition, we are proposing several modifications and additions to Sec.
438.2 to address terms used throughout this part. In Sec. 438.2 we
propose to modify existing definitions for ``capitation payment,''
``comprehensive risk contract,'' ``health care professional,'' ``health
insuring organization,'' ``managed care organization,'' ``nonrisk
contract,'' ``prepaid ambulatory health plan,'' ``prepaid inpatient
health plan,'' and ``risk contract.'' In addition, we propose to add
definitions for ``managed care program,'' ``network provider,'' and
``state,'' which are terms used with some frequency in part 438 but are
not currently defined.
For the existing definition of ``capitation payment,'' we propose
to delete the word ``agency'' following ``state,'' consistent with our
proposal to add a definition for ``state.'' In addition, we propose to
remove the word ``medical'' that modifies ``services'' in recognition
of our proposed changes throughout this proposed rule to incorporate
managed long-term services and supports in part 438.
For the existing definition of a ``comprehensive risk contract'' we
propose to add that the contract is ``between the State and an MCO.''
We believe that this proposed modification would make clear that only
MCOs can have comprehensive risk contracts and it is also appropriate
to identify the parties to the contract.
We propose to revise the definition for ``health care
professional.'' For purposes of section 1932(b)(3)(C) of the Act,
``health care professional'' is defined as a ``physician . . . or other
health care professional if coverage for the professional's services is
provided under the contract'' and sets forth a minimum list of health
care professionals that may provide services covered under the managed
care contract. We propose to include language from the statutory
definition in the regulation that the physician's or provider's
services are covered under the contract in our regulatory definition of
``health care professional'' to clarify that providers of services
other than medical services, such as long-term services and supports,
would be included in this definition. We also propose to delete the
list of professionals in section 1932(b)(3)(C) of the Act from our
regulatory definition of ``health care professional'' because the list
was not intended to be exclusive and inclusion of this list in the
regulatory definition does not clarify our intent for this definition.
We request comment on this approach.
In the existing definition of a ``health insuring organization,''
we propose to correct a technical error to the citation to the Omnibus
Budget Reconciliation Act of 1985 and update the reference to statutes
that have since amended the HIO-related provisions established in the
1985 statute.
In the existing definition of a ``managed care organization'' we
propose to clarify, consistent with section 1903(m) of the Act that the
Secretary determines if the conditions specified are met by an entity
seeking to qualify for a comprehensive risk contract. The existing
language does not identify who makes such a determination.
In the proposed definition of a ``nonrisk contract,'' we propose
language to clarify that such a contract is between the state and a
PIHP or PAHP. This proposed revision is consistent with the proposed
change to identify the parties subject to a ``comprehensive risk
contract.'' Consistent with the revisions proposed for ``capitation
payments,'' we propose to remove ``medical'' as the modifier for
``services'' in the definitions for ``prepaid ambulatory health plan''
and ``prepaid inpatient health plan.'' We also propose to remove
``agency'' that follows ``state'' consistent with our proposal to add a
definition for ``state.''
In the existing definition of a ``risk contract,'' we propose to
clarify that such a contract is between the state and MCO, PIHP or
PAHP. This proposed revision is consistent with the proposed change to
identify the parties subject to a ``comprehensive risk contract.''
We propose to add a definition for the phrase ``managed care
program,'' which is currently used in several sections of this part. We
propose this term mean a managed care delivery system operated by a
state as authorized in the 1915(a) or (b), 1932(a), or 1115(a) of the
Act.
We propose to add a definition for ``network provider,'' a term
that is currently used in several sections of this part, as ``a health
care professional, group of health care professionals, or entity that
receives Medicaid funding directly or indirectly to order, refer, or
render covered services as the result of the state's arrangement with
an MCO, PIHP, or PAHP.'' We intend this term to include all types of
health care professionals, either as an individual or through a group,
and entities that order, refer, or render covered Medicaid services. We
believe that these distinctions recognize the arrangements in some
state where MCOs, PIHPs, or PAHPs contract with provider groups or
other MCOs, PIHPs, or PAHPs to carry out the obligations under the
contract. We also propose to insert ``network provider'' in place of
``affiliated provider'' as used in this part for consistency in use of
terminology.
We currently have inconsistent references to the ``state,'' ``state
Medicaid agency'' or ``agency'' throughout part 438. Therefore, we
propose to add a definition for ``state'' as the ``Single State
Agency'' as defined in Sec. 431.10. We also propose to replace the
aforementioned terms with ``state'' for consistency throughout part
438.
b. Technical Corrections
We propose to correct a limited number of technical and
typographical errors identified in the June 14, 2002 final rule and the
October 25, 2002 correcting amendment, as well as those identified
through our review of the existing regulations in part 438.
We propose to update the cross-reference to cost-sharing
rules in Sec. 438.108 to reflect recent revisions to part 447.
For purposes of consistency throughout part 438, we are
removing specific references to our Regional Office in Sec.
438.806(a)(1) and replacing it with a general reference to CMS. This
proposed change does not represent a modification in the role of the
Regional Offices; rather, we would prefer to establish workflow
processes in sub-regulatory guidance rather than in regulation.
We propose to delete Sec. 438.804 related the primary
care provider payment increase under section 1202 of the Affordable
Care Act as that provision expired at the close of calendar year 2014.

II. CHIP Requirements

A. Background

CHIPRA and the Affordable Care Act applied several Medicaid managed
care

[[Page 31170]]

provisions in section 1932 of the Act to CHIP. Specific Medicaid
statutory provisions that apply to CHIP include: section 1932(a)(4),
Process for Enrollment and Termination and Change of Enrollment;
section 1932(a)(5), Provision of Information; section 1932(b),
Beneficiary Protections; 1932(c), Quality Assurance Standards; section
1932(d), Protections Against Fraud and Abuse; section 1932(e),
Sanctions for Noncompliance; and sections 1902(a)(77) and 1902(kk) of
the Act related to provider and supplier screening, oversight, and
reporting.
This proposed rule builds on initial guidance on the implementation
of section 403 of CHIPRA provided in State Health Official (SHO)
letters 09-008 and 09-013, issued on August 31, 2009 and October 21,
2009, respectively. (SHO #09-008 is available at: http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO083109a.pdf. SHO #09-013 is available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO102109.pdf.) The SHO letters
specified that all CHIP managed care contracts were to include the
provisions of section 2103(f) of the Act, as amended by section 403 of
CHIPRA effective July 1, 2009. Because the provisions addressed in this
proposed rule codify statute and guidance that has been in place since
2009, we anticipate that states have already implemented many of these
provisions as outlined in the SHOs.
Our goal for these regulations is to align CHIP managed care
standards with those of the Marketplace and Medicaid where practical.
This will ensure consistency across programs. In this same rule, we
propose revisions to existing Medicaid regulations as part of an effort
to modernize managed care contracting and service delivery while
improving health care outcomes and beneficiary experience in a cost
effective manner. Therefore, where appropriate, we propose to align the
CHIP managed care regulations with some of the proposed revisions to
the Medicaid managed care rules.
We recognize that CHIP has historically had few regulations related
to managed care. Our intent with this proposed rule is to ensure
transparency by increasing the information about CHIP managed care
available to both the Federal government and the public. We have worked
to balance the need for information about state oversight of CHIP
managed care plans against the administrative burden of complying with
the proposed regulations. To that end, we propose to only apply the
rules that are most important for aligning CHIP managed care with
Marketplace and Medicaid managed care rules. The scope of the CHIP
proposed regulations is narrower than the proposed revisions and
amendments to the Medicaid managed care regulations. Most of the
proposed CHIP regulatory changes are limited in scope to those included
in section 403 of CHIPRA and, where allowable, those changes that will
align the program with the Marketplace. We seek comment on the breadth
of the proposed CHIP managed care regulations compared to the proposed
Medicaid managed care regulations and whether CHIP should incorporate
additional standards from Medicaid.

B. Provisions of the Proposed Regulations

We propose adding a new subpart L to part 457, which will contain
all of the regulations related to CHIP managed care plans. Most of the
proposed regulations in this subpart are new, however we also propose
to move portions of Sec. 457.940 and Sec. 457.950 and all of Sec.
457.955 from subpart I to the new subpart. This will ensure that all
information related to managed care is contained in one subpart. We
propose to make revisions to Sec. 457.204 related to federal financial
participation. In addition, we propose to revise Sec. 457.760 related
to Strategic Planning, Reporting, and Evaluation.
1. Definitions (Sec. 457.10, Sec. 457.902)
We propose to update the definitions section at Sec. 457.10.
First, we propose to separately define managed care organization (MCO),
prepaid ambulatory health plan (PAHP), prepaid inpatient health plan
(PIHP), primary care case management primary care case manager (PCCM),
and PCCM entity, using the Medicaid definitions at Sec. 438.2. This is
a change from our previous approach which included all types of managed
care entities in a single term (managed care entity). We also propose
to adopt the Medicaid definitions of comprehensive risk contract,
external quality review (EQR), external quality review organization
(EQRO), and risk contract. Finally, we propose to move, unchanged, the
definition of actuarially sound principles and FFS entity to Sec.
457.10 from Sec. 457.902.
2. Federal Financial Participation (Sec. 457.204)
We are not adopting Medicaid managed care regulations related to
withholding Federal financial participation for failure to comply with
Federal regulations in subpart J of part 438, because we believe CHIP
has an existing regulation (Sec. 457.204) that serves a similar
purpose. We propose to clarify in Sec. 457.204(a) that CMS may
withhold federal financial participation if the administrator finds
that the state plan or state practice is in substantial non-compliance
with the regulations in part 457. In addition, we propose to include
examples of substantial non-compliance, including failure to comply
with requirements that significantly affect federal or state oversight
or state reporting. We do not intend the list of examples in Sec.
457.204 to be comprehensive; we leave open the possibility that other
actions or failures to act could amount to substantial non-compliance
with title XXI of the Act or the regulations in part 457.
3. Basis, Scope, and Applicability (Sec. 457.1200)
In Sec. 457.1200, we describe the statutory basis and scope of
proposed subpart L. We propose to primarily limit the scope of the CHIP
regulations to those included in section 2103(f)(3) of the Act, as
added by section 403 of CHIPRA. That section applies sections
1932(a)(4), 1932(a)(5), 1932(b), 1932(c), 1932(d), and 1932(e) of the
Act to CHIP. In addition, we propose to implement section 2107(e)(1)(M)
of the Act, as added by section 5006 of the American Recovery and
Reinvestment Act of 2009 (Pub. L. 111-5, ARRA). This provision applies
sections 1932(a)(2)(C) and 1932(h) of the Act, which provide
protections for American Indians to CHIP. We also propose to implement
statutory provisions related to program integrity, specifically
sections 2107(b) and 2107(e)(2)(C) through (E) of the Act. Finally, we
also rely on section 2101(a) of the Act, which provides that the
purpose of Title XXI is to provide funds to states to enable them to
initiate and expand the provision of child health assistance to
uninsured, low-income children in an effective and efficient manner. We
seek comment on whether this approach is appropriate, or whether we
should narrow or broaden the CHIP regulations.
4. Contracting Requirements (Sec. 457.950, Sec. 457.1201)
Previously, all CHIP contracting requirements, including managed
care contracting requirements, were at Sec. 457.950. We propose to
move some pieces of Sec. 457.950 related to managed care into a new
Sec. 457.1201 and eliminate others. Specifically, we have retained
from Sec. 457.950(a)(2) the provision that an MCO, PAHP, or PIHP
(formerly referred to as MCEs) contract include an attestation to the
accuracy, completeness, and truthfulness of claims and payment data at

[[Page 31171]]

Sec. 457.1201(n). Similarly, at Sec. 457.1201(o), we retain the
language from Sec. 457.950(a)(4) that contracts include a guarantee
that an MCO, PAHP, or PIHP (formerly MCE) will not avoid costs for
services covered in its contract by referring enrollees to publicly
supported health care resources. We propose to eliminate the
requirements at Sec. 457.950(a)(1) and Sec. 457.950(a)(3) for
contracts to include enrollment and other information, and for the
state, CMS, and HHS Office of the Inspector General to have access to
claims and payment data. We believe these requirements are subsumed in
the other standards in Sec. 457.1201, described below, and do not need
to be retained, however we seek comment on this approach.
We also propose new contracting standards in Sec. 457.1201, under
the authority of section 2101(a) of the Act. Although we previously did
not require submission of managed care contracts, there were also few
statutory managed care requirements. Now that the CHIP statute has been
amended to incorporate some of the Medicaid managed care requirements,
it is more important for CMS to have oversight through contract review.
We propose some CHIP-specific contracting requirements and propose to
adopt some of the Medicaid standards from Sec. 438.3. The Medicaid
standards we have adopted without modification relate to the relevant
entities eligible for comprehensive risk contracts, the inclusion of
payment rates, some of the prohibitions on enrollment discrimination,
complying with applicable laws and conflict of interest safeguards, the
inspection and audit of records and access to facilities, physician
incentive plans, provider choice, audited financial reports, and some
of the additional rules for contracts with PCCMs and PCCM entities.
Our proposed CHIP-specific provisions at Sec. 457.1201(a) would
have states submit CHIP managed care contracts in accordance with
standards that will be specified by the Secretary. We do not propose to
condition FFP on CMS' prior approval of MCO contracts, which diverges
from the Medicaid standards at Sec. 438.3 and Sec. 438.806. We
considered two alternative policies: aligning CHIP with the Medicaid
standard that prior approval of the contract is a condition to receive
FFP; or requiring submission of the contract to receive FFP. Because we
do not currently require contract review and preapproval as a condition
for FFP in CHIP managed care, we have proposed an approach that would
begin to give CMS and the public information on CHIP managed care
contracting. Once we have learned more, we may consider adopting
additional standards. We seek comment on our proposed approach and the
alternatives, and on the timing of submission of contracts.
Similarly, although we are not adopting Medicaid rules related to
rate review, the proposed language at Sec. 457.1201(a) does require
that CHIP contracts submitted to CMS include the rate that will be paid
to the managed care entity. We believe this information will help us
evaluate the cost, efficiency, and effectiveness of managed care
contracts.
There are several standards at Sec. 438.3 that we do not propose
to adopt in CHIP, either because we do not have authority or because
they are not appropriate for the CHIP population. Specifically, we are
not proposing to adopt the following standards for purposes of CHIP
managed care plans:
That health insurance organizations (HIO) described in
Sec. 438.3(b)(4) and (b)(5) are eligible for comprehensive risk
contracts, and the special rules related to HIOs in Sec. 438.3(p)
because CHIP does not have such entities.
Voluntary enrollment at Sec. 438.3(d)(2), because states
may have exclusively mandatory enrollment in CHIP managed care;
The list of services that may be provided by a managed
care entity at Sec. 438.3(e) because we review rates in CHIP;
The provider preventable condition standards at Sec.
438.3(g), because we do not require such reporting in CHIP;
The advance directives standard at Sec. 438.3(j) or LTSS
contract standards at Sec. 438.3(o) because we do not believe they are
applicable to the CHIP population;
The standards related to coverage of outpatient drugs at
Sec. 438.3(s); and
The standards related to dually eligible beneficiaries at
Sec. 438.3(t) and enrollees that are patients in an IMD at Sec.
438.3(u), because there are not applicable populations in CHIP.
5. Rate Development Standards and Medical Loss Ratio (Sec. 457.940,
Sec. 457.1203, Sec. 457.1205)
Currently, regulations related to CHIP managed care rate setting
are in Sec. 457.940(b)(2), (c), and (e). We propose to move those
standards to Sec. 457.1203. The standards would remain substantively
unchanged, although we propose to change the term ``principles of
actuarial soundness'' to ``actuarially sound principles,'' to match the
definition, which we propose to move to Sec. 457.10. The standards
unrelated to managed care rate setting in Sec. 457.940(a), (b)(1), and
(d) would remain in that section. In addition, to align with the
private market and the Medicaid managed care proposal in this rule, we
propose at Sec. 457.1203(c) to adopt a minimum medical loss ratio
(MLR) in CHIP. This proposal is the same as the Medicaid proposal at
Sec. 438.4(b)(7). As discussed in more detail elsewhere in this
proposed rule, a standardized MLR calculation allows regulators the
ability to conduct a retrospective analysis of rates paid compared to
overall expenditures to ensure a fair and equitable arrangement is
maintained and is a useful means to ensure that capitation rates are
actuarially sound. Both reasons are applicable to CHIP managed care
plans because of the similarity of the CHIP managed care program to the
Medicaid managed care program. We believe MLR calculation and reporting
are important tools to ensure that the CHIP program is administered in
an effective and efficient manner in accordance with section 2101(a) of
the Act.
This is the only standard we propose to adopt from Sec. 438.4. We
do not propose to adopt any of the other Medicaid standards related to
rate development (Sec. 438.5), contract provisions related to payment
(Sec. 438.6), or rate certification (Sec. 438.7).
To effectuate the medical loss ratio described in Sec.
457.1203(c), we propose to align with the Medicaid proposed regulations
at Sec. 438.8 and Sec. 438.74.
6. Non-Emergency Medical Transportation PAHPs (Sec. 457.1206)
We believe states may use a PAHP structure to deliver non-emergency
medical transportation (NEMT) services in CHIP as is done in Medicaid.
As such, we propose to adopt the Medicaid approach to regulating NEMT
PAHPs. However, if a state chooses to use a PAHP to provide NEMT
services along with any other ambulatory medical service, that PAHP
will then be considered a traditional PAHP as defined in Sec. 457.10
and all the PAHP provisions throughout subpart L of this part will
apply.
At Sec. 457.1206, we propose to largely adopt Sec. 438.9, which
sets out the standards that apply to PAHPs that provide only NEMT
services. The only difference between Sec. 438.9 and Sec. 457.1206 is
that we have not included standards related to advance directives, and
long-term services and supports, because we have not adopted these
standards in CHIP. Instead of requiring actuarial soundness, we propose
to require that NEMT PAHPs follow the standards of Sec. 457.1203
related to rate development standards.

[[Page 31172]]

7. Information Requirements (Sec. 457.1207)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the provision of information standards at section
1932(a)(5) apply to CHIP managed care programs. As such, we are
proposing to align CHIP with Medicaid information standards at Sec.
438.10, which effectuate section 1932(a)(5) of the Act. We propose
adding Sec. 457.1207, which provides that states must require CHIP
MCOs, PAHPs, PIHPs, PCCMs, and PCCM entities to provide enrollment
notices, informational materials and instructional materials relating
to enrollees and potential enrollees as provided in Sec. 438.10.
Including the cross reference to Medicaid managed care information
standards supports CMS' goal to align and maximize coordination between
insurance affordability programs. The proposed revisions include a more
structured and coherent set of state and managed care plan standards
for beneficiary information, and permit the availability of beneficiary
information in electronic form. In this way, we propose to align CHIP
and managed care beneficiary information dissemination practices with
those of Medicaid and the commercial insurance market.
8. Requirement Related to Indians, Indian Health Care Providers, and
Indian Managed Care Entities (Sec. 457.1208)
Section 2107(e)(1)(M) of the Act, as added by section 5006 of ARRA,
specifies that the provisions related to managed care contracts that
involve Indians, Indian health care providers (IHCP), and Indian
managed care entities (IMCE) at sections 1932(a)(2)(C) and 1932(h) of
the Act apply to CHIP. As such, we are proposing to align CHIP with
Medicaid when MCOs, PIHPs, PAHPs, PCCMs, or PCCM entities enroll
Indians at Sec. 438.14, which effectuate sections 1932(a)(2)(C) and
1932(h) of the Act.
9. Managed Care Enrollment (Sec. 457.1210), Disenrollment (Sec.
457.1212), and Continued Services to Beneficiaries (Sec. 457.1216)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the enrollment, termination of enrollment, and change in
enrollment provisions at section 1932(a)(4) of the Act apply to CHIP
managed care programs.
Related to enrollment, we propose adding Sec. 457.1210. The
proposed regulation closely follows the statutory language of section
1932(a)(4)(C) and (D) of the Act, setting out the standards for states
that use the default enrollment process in paragraph (a), and ensuring
the process prioritizes continuity of coverage in paragraph (b). This
approach is similar to current Medicaid managed care regulations in
Sec. 438.50(e) and (f). Although section 1932(a)(4)(D) of the Act
appears to require states to set up a default enrollment process, that
paragraph is qualified by a reference to section 1932(a)(1) of the
Act--namely the phrase ``in carrying out paragraph (a)(1),''--but
section 1932(a)(1) of the Act has not been incorporated into the CHIP
statute. As a result, we do not propose to require states to set up a
default process for CHIP. However, we seek comment on whether the CHIP
provision that incorporates section 1932(a)(4)(D) of the Act should
instead be read in a manner that requires states to establish a default
enrollment process.
The proposed CHIP regulation deviates from the Medicaid managed
care proposed regulation at Sec. 438.54. There, Medicaid proposes
standards for several enrollment processes, including requiring that
states provide at least 14 days for potential enrollees to make an
active choice of a managed care plan. Discussion of the rationale for
the changes to the Medicaid regulations can be found in section I.B.5.a
of this proposed rule. We considered adopting the Medicaid approach,
but ultimately decided that it was not well suited to CHIP because of
the historic flexibility granted to states in administering the
program. In addition, CHIP enrollment is often prospective, so children
are not enrolled in the program until they have selected a managed care
plan and, if applicable, paid a premium. In a state that uses
prospective enrollment, requiring a 14-day choice period would delay
coverage. We also considered developing enrollment standards based on
the type of delivery system used in the state (FFS, managed care, or
both). We seek comment on our proposed approach to enrollment and any
alternatives.
Related to disenrollment, we propose adding Sec. 457.1212, which
implements section 1932(a)(4)(A) and (B) of the Act. The proposed
regulation would provide that states must follow, and ensure MCOs,
PAHPs, PIHPs, PCCMs, and PCCM entities follow, the Medicaid
disenrollment standards provided at Sec. 438.56. It is important to
note that because section 1932(a)(4) of the Act gives individuals the
right to disenroll from their managed care entity (MCE) while still
remaining eligible to receive benefits, the state must contract with at
least two MCEs, or contract with one MCE and operate an alternate
delivery system, such as FFS, to provide CHIP benefits to those who
have disenrolled from the state's contracted MCE. To meet the statutory
disenrollment standards, a state currently providing CHIP benefits
through one delivery system (for example, managed care) could either
contract with at least two MCEs, establish a FFS option, or contract
with some, or all, of the state's existing Medicaid provider network.
While section 403 of CHIPRA applies the disenrollment standards set
forth in section 1932(a)(4) of the Act, it did not apply the choice of
MCE standard in section 1932(a)(3) of the Act; therefore, the state
does not need to offer alternative delivery systems at the time of
enrollment but only in the event an enrollee disenrolls from the
state's contracted MCE.
Finally, related to change in enrollment, we propose adding Sec.
457.1216, which provides that states must follow the Medicaid standards
related to continued services to enrollees at Sec. 438.62, for the
same reasons we propose to adopt such standards for Medicaid managed
care plans. Further discussion related to our rationale for adopting
these standards can be found in the preamble discussion of the Medicaid
standard at I.B.5.e.
10. Conflict of Interest Safeguards (Sec. 457.1214)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the conflict of interest provisions at section
1932(d)(3) of the Act apply to CHIP managed care programs. As such, we
are proposing to align CHIP with Medicaid conflict of interest
safeguards at Sec. 438.58, which effectuate section 1932(d)(3) of the
Act. We propose adding Sec. 457.1214, which provides that states have
safeguards against conflict of interest as provided in Sec. 438.58.
11. Network Adequacy Standards (Sec. 457.1218)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that that the provisions at section 1932(a)(5) of the Act,
requiring that MCEs assure adequate capacity to serve the expected
enrollment, apply to CHIP managed care programs. As such, we are
proposing to align CHIP with Medicaid network adequacy standards at
Sec. 438.68, which effectuate section 1932(a)(5) of the Act. We
propose adding Sec. 457.1218, which provides that states have network
adequacy standards and ensure that managed care entities meet such
standards as provided in

[[Page 31173]]

Sec. 438.68. Acknowledging that CHIP serves a child-focused
population, we seek comment on whether we should include additional
standards for additional pediatric providers, for example children's
hospitals or child and adolescent behavioral health providers.
12. Enrollee Rights (Sec. 457.1220)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the enrollee rights provisions at section
1932(a)(5)(B)(ii) of the Act apply to CHIP managed care programs. As
such, we are proposing to align CHIP with Medicaid enrollee rights
provisions at Sec. 438.100, which effectuate section 1932(a)(5)(B)(ii)
of the Act. We propose adding Sec. 457.1220, which provides that
states must ensure that MCOs, PAHPs, PIHPs, PCCMs, and PCCM entities
follow the enrollee rights standards as provided in Sec. 438.100.
13. Provider-Enrollee Communication (Sec. 457.1222)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the enrollee rights provisions at section 1932(b)(3) of
the Act apply to CHIP managed care programs. As such, we are proposing
to align CHIP with Medicaid's enrollee rights protections of
communications between providers and enrollees at Sec. 438.102, which
effectuate section 1932(b)(3) of the Act. We propose adding Sec.
457.1222, which provides that states must ensure that MCOs, PAHPs, and
PIHPs protect communications between providers and enrollees as
provided in Sec. 438.102.
14. Marketing Activities (Sec. 457.1224)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the restrictions on marketing at section 1932(d)(2) of
the Act apply to CHIP managed care programs. As such, we are proposing
to align CHIP with Medicaid standards related to marketing at Sec.
438.104, which effectuate section 1932(d)(2) of the Act. We propose
adding Sec. 457.1224, which provides that states must ensure that
MCOs, PAHPs, PIHPs, PCCMs, and PCCM entities follow the standards of
Sec. 438.104. This proposed rule is not intended to limit QHP issuers
who are also CHIP managed care plans from marketing QHPs to the parents
of CHIP eligible children. The proposed definition of marketing in
Sec. 438.104(a), as adopted in Sec. 457.1224, excludes the
communication to a CHIP beneficiary from the issuer of a QHP.
Therefore, a QHP issuer that also operates a CHIP managed care plan
would not be prohibited from contacting a family about QHP coverage.
Indeed, we recognize that there may be benefit to the family from being
informed about the availability of coverage through the Marketplace and
selecting a carrier who offers both types of products.
We acknowledge that plan marketing has historically played a unique
role in CHIP (for example, in some states plans have been allowed to
directly enroll children into CHIP). Therefore, we seek comment on
whether our proposed approach is appropriate, or whether we should take
an alternate approach, for example by following the QHP marketing
regulations at 45 CFR 156.225 or adopting a subset of the Medicaid
regulations. We also seek comment on our proposal to apply to CHIP the
standard at Sec. 438.104(c) that the state must consult with the
Medical Care Advisory Committee or an advisory committee with similar
membership.
15. Liability for Payment (Sec. 457.1226)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the protections for enrollees against liability for
payment at section 1932(b)(6) apply to CHIP managed care programs. As
such, we are proposing to align CHIP with Medicaid liability
protections at Sec. 438.106, which effectuate section 1932(b)(6) of
the Act. We propose adding Sec. 457.1226, which provides that states
must ensure that MCOs, PAHPs, and PIHPs do not hold enrollees liable
for services or debts of the MCO, PAHP, and PIHP as provided in Sec.
438.106.
16. Emergency and Poststabilization Services (Sec. 457.1228)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the standard that MCEs provide emergency and
poststablization services at section 1932(b)(2) of the Act apply to
CHIP managed care programs. As such, we are proposing to align CHIP
with the Medicaid emergency and poststablization services standard at
Sec. 438.114, which effectuate section 1932(b)(2) of the Act. We
propose adding Sec. 457.1228, which provides that states must ensure
that MCOs, PAHPs, and PIHPs make emergency and poststablization
services available, and that the state make emergency and
poststablization services available to enrollees of PCCMs and PCCM
entities, as provided in Sec. 438.114.
17. Access Standards (Sec. 457.1230)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the quality assurance standards at section 1932(c) of
the Act apply to CHIP managed care programs. Section 1932(c)(1) of the
Act requires states that contract with managed care organizations to
develop and implement a quality assessment and improvement strategy,
including standards related to access standards. Such access standards
include the availability of services, assurances of adequate capacity
and services, coordination and continuity of care, and coverage and
authorization of services. As such, we are proposing to align CHIP with
Medicaid availability of services standards at Sec. 438.206, Sec.
438.207, Sec. 438.208, and Sec. 438.210, which implement section
1932(c)(1) of the Act.
We propose adding Sec. 457.1230(a), which provides that states
must require CHIP MCOs, PAHPs, and PIHPs to ensure that covered
services are available and accessible to enrollees as provided in Sec.
438.206. At Sec. 457.1230(b), we propose that states must ensure that
CHIP MCOs, PAHPs, and PIHPs have adequate capacity to serve expected
enrollees as provided in Sec. 438.207. At Sec. 457.1230(c), we
propose that states must ensure that CHIP MCOs, PAHPs, and PIHPs comply
with the coordination and continuity of care standards as provided in
Sec. 438.208. In proposing this alignment, we recognize the importance
of care coordination when beneficiaries move between managed care
entities and between settings, however we seek comment on the
applicability of the Medicaid managed care standards in Sec. 438.208
to the CHIP population.
Finally, at Sec. 457.1230(d), we propose that states must ensure
that CHIP MCOs, PAHPs, and PIHPs comply with some of the coverage and
authorization of services standards as provided in Sec. 438.210. There
are several paragraphs of Sec. 438.210 that we do not propose to
adopt; however, we seek comment on this approach. Specifically, we do
not propose to adopt the standards related to medically necessary
services in Sec. 438.210(a)(5), because title XXI of the Act does not
include a requirement to provide medically necessary services. In
addition, we do not propose to adopt the time frames for decisions in
Sec. 438.210(d). Instead, we propose to follow the time frames
described in Sec. 457.1160. We also seek comment on whether we should
create and exception for Sec. 438.210(b)(2)(iii) related to
authorizing LTSS based on an enrollee's current needs assessment and
consistent with the person-centered service plan should apply to CHIP,
since it is not a required service and few separate CHIP programs
provide this service.

[[Page 31174]]

18. Structure and Operation Standards (Sec. 457.1233)
Section 1932(c)(1) of the Act related to the development and
implementation of a quality assessment and improvement strategy also
includes standards related to the structure and operation of managed
care contracts. We are proposing to align CHIP with Medicaid structure
and operation standards at Sec. 438.214 related to provider selection
and Sec. 438.230 related to subcontractual relationships and
delegation, which effectuate section 1932(c)(1) of the Act. We propose
adding Sec. 457.1233(a) for provider selection and Sec. 457.1233(b)
for subcontractual relationships and delegation.
The standard under section 1932(c)(1) of the Act related to the
development and implementation of a quality assessment and improvement
strategy, also includes measurement and improvement standards. We are
proposing to align CHIP with Medicaid standards at Sec. 438.236 and
Sec. 438.242 which implement section 1932(c)(1) of the Act. We propose
adding Sec. 457.1233(c) related to practice guidelines as provided in
Sec. 438.236 and adding Sec. 457.1233(d) related to health
information systems as provided in Sec. 438.242. Including the cross
references to Medicaid quality assessment and improvement strategy
standards supports CMS' goal to align insurance affordability program
rules. We have elected not to propose that rules for CHIP align with
the Medicaid confidentiality provision as set forth in Sec. 438.224
because there is an existing confidentiality requirement at Sec.
457.1110, which we believe is sufficient to address this standard.
19. Quality Measurement and Improvement (Sec. 457.1240, Sec. 457.760)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that section 1932(c) of the Act applies to CHIP managed care
programs. As such, we are proposing to align CHIP with Medicaid quality
measurement and improvement standards at Sec. 438.310, which implement
section 1932(c) of the Act. We propose adding Sec. 457.1240(a), to
align with the scope set forth in Sec. 438.310, which outlines
standards for a quality assessment and performance improvement program
that states must require of each contracting MCO, PIHP, or PAHP. At
Sec. 457.1240(b), we propose that states must ensure that CHIP MCOs,
PIHPs or PAHPs have an ongoing comprehensive quality assessment and
performance improvement program for the services it furnishes to
enrollees as set forth in Sec. 438.330. Section Sec. 438.330 also
references standards for LTSS, which we propose to apply to CHIP to
align with the Medicaid standards. We seek comments on the
appropriateness of applying this standard for the CHIP program. At
Sec. 457.1240(c), we propose that states must review and approve the
performance of each MCO, PIHP, and PAHP in accordance with the
requirements set forth in Sec. 438.332. At Sec. 457.1240(d), we
propose that states must collect data and apply the methodology
established under the process described in Sec. 438.330(a)(2) to
determine a Managed Care rating or ratings for each CHIP MCO, PIHP, and
PAHP in accordance with the standards set forth in Sec. 438.334. At
Sec. 457.1240(e), we propose the managed care elements of the state
comprehensive quality strategy for assessing and improving the quality
of managed care services provided by CHIP MCOs, PIHPs, and PAHPs as set
forth in Sec. 438.340. Finally, at Sec. 457.760, we propose that
states must incorporate CHIP into their state comprehensive quality
strategy that establishes the minimum standards inclusive of all
delivery systems as set forth in Sec. 431 subpart I. We considered
whether CHIP could have its own comprehensive quality strategy, but
determined that it would be more efficient and promote alignment of
quality improvement to include CHIP in a single, state comprehensive
quality strategy that includes all children in Medicaid and CHIP. We
seek comment on this approach.
20. External Quality Review (Sec. 457.1250)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the external quality review standards at section 1932(c)
of the Act apply to CHIP managed care programs. Section 1932(c)(2) of
the Act requires external independent review of managed care
activities. As such, we are proposing to align CHIP with Medicaid
external quality review standards at Sec. 438.350, which effectuate
section 1932(c)(2) of the Act. Currently, funding for CHIP quality
activities would be limited to the ten percent administrative
expenditures allotted for non-primary services as set forth in Sec.
457.618. We seek comments on any issues this may present to
implementing these standards. We propose adding Sec. 457.1250(a),
which requires each state that contracts with MCOs, PIHPs or PAHPs
follow all applicable external quality review standards as set forth in
Sec. Sec. 438.350, 438.352, 438.354, 438.356, 438.358, and 438.364. We
do not adopt any provision related to plans serving dual eligible
populations, because CHIP does not have such populations. At Sec.
457.1250(b), we outline the provisions that do not apply to the CHIP
external quality review process for states contracting with MCOs, PIHPs
or PAHPs, including the nonduplication of mandatory activities at Sec.
438.360 and the exemption from external quality review at Sec.
438.362. CHIP elected not to align with the Medicaid exemption from EQR
as set forth in Sec. 438.362. This provision specifies that, if an
MCO, PIHP, or PAHP has a current Medicare contract under part C of
Title XVIII or under section 1876 of the Act, and a current Medicaid
contract under section 1903(m) of the Act, the state may exempt them
from EQR if all the conditions are met. The MCO, PIHP, or PAHP must
submit the findings from the Medicare report to meet this standard.
This would not be applicable to CHIP, as the findings through Medicare
would not include children. We also propose allowing states to amend
current external quality review contracts to add CHIP as long as the
existing contract meets standards outlined in Sec. 438.356. Adding the
cross references to Medicaid quality measurement and improvement and
external quality review standards to CHIP will help achieve the goal of
increased program alignment and streamlined processes.
21. Grievances (Sec. 457.1260)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,
specifies that the grievance provision at section 1932(b)(4) of the Act
apply to CHIP managed care programs. As such, we are proposing to align
CHIP with the Medicaid grievance and appeals sections at subpart F of
part 438, which implement section 1932(b)(4) of the Act. We propose
adding Sec. 457.1260, which provides that states must ensure that
MCOs, PAHPs, and PIHPs comply with subpart F of part 438, with two
exceptions. First, we do not propose to adopt Sec. 438.420, which
requires continuation of benefits pending appeal. We considered
following Medicaid by requiring benefits to continue pending appeal,
but CHIP has not previously had this standard, so we decided not to
extend it to CHIP managed care through this rule. We seek comment on
this approach. The second deviation from Medicaid is that we note that,
in the CHIP context, references to fair hearings should be read as
references to reviews as described in subpart K of part 457.
22. Sanctions (Sec. 457.1270)
Section 2103(f)(3) of the Act, as amended by section 403 of CHIPRA,

[[Page 31175]]

specifies that the sanctions provisions at section 1932(e) of the Act
apply to CHIP managed care programs. As such, we are proposing to align
CHIP with the Medicaid sanctions sections at subpart I of part 438,
which effectuate section 1932(e) of the Act. We propose adding Sec.
457.1270, which provides that states must ensure that MCOs, PAHPs, and
PIHPs comply with the sanctions standards as provided in subpart I of
part 438.
23. Program Integrity--Conditions Necessary to Contract as an MCO,
PAHP, or PIHP (Sec. 457.955, Sec. 457.1280, and Sec. 457.1285)
Section 2107 of the Act includes several program integrity
standards, including sections 2107(b), 2107(e)(1)(D), and 2107(e)(2).
We propose to effectuate those standards by adopting many of the
Medicaid program integrity standards in CHIP. In addition, we propose
to maintain but relocate the current CHIP regulations related to
managed care program integrity.
We propose to redesignate all of Sec. 457.955 to Sec. 457.1280.
This section is currently located in the general CHIP program integrity
subpart I. Because the section specifies conditions necessary for
entities to contract as an MCO, PAHP, PIHP, we propose to move it to
the new subpart L where the other managed care regulations will be
located. We propose several minor changes to the regulation text: (1)
To update references to MCE to MCO, PAHP, or PIHP; (2) to add at
paragraph (b)(1) that MCOs, PAHPs, and PIHPs must comply with
applicable state and Federal statutes and regulations, in addition to
complying with state and Federal standards; (3) and to add at paragraph
(b)(3) that there must be mechanisms for MCOs, PAHPs, and PIHPs to
report providers to the state.
We also propose to adopt nearly all of the of the several Medicaid
program integrity standards. In Sec. 457.1285, we propose to adopt
subpart H of part 438, with the exception of Sec. 438.604(a)(2), which
does not apply because we are not proposing to adopt for CHIP all of
the Medicaid actuarial soundness requirements.

III. Third Party Liability

A. Background

Title XIX of the Act requires State Medicaid programs to identify
and seek payment from liable third parties, before billing Medicaid.
Specifically, section 1902(a)(25)(A) of the Act mandated states ``take
all reasonable measures to ascertain legal liability of third parties .
. . to pay for care and services available under the plan.''
Under section 1902(a)(25)(A) of the Act, a third party is any
individual, entity, or program that is or may be liable to pay all or
part of the expenditures for medical assistance furnished under a State
plan. Medicaid is intended to be the payer of last resort; that is,
other available resources must be used before Medicaid pays for the
care and services of a Medicaid-eligible individual. These other
resources are known as third party liability, or TPL.
Further provisions under section 1902(a)(25)(A)(i) of the Act
specify that the Medicaid State plan must provide for the collection of
sufficient information to enable the State to pursue claims against
third parties. Examples of liable third parties include commercial
insurance companies through employment-related or privately purchased
health insurance; casualty coverage resulting from an accidental
injury; payment received directly from an individual who has either
voluntarily accepted or assigned legal responsibility for the health
care of one or more Medicaid recipients; and fraternal groups, union,
or State workers' compensation commissions. Third Party Liability also
includes medical support provided by a parent under a court or
administrative order.
To support identification of TPL and with the authority granted in
section 1902(a)(25)(A), in 1987, we (then the Health Care Financing
Administration [HCFA]) issued regulations at Sec. 433.138 establishing
requirements for State Medicaid agencies to obtain information via data
matching with the state Workers Compensation files or state Motor
Vehicle Accident Report. Additionally, states are required to identify
all paid claims (indicative of trauma), identified by diagnosis codes
found in ICD-9-CM, 800 through 999, except 994.6.
Section 433.138(e) specifically references the use and application
of the ICD-9-CM medical coding system, to assist in identifying liable
third parties as primary payers before Medicaid. However, by 1990, HCFA
realized it might have been too prescriptive to require states to
review all ICD-9-CM trauma codes, and amended Sec. 433.138 to allow
states to submit waiver requests to cease editing codes proven to be
unproductive in identifying liable third parties. States now have over
25 years of experience identifying trauma codes indicating third party
liability, which contributes to payment of Medicaid expenses.
In 1990, the World Health Organization (WHO) approved the 10th
Revision of the International Classification of Diseases (ICD), which
is known as ICD-10. The Secretary adopted the ICD-10 medical code sets
effective March 17, 2009, and all Health Insurance Portability and
Accountability Act covered entities are required to use ICD-10 to code
health services provided on or after its compliance date of October 1,
2015 (ICD-10's compliance date was previously delayed; the October 1,
2015 compliance date is specified at 79 FR 45128 (Aug. 4, 2014)).

B. Provisions of the Proposed Regulations

Section 433.138(e) mandates the use of ICD 9-CM coding, which is
due to be replaced by ICD-10 coding for coding health services provided
on October 1, 2015. Section 433.138(e) obliges states to comply with
the soon to be replaced ICD-9-CM coding system; thus references to ICD-
9-CM specific codes need to be removed from the regulation. We
considered ways to best achieve this aim, keeping in mind that states
bear the responsibility for interpreting and applying the increased
number of new ICD-10 codes and that State Medicaid programs need
greater discretionary authority in developing trauma code edits to best
identify liable third parties and achieve the highest TPL return from
their efforts.
In considering how best to amend the regulation we reviewed our
previous amendments, which demonstrated a progression from explicit
federally-prescribed requirements to less prescriptive approaches that,
while maintaining the federal designation of trauma codes subject to
review, allowed states to propose waivers of editing for trauma codes
that were not cost-effective to pursue.
This regulation was last amended in 1995 to remove trauma code-
specific waiver authority from Sec. 433.138(e) and add Sec.
433.138(l) to federal regulations, establishing the possibility of
waiver of non-statutory requirements in Sec. 433.138 and Sec.
433.139, including Sec. 433.138(e). States could request adjustments
to any of several non-statutory requirements, including the code
editing requirements, if they determined the activity to not be cost-
effective. Section 433.138(l) specified that an activity would not be
cost-effective if the cost of the required activity exceeds the third
party liability recoupment and the required activity accomplishes, at
the same or at a higher cost, the same objective as another activity
that is being performed by the state.
The background information in the preamble for the regulatory
amendment

[[Page 31176]]

published in the Federal Register on July 10, 1995 (60 FR 35498 through
35503) affirmed that we had been prescriptive in the initial 1987
regulations for trauma code editing, explaining that TPL was then in
its ``infancy'' and there was concern that states were not identifying
instances of traumatic injury for which a liable third party might
exist. By 1995, when the last amendment to the trauma code was
proposed, we acknowledged that states had other means of identifying
potential TPL for trauma cases, including federally-required data
matches with state motor vehicle administration accident files and with
state worker's compensation files, and that ``the majority of states
have aggressive and comprehensive TPL programs.''
It has been almost 20 years since we last amended the regulations
for trauma code editing and during that time, states' information
technology systems have greatly improved and state TPL programs have
refined procedures to identify instances when a Medicaid beneficiary's
traumatic injury may lead to identification of a liable third party.
The proposed amendment to Sec. 433.138(e), which removes
references to ICD-9-CM, offers us an opportunity to make a substantive
change to this regulation while still affirming the continuing
responsibility of state Medicaid programs to identify trauma-related
claims to determine TPL and ensure that state Medicaid programs remain
secondary payers as specified in federal law. Therefore, we propose to
replace the reference to a specific coding system with a general
description of the types of medical diagnoses indicative of trauma for
which states are expected to edit claims. We believe this revision will
allow states greater flexibility to focus on identification of claims
likely to have TPL.
This amendment does not propose that any state change its current
trauma code editing process with regard to codes that the state has
identified as not being productive of third party recoveries and that
CMS has agreed the state may discontinue editing. We recognize that
states now have over 25 years of experience related to identifying
trauma codes that are likely to have a responsible third party and
generating recoveries. This amendment affords states the opportunity to
revise their trauma code editing processes with regard to identifying
nonproductive codes if and when they deem necessary.
Therefore, in Sec. 433.138(e)(1), we propose to remove the
reference to the ICD-9-CM code range 800 through 999. This code range
defined the codes that were indicative of traumatic injury. States had
to follow-up on these codes, unless that requirement was specifically
waived, to identify potentially liable third parties. The ICD-9-CM
coding system and codes will shortly be replaced by the ICD-10 coding
system and codes, which has an October 1, 2015 compliance date. The
narrative statement will have greater longevity, as it is not tied to
any one edition of the ICD coding system or any other coding system
that the Secretary of DHHS may adopt in the future.
We have retained the regulatory references to complete trauma code
editing and to the possibility of a state's pursuing waiver of the
requirements of the regulation, to allow the state to request a waiver
of the regulatory standards, if the state wishes to adjust its trauma
code editing process beyond the scope allowed by these changes to Sec.
433.138(e).
We propose to also remove Sec. 433.138(e)(2), as the regulation
specifically refers to exclusion of the ICD-9-CM code for motion
sickness and we propose to revise Sec. 433.138 to remove all
references to ICD-9-CM-specific coding.
Removing paragraph (e)(2) of Sec. 433.138(e) eliminates the
necessity to identify the remaining regulatory text as Sec.
433.138(e)(1), so we have eliminated the paragraph (e)(1) designation
from the revised Sec. 433.138(e).

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to
publish a 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.
To fairly evaluate whether an information collection should be
approved by OMB, PRA section 3506(c)(2)(A) 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 burden estimates.
The quality, utility, and clarity of the information to be
collected.
Our effort to minimize the information collection burden
on the affected public, including the use of automated collection
techniques.
We are soliciting public comment on each of the section
3506(c)(2)(A)-required issues for the following information collection
requirements (ICRs) in this proposed rule.

A. Background

The burden associated with the requirements under parts 431 and 438
is the time and effort it would take each of the Medicaid programs to
comply with this rule's proposed requirements. This rule would revise
the Medicaid managed care regulations to implement statutory
provisions, strengthen actuarial soundness and other payment
regulations improving accountability of rates paid in the Medicaid
managed care program, implement changes supporting alignment with other
public and insurance affordability programs, strengthen beneficiary
protections, and modernize the regulations recognizing changes in usage
of managed care delivery systems since the release of the part 438
final rule in 2002.
Section 433.138(e)(1) would make a technical correction addressing
state Medicaid agencies' review of claims with trauma codes, to
identify instances where third party liability (TPL) may exist for
expenditures for medical assistance covered under the state plan. The
correction would remove references to the International Classification
of Disease, 9th edition, Clinical Modification Volume 1 (ICD-9-CM) by
replacing the references with a general description of the types of
medical diagnoses indicative of trauma. States would use the
International Classification of Disease that they are using at the time
of claims processing. There is no additional cost to the state related
to the proposed regulation changes to Sec. 433.138(e) because the
proposed changes do not require any action by the state, if the state
wishes to continue editing for the same types of traumatic injuries
currently identified with ICD-9-CM codes after the conversion of the
claims processing system to ICD-10 codes. Further, since trauma code
editing is based on current MMIS claims processing, revisions to
accommodate the coding system change from ICD-9-CM to ICD-10 are
already in progress as a required adjustment of each state's MMIS. This
proposed rule allows states to make adjustments to certain TPL
activities without preparing a formal waiver request to seek CMS's
permission. There is no requirement for a state to make such
adjustments.
We propose adding a new subpart L to part 457, which will contain
the regulations related to CHIP managed care plans. Most of the
proposed regulations in this subpart are new, however we also propose
to move portions of Sec. 457.950 and all of Sec. 457.955 from subpart
I to the new subpart. This will ensure that all related information is
contained in one subpart.

[[Page 31177]]

B. Wage Estimates

To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' May 2013 National Occupational Employment and Wage
Estimates for all salary estimates (www.bls.gov/oes/current/oes_nat.htm). Table 1 presents the median hourly wage, the cost of
fringe benefits (calculated at 100 percent of salary), and the adjusted
hourly wage.

Table 1--Occupation Titles and Wage Rates
----------------------------------------------------------------------------------------------------------------
Occupation Mean hourly Fringe benefit Adjusted
Occupation title code wage (at 100%) hourly wage
----------------------------------------------------------------------------------------------------------------
Accountant...................................... 13-2011 $31.55 $31.55 $63.10
Actuary......................................... 15-2011 46.00 46.00 92.00
Business Operations Specialist.................. 13-1000 29.66 29.66 53.32
Computer Programmer............................. 15-1131 36.80 36.80 73.60
Customer Service Rep............................ 43-4051 14.84 14.84 29.68
General and Operations Mgr...................... 11-1021 63.86 63.86 127.72
Healthcare Social Worker........................ 21-1022 29.60 29.60 59.20
Mail Clerk...................................... 43-9051 13.20 13.20 26.40
Office and Administrative Support Worker........ 43-9000 14.96 14.96 29.92
Registered Nurse................................ 29-1141 32.70 32.70 65.40
----------------------------------------------------------------------------------------------------------------

As indicated, we are adjusting our employee hourly wage estimates
by a factor of 100 percent. This is necessarily a rough adjustment,
both because fringe benefits and overhead costs vary significantly from
employer to employer, and because methods of estimating these costs
vary widely from study to study. Nonetheless, there is no practical
alternative and we believe that doubling the hourly wage to estimate
total cost is a reasonably accurate estimation method.

C. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding State Comprehensive Quality Strategy (Sec. 431.502)
Under Sec. 431.502 all 56 states and territories (referred to
throughout this section as ``states'') would have and operate a
comprehensive quality strategy for all Medicaid beneficiaries in the
state regardless of delivery system. This would replace the quality
strategy focused exclusively on Medicaid managed care which currently
exists at Sec. 438.202.
Per Sec. 431.502(a) each state would write and implement a
comprehensive quality strategy. We estimate that drafting an initial
state comprehensive quality strategy would take 70 hr at $53.32/hr for
a business operations specialist to develop the proposed strategy, 2 hr
at $29.92/hr for an office and administrative support worker to
publicize the strategy, 15 hr at $53.32/hr for a business operations
specialist to review and incorporate public comments into the strategy,
and 1 hr at $29.92/hr for an officer and administrative support worker
to submit the initial quality strategy to CMS. We also estimate that 19
states would draft an initial comprehensive quality strategy (as the
other 37 states already have an initial quality strategy). In
aggregate, we estimate a one-time burden of 1,672 hr (19 states x 88
hr) and $87,817.24 [19 states x ((85 hr x $53.32/hr) + (3 hr x $29.92/
hr))] for states to develop initial comprehensive quality strategies
and submit them to CMS.
2. ICRs Regarding State Comprehensive Quality Strategy Development,
Assessment, and Revision (Sec. 431.504)
Section 431.504(a) would have states engage the public in the
development of the comprehensive quality strategy. The burden
associated with this process is captured in Sec. 431.502 for the
initial comprehensive quality strategy.
In accordance with proposed Sec. 431.504(b), states would review
and revise their comprehensive quality strategies as needed, but no
less frequently than once every 3 years. While the 37 states that
contract with MCOs and/or PIHPs currently revise their quality
strategies periodically, approximately half of those states (18) revise
their quality strategies less frequently that proposed.
We estimate a burden for the revision of a comprehensive quality
strategy of, once every 3 years, 25 hr at $53.32/hr for a business
operations analyst to review and revise the comprehensive quality
strategy, 2 hr at $29.92/hr for an office and administrative support
worker to publicize the strategy, 5 hr at $53.32/hr for a business
operations specialist to review and incorporate public comments, and 1
hr at $29.92/hr for an office and administrative support worker to
submit the revised quality strategy to CMS. In aggregate, we estimate
an ongoing annualized state burden of 198 hr [(18 states x (33 hr)/3
years] and $10,136.16 [(18 states x ((30 hr x $53.32/hr) + (3 hr x
$29.92/hr)))/3 years].
The revision of a comprehensive quality strategy would be a new
process for the 19 states that do not currently contract with MCOs and/
or PIHPs. We estimate that those states would need 0.5 hr at $53.32/hr
for a business operations specialist to revise their policies and
procedures. In aggregate, we estimate a one-time state burden of 9.5 hr
(19 states x 0.5 hr) and $506.54 (9.5 hr x $53.32/hr) to update
policies and procedures.
We assume that it will be less burdensome to revise an existing
comprehensive quality strategy than to draft an initial strategy.
Therefore, we estimate a burden for the comprehensive quality strategy
revision process, once every 3 years, of 25 hr at $53.32/hr for a
business operations analyst to review and revise the comprehensive
quality strategy, 2 hr at $29.92/hr for an office and administrative
support worker to publicize the strategy, 5 hr at $53.32/hr for a
business operations specialist to review and incorporate public
comments, and 1 hr at $29.92/hr for an office and administrative
support worker to submit the revised quality strategy to CMS. In
aggregate, we estimate an ongoing annualized state burden of 209 hr
[(19 states x (33 hr)/3 years] and $10,699.28 [(19 states x ((30 hr x
$53.32/hr) + (3 hr x $29.92/hr)))/3 years].
Of the 37 states that contract with MCOs and/or PIHPs, we estimate
that 10 states already have a comprehensive quality strategy. This
could be due to a variety of reasons, such as the special terms and
conditions of a section 1115 demonstration or in response to SHO Letter
#13-007. The remaining 27 states would, at their next revision,
transition

[[Page 31178]]

from a quality strategy to a comprehensive quality strategy. We
estimate that this would pose a burden of 10 hr at $53.32/hr for a
business operations specialist at the next revision. In aggregate, we
estimate a one-time state burden of 270 hr (27 states x 10 hr) and
$14,396.40 (270 hr x $53.32/hr).
We propose in section Sec. 431.504(b)(1) that the review of the
comprehensive quality strategy would include an effectiveness
evaluation conducted within the previous 3 years. We estimate the
burden of this evaluation at 40 hr at $53.32/hr for a business
operations specialist once every 3 years for all 56 states. The
currently approved burden estimates that creating and submitting an
implementation and effectiveness report to CMS for the 37 states with
MCOs and/or PIHPs takes 40 hr per state once every 3 years. In its
place, the review of the comprehensive quality strategy (including the
effectiveness evaluation) would apply to the 56 states but the burden
increase would apply to the remaining 19 states. In aggregate, we
estimate an ongoing annualized burden of 253.3 hr [(19 states x 40 hr)/
3 years] and $13,505.96 (253.3 hr x $53.32/hr) to evaluate the
effectiveness of a comprehensive quality strategy.
States would post the effectiveness evaluation on the state's
Medicaid Web site under proposed Sec. 431.504(b)(2). While this
standard is subject to the PRA, we believe the associated burden is
exempt from the PRA in accordance with 5 CFR 1320.3(b)(2). We believe
that the time, effort, and financial resources necessary to comply with
the aforementioned standards would be incurred by persons during the
normal course of their activities and, therefore, should be considered
a usual and customary business practice.
As described in Sec. 431.504(c), states would submit to CMS a copy
of the initial comprehensive quality strategy and any subsequent
revisions. The burden associated with this standard has been captured
in Sec. Sec. 431.502(a) (initial strategy) and 431.504(b) (revision of
strategy). As this would be a new standard for the 19 states that do
not currently contract with MCOs and/or PIHPs, we believe that these
states would need to modify their policies and procedures to
incorporate this action. We estimate a burden of 0.5 hr $53.32/hr for a
business operations specialist. In aggregate, we estimate a one-time
state burden of 9.5 hr (19 states x 0.5 hr) and $506.54 (9.5 hr x
$53.32/hr).
Finally, Sec. 431.504(d) would have states post the final
comprehensive quality strategy to their Medicaid Web sites. While this
standard is subject to the PRA, we believe the associated burden is
exempt from the PRA in accordance with 5 CFR 1320.3(b)(2). We believe
that the time, effort, and financial resources necessary to comply with
the aforementioned standards would be incurred by persons during the
normal course of their activities and, therefore, should be considered
a usual and customary business practice.
3. ICRs Regarding Standard Contract Requirements (Sec. Sec. 438.3,
438.10(c)(5), 438.14(b), 438.110(a), 438.210(b)(2)(iii), 438.242(c),
438.402 and 438.608)
Section 438.3 contains a list of provisions that must be included
in MCO, PIHP, PAHP, HIO, and/or PCCM contracts. While the burden
associated with the implementation and operation of the contracts is
set out when warranted under the appropriate CFR section, the following
burden estimate addresses the effort to amend existing contracts. The
estimate also includes the burden for additional contract amendments
that would be required under:
Sec. 438.10(c)(5) would require specific information to
be provided to enrollees.
Sec. 438.14(b) would specify requirements for Indian
enrollees and providers.
Sec. 438.110(a) would require the establishment and
maintenance of member advisory committees.
Sec. 438.210(b)(2)(iii) would require LTSS to be
authorized consistent with the enrollee's needs assessment and person
centered plan.
Sec. 438.242(c) would require specific provisions for
encounter data.
Sec. 438.608 would require administrative and management
arrangements and procedures to detect and prevent fraud, waste, and
abuse.
We estimate a one-time state burden of 6 hr at $53.32/hr for a
business operations specialist to amend all contracts. In aggregate, we
estimate 3,612 hr (602 contracts x 6 hr) and $192,591.84 (3,612 hr x
$53.32/hr).
4. ICRs Regarding Rate Standards (Sec. 438.5)
Section 438.5 describes CMS' proposal related to the development
and documentation of capitation rates paid to risk-based MCOs, PIHPs
and PAHPs. Generally, we would require: The use of appropriate base
data; application of trends that have a basis in actual experience; a
comprehensive description of the development of the non-benefit
component of the rate; descriptions of the adjustments applied to the
base data, rate, or trends; actuarial certification of the final
contract rates paid to the plans; and a description of budget neutral
risk adjustment methodologies.
We believe that the requirements related to the use appropriate
base data and the adequate description of rate setting standards, such
as trend, the non-benefit component, adjustments, and risk adjustment,
are already required as part of actuarial standards of practice and
accounted for in Sec. 438.7. We clarified that risk adjustment should
be done in a budget neutral manner, but the manner in which risk
adjustment is applied should not create additional burden on the state.
In Sec. 438.5(g), the certification of final contract rates would
place additional burden on the states. We estimate that most states
currently certify a range as compared to the actual contract rate paid
to the health plan. Therefore, out of the total 70 certifications
submitted to CMS from 39 states, the process underlying 50
certifications will need to the modified.
We estimate it would take approximately 10 hr at $92/hr for an
actuary and 1 hr at $127.72/hr for a general and operations manager to
comply with this requirement. In aggregate, we estimate an annual state
burden of 550 hr (50 certifications x 11 hr) and $52,386 [50
certifications x ((10 hr x $92/hr) + (1 hr x $127.72/hr))].
5. ICRs Regarding Rate Certification Submission (Sec. 438.7)
Section 438.7 describes the submission and documentation
requirements for all managed care actuarial rate certifications. The
certification will be reviewed and approved by CMS concurrently with
the corresponding contract(s). Section 438.7(b) details CMS'
expectations for documentation in the rate certifications. We believe
these requirements would be in line with actuarial standards of
practice and previous Medicaid managed care rules.
While the 2002 final rule (under Sec. 438.6(c)) set out the burden
per contract (15,872 hr based on 32 hr per plan), experience has shown
that states do not submit certifications per plan. We believe a better
estimation of the burden would be associated with the development of
the rate certification. In this regard, we estimate it would take 230
hr to develop each certification, consisting of 100 hr (at $92/hr) for
an actuary, 10 hr (at $127.72/hr) for a general and operations manager,
50 hr (at $73.60/hr) for a computer programmer, 50 hr (at $53.32/hr)
for a business operations specialist, and 20 hr

[[Page 31179]]

(at $29.92/hr) for an office and administrative support worker.
The revised burden is based on a total of 16,100 hr (230 hr x 70
certifications) which would add 228 hr (16,100 hr-15,872 hr) for all 70
certifications, adjusted to 3.3 hr per certification. In aggregate, we
estimate an annual state burden of $17,852.41 [70 certifications x
((1.5 hr x $92/hr) + (0.13 hr x $127.72/hr) + (0.73 hr x $73.60/hr) +
(0.73 hr x $53.32/hr) + (0.26 hr x $29.92/hr))].
6. ICRs Regarding Minimum Medical Loss Ratio (Sec. 438.8)
Section 438.8(c) would require that MCOs, PIHPs, and PAHPs report
to the state annually their total expenditures on all claims and non-
claims related activities, premium revenue, the calculated MLR, and, if
applicable, any remittance owed.
We estimate total number of MLR reports that MCOs and PIHPs would
be required to submit to the state would amount to 568 contracts. While
the number of contracts includes 545 credible contracts and 23 non-
credible contracts, all MCOs and PIHPs will need to report the
information required under Sec. 438.8 regardless of their credibility
status.
We estimate a one-time private sector burden of 168 hr for the
initial administration activities. We estimate that 60 percent of the
time would be completed by a computer programmer (101 hr at $73.60/hr),
30 percent would be completed by a business operations specialist (50
hr at $53.32/hr), and 10 percent would be completed by a general and
operations manager (17 hr at $127.72/hr). This amounts to $12,270.84
((101 hr x $73.60) + (50 hr x $53.32) + (17 hr x $127.72)) per report
or $6,969,837.12 (568 x $12,270.84) for 568 MCOs, PIHPs, and PAHPs in
2017 (the one-time burden).
In subsequent years, since the programming and processes
established in 2017 will continue to be used, the burden will decrease
from 168 hr to approximately 53 hr. Using the same proportions of labor
allotment, we estimate an annual private sector burden of $3,846.92 per
report and a total of $2,185,050.56 [568 contracts x $3,846.92 ((32 hr
x $73.60/hr) + (16 hr x $53.32/hr) + (5 hr x $127.72/hr)]. We expect
that states will permit MCOs, PIHPs, and PAHPs to submit the report
electronically. Since the submission time is included in our reporting
estimate, we are not setting out the burden for submitting the report.
7. ICRs Regarding Information Requirements (Sec. 438.10)
Section 438.10(c)(3) would require states to operate a Web site
that provides the information required in Sec. 438.10(f). Since states
already have Web sites for their Medicaid programs and most also
include information about their managed care program, most states would
only have to make minor revisions to their existing Web site.
We estimate 6 hr at $73.60/hr for a computer programmer to make the
initial changes. We also estimate 3 hr for a computer programmer to
periodically add or update documents and links on the site. In
aggregate, we estimate a one-time state burden of 252 hr (42 states x 6
hr) and $18,547.20 (252 hr x $73.60/hr). In subsequent years, we
estimate an annual state burden of 126 hr (42 states x 3 hr) and
$9,273.60 (126 hr x $73.60/hr).
Section 438.10(c)(4)(i) would recommend that states develop
definitions for commonly used terms to enhance consistency of the
information provided to enrollees. We estimate it would take 6 hr at
$53.32/hr for a business operations specialist to develop these
definitions. In aggregate, we estimate a one-time state burden of 252
hr (42 states x 6 hr) and $13,436.64 (252 hr x $53.32/hr).
Section 438.10(c)(4)(ii) would recommend that states create model
enrollee handbooks and notices. Since many states already provide model
handbooks and notices to their entities, we estimate 20 states may need
to take action to comply with this provision. We estimate it would take
20 hr at $53.32/hr for a business operations specialist to create these
documents. We also estimate 2 hr per year for a business operations
specialist to revise these documents, if needed. In aggregate, we
estimate a one-time state burden of 400 hr (20 states x 20 hr) and
$21,328 (400 hr x $53.32/hr). In subsequent years we estimate an annual
burden of 40 hr (20 states x 2 hr) and $2,132.80 (40 hr x $53.32/hr).
Section 438.10(d)(2)(i) would require that states add taglines to
all printed materials for potential enrollees explaining the
availability of translation and interpreter services as well as the
phone number for choice counseling assistance. As the prevalent
languages within a state do not change frequently, we are not
estimating the burden for the rare updates that will be needed to
update these taglines. We estimate it would take 2 hr at $53.32/hr for
a business operations specialist to create the taglines and another 4
hr to revise all document originals. In aggregate, we estimate a one-
time state burden of 252 hr (42 states x 6 hr) and $13,436.64 (252 hr x
$53.32/hr).
Section 438.10(e)(1) clarifies that states can provide required
information in paper or electronic format. As this is an existing
requirement, the only burden change we estimate is adding two new
pieces of information generated in Sec. 438.68 (network adequacy
standards) and Sec. 438.330 (quality and performance indicators). We
estimate 1 hr at $53.32/hr for a business operations specialist to
update or revise existing materials and 1 min at $26.40/hr for a mail
clerk to mail the materials to 5 percent of the enrollees that are new
(3,135,242). In aggregate, we estimate a one-time state burden of 42 hr
(42 states x 1 hr) and $2,239.44 (42 hr x 53.32/hr) to update/revise
existing materials. The currently approved burden estimates 5 min per
mailing for 65,000 total hr. By updating the enrollment figure to
2,069,259 (62,704,821 x .033) and reducing the time from 5 min to 1 min
(to acknowledge automated mailing processes), we estimate the annual
state burden for mailing as -30,512 hr (34,488 hr-65,000 hr) and -
$805,516.80 (-30,512 hr x $26.40/hr).
Section 438.10(g)(1) would require that MCOs, PIHPs, PAHPs, and
PCCMs provide an enrollee handbook. Since Sec. 438.10(g) has always
required the provision of this information (although it did not
specifically call it a ``handbook''), we believe only new managed care
entities would need to create this document. Given the requirement in
Sec. 438.10(c)(4)(ii) for the state to provide a model template for
the handbook, the burden on a new entity would be greatly reduced. It
is not possible for us to estimate how many, if any, new managed care
entities may contract with a state in any year. We invite comment on an
appropriate average number of new plans each year. State burden to
create the template for a model handbook is set out under Sec.
438.10(c)(4)(ii).
For existing entities that already have a method for distributing
the information, we believe that 100 entities will need to modify their
handbook to comply with a new model provided by the state. We estimate
100 entities would rely on a business operations specialist to spend 4
hr at $53.32/hr to update their handbook. Once revised, the handbooks
need to be sent to enrollees. We estimate 1 min by a mail clerk at
$26.40/hr to send handbooks to 10,659,819 enrollees (17 percent of
total enrollment). To update the handbook, we estimate a one-time
private sector burden of 400 hr (100 entities x 4 hr)

[[Page 31180]]

and $21,328 (400 hr x $53.32/hr). To send the handbook to existing
enrollees in the 100 entities, we estimate a one-time private sector
burden of 177,699 hr (10,659,819 enrollees x 1 min) and $4,691,258.42
(177,699 hr x $26.40/hr).
With regard to new enrollees, they must receive a handbook within a
reasonable time after receiving notice of the beneficiary's enrollment.
We assume a 3.3 percent enrollee growth rate thus 2,069,259 enrollees
(5 percent of 62,704,821) would need to receive a handbook each year.
We estimate 1 min by a mail clerk at $26.40/hr to mail the handbook or
34,488 hr (2,069,259 enrollees x 1 min). The currently approved burden
estimates 5 min per mailing for 390,000 enrollees or 32,500 total hr.
Updating the enrollment figure and reducing the time from 5 min to 1
min (to acknowledge current automated mailing processes), the annual
private sector burden is increased by 1,988 hr (34,488 hr-32,500 hr)
and $52,483.20 (1,988 hr x $26.40/hr).
Since all of the MCO, PIHP, PAHP, and PCCM entities would need to
keep their handbook up to date, we estimate it would take 1 hr at
$53.32/hr for a business operations specialist to update the document.
While the updates would be necessary when program changes occur, we
estimate 1 hr since each change may only take a few minutes to make. In
aggregate, we estimate an annual private sector burden of 577 hr (577
entities x 1 hr) and $30,765.64 (577 hr x $53.32/hr).
Section 438.10(h) would require that all MCO, PIHP, PAHP, and PCCM
entities make a provider directory available in paper or electronic
form. Producing a provider directory is a longstanding requirement in
Sec. 438.10 and in the commercial health insurance market. Given the
time sensitive nature of provider information and the high error rate
in printed directories, most provider information is now obtained via
the internet or by calling a customer service representative. In this
regard, the only new burden is the time a computer programmer would
need to add a few additional fields of data, including the provider Web
site addresses, additional disability accommodations, and adding
behavioral and long-term services and support providers.
We estimate that it would take approximately 1 hr at $73.60/hr for
a computer programmer to update the existing directory. Updates after
the creation of the original program would be put on a production
schedule as part of usual business operations and would not generate
any additional burden. In aggregate, we estimate a one-time private
sector burden of 577 hr (577 entities x 1 hr) and $42,467.20 (577 hr x
$73.60/hr).
8. ICRs Regarding Requirements That Apply to MCO, PIHP, PAHP, and PCCM
Contracts Involving Indians, Indian Health Care Providers, and Indian
Managed Care Entities (Sec. 438.14)
Section 438.14(c) would require states to make supplemental
payments to Indian providers if the MCO, PIHP, PAHP, and PCCM entity
does not pay at least the amount paid to Indian providers under the FFS
program. There are approximately 31 states with 463 managed care
entities with Indian providers. This type of payment arrangement
typically involves the managed care entity sending a report to the
state that then calculates and pays the amount owed to the Indian
health care provider.
We estimate it would take 1 hr at $73.60/hr for a private sector
computer programmer to create the claims report and approximately 12 hr
at $53.32/hr for a state business operations specialist to process the
payments. We estimate that approximately 25 of the 31 states will need
to use this type of arrangement. In aggregate, we estimate a one-time
private sector burden of 463 hr (463 entities x 1 hr) and $34,076.80
(463 hr x $73.60/hr). We also estimate an annual state burden of 300 hr
(25 states x 12 hr) and $15,996 (300 hr x $53.32/hr).
After the MCO, PIHP, PAHP, and PCCM report is created, it will most
likely run automatically at designated times and sent electronically to
the state as the normal course of business operations; therefore, no
additional private sector burden is estimated after the first year.
(Note: This process is not necessary when the MCO, PIHP, PAHP, or PCCM
entity pays the ICHP at least the full amount owed under this
regulation.)
9. ICRs Regarding Managed Care Enrollment (Sec. 438.54)
Section 438.54(c)(2) would require states with voluntary programs
that use a passive enrollment process to provide a 14-day choice period
before enrolling the potential enrollee into a managed care plan.
(Currently, such states enroll the potential enrollee into a managed
care plan on the first day of their eligibility.) We estimate
approximately 21 states have voluntary programs and approximately 75
percent of them (15) use a passive process. To accommodate the 14-day
choice period, these 15 states would have to alter the programming of
their passive enrollment algorithm to delay the enrollment in a managed
care plan until the enrollee makes a plan selection or the 14-day
period expires. We estimate it would take a computer programmer 2 hours
at $73.60/hr to complete this change. In aggregate, we estimate a one-
time state burden of 30 hours (15 states x 2 hr) and $2,208 (30 hours x
$73.60).
Section 438.54(c)(3) and (d)(3) would require states to notify the
potential enrollee of the implications of not making an active choice
during the allotted choice period. This information should be included
in the notice of eligibility determination (or annual redetermination)
required under Sec. 445.912, thus no additional burden is estimated
here.
Section 438.54(c)(8) would require states to send a notice to
enrollees in voluntary programs that utilize a passive enrollment
process confirming their managed care enrollment when they have the
opportunity to select a delivery system. We believe that by
implementing the 14-day choice period, some states currently using
passive enrollment process will discontinue its use. Therefore, we
assume only 10 states will continue using a passive enrollment process,
with a total of 14,929,719 enrollees. Assuming a 5 percent of these
would be new each year, and of those, that approximately 75 percent
will elect managed care (559,865) we estimate 1 min per notification by
a mail clerk at $26.40/hr. In aggregate, we estimate an annual state
burden of 9,350 hours (559,865 enrollees x 1 min) and $246,833.28
(9,350 hr x $26.40/hr).
10. ICRs Regarding Continued Services to Beneficiaries (Sec. 438.62)
Section 438.62(b)(1) would require states to have a transition of
care policy for all beneficiaries moving from FFS Medicaid into a MCO,
PIHP, PAHP or PCCM, or when an enrollee is moving from one MCO, PIHP,
PAHP, or PCCM to another and that enrollee would experience a serious
detriment to health or be at risk of hospitalization or
institutionalization without continued access to services. As states
are currently required to ensure services for enrollees during plan
transitions, they have a policy but it may need to be revised to
accommodate the proposed requirements and to include transitions from
FFS. We estimate it would take a business operations specialist 5 hours
at $53.32/hr to revise their policies and procedures and 4 hr at
$73.60/hr for a computer programmer to create a program to compile and
send the data. In aggregate, we estimate a one-time state burden of 378
hr (42 states x 9 hr) and $23,562.00 (210 hr x $53.32/hr + 168 hr x
$73.60/hr). We are not

[[Page 31181]]

estimating additional burden for the routine running of these reports
since they will be put into a production schedule.
Section 438.62(b)(2) would require that MCOs, PIHPs, PAHPs, and
PCCMs implement their own transition of care policy that meets the
requirements of Sec. 438.62(b)(1). Under current requirements and as
part of usual and customary business practice for all managed care
plans, the MCOs, PIHPs, PAHPs, or PCCMs already exchange data with each
other for this purpose. To revise their existing policies to reflect
the standards in (b)(1), we estimate 1 hr at $53.32 for a business
operations specialist. To develop computer programs to receive and
store FFS data, we estimate 4 hr at $73.60/hr for a computer
programmer. We are not estimating additional burden for the routine
running of these reports since they will be put into a production
schedule. In aggregate, we estimate a one-time private sector burden of
568 hr (568 MCOs, PIHPs, PAHPs, and PCCMs x 1 hr) and $30,285.76 (568
hr x $53.32/hr) and 2,272 hr (568 x 4 hr) and $167,219 (2,272 hr x
$73.60/hr).
For transitions, we estimate 10 min (per request) at $65.40/hr for
a registered nurse to access the stored data and take appropriate
action. We also estimate that approximately 0.05 percent of enrollees
(313,704) may meet the state defined criteria for serious detriment to
health and/or risk of hospitalization or institutionalization. In
aggregate, we estimate an annual private sector burden of 52,294 hr
(313,704 enrollees x 10 min) and $3,420,057.47 (52,294 hr x $65.40/hr).
11. ICRs Regarding State Monitoring Procedures (Sec. 438.66)
Section 438.66(a) and (b) would require states with MCO, PIHP,
PAHP, or PCCM programs to have a monitoring system including at least
the 13 areas specified in paragraph (b). While having a monitoring
system is a usual and customary business process for all of the state
Medicaid agencies, including all 13 areas will require most states to
make at least some revisions to their existing processes and policies.
We estimate 8 hr at $53.32/hr for a business operations specialist to
expand or revise existing policies and procedures. In aggregate, we
estimate a one-time state burden of 336 hr (42 states x 8 hr) and
$17,915.52 (336 hr x $53.32/hr).
Section 438.66(c) would require states with MCO, PIHP, PAHP, or
PCCM programs to utilize data gathered from its monitoring activities
in 12 required areas to improve the program's performance. While all
states currently utilize data for program improvement to some degree,
incorporating all 12 areas will likely require some revisions to
existing policies and procedures. We estimate a one-time state burden
of 20 hr at $53.32/hr for a business operations specialist to revise
existing or to create new policies and procedures for utilizing the
collected data. In aggregate, we estimate 840 hr (42 states x 20 hr)
and $44,788.80 (840 hr x $53.32/hr).
Section 438.66(d)(1) through (3) would require that states include
a desk review of documents and an on-site review for all readiness
reviews when certain events occur. For preparation and execution of the
readiness review, we estimate 5 hr (at $127.72/hr) for a general and
operations manager, 30 hr (at $53.32/hr) for a business operations
specialist, and 5 hr (at $73.60/hr) for a computer programmer. The time
and staff types are estimated for a new program or new entity review
and may vary downward when the review is triggered by one of the other
events listed in (d)(1). Given the varying likelihood of the 5 events
listed in (d)(1), we will use an average estimate of 20 states per year
having one of the triggering events. In aggregate, we estimate an
annual state burden of 800 hr (20 states x 40 hr) and $52,124 [20
states x ((5 x $127.72/hr) + (30 x $53.32/hr) + (5 x $73.60/hr))].
For MCO, PIHP, PAHP, or PCCM preparation and execution, we estimate
5 hr (at $127.72/hr) for a general and operations manager, 30 hr (at
$53.32/hr) for a business operations specialist, and 5 hr (at $73.60/
hr) for a computer programmer. In aggregate, we estimate an annual
private sector burden of 800 hr (20 entities x 40 hr) and $52,124 [20
entities x ((5 x $127.72/hr) + (30 x $53.32/hr) + (5 x $73.60/hr))].
Section 438.66(e)(1) and (2) would require that states submit an
annual program assessment report to CMS covering the topics listed in
Sec. 438.66(e)(2). The data collected for Sec. 438.66(b) and the
utilization of the data in Sec. 438.66(c) will be used to compile this
report. We estimate an annual state burden of 6 hr at $53.32/hr for a
business operations specialist to compile and submit this report to
CMS. In aggregate, we estimate an annual state burden of 252 hr (42
states x 6 hr) and $13,436.64 (252 hr x $53.32/hr).
12. ICRs Regarding Network Adequacy (Sec. 438.68)
Section 438.68(a) would require that states set network adequacy
standards that each MCO, PIHP and PAHP must follow. Section 438.68(b)
and (c) would require that states set standards which must include time
and distance standards for specific provider types and must develop
network standards for LTSS if the MCO, PIHP or PAHP has those benefits
covered through their contract.
We estimate states would spend 10 hr in the first year to develop
the network adequacy standards for the specific provider types found in
Sec. 438.68(b)(1). While 40 states have contracted with at least one
MCO, PIHP or PAHP, we believe that 20 will need to develop the
standards. After the network standards have been established, we
estimate that the maintenance of the network standards will occur only
periodically as needs dictate; therefore, we do not estimate additional
burden for states after the first year.
To develop network standards meeting the specific provider types
found in Sec. 438.68(b)(1), we estimate a one-time state burden of 10
hr at $53.32/hr for a business operations specialist. In aggregate, we
estimate 200 hr (20 states x 10 hr) and $10,664 (200 hr x $53.32/hr).
To develop LTSS standards, we estimate a one-time state burden of
10 additional hr at $53.32/hr for a business operations specialist to
develop those standards. In aggregate, we estimate 160 hr (16 states
with MLTSS programs x 10 hr) and $8,531.20 (160 hr x $53.32/hr).
Section 438.68(d) would require the state to develop an exceptions
process for use by MCOs, PIHPs, and PAHPs unable to meet the network
standards established in Sec. 438.68(a). We estimate a one-time state
burden of 3 hr at $53.32/hr for a business operations specialist to
design an exceptions process for states to use to evaluate requests
from MCOs, PIHP, and PAHPs for exceptions to the network standards.
With a total of 40 states contracting with at least one MCO, PIHP or
PAHP, we estimate a one-time aggregate state burden of 120 hr (40
states x 3 hr) and $6,398.40 (120 hr x $53.32).
The exception process should not be used very often as MCOs, PIHPs,
and PAHPs meeting the established standards is critical to enrollee
access to care. As such, after the exceptions process is established,
we estimate that the occasional use of it will not generate any
measurable burden after the first year.
States' review and reporting on exceptions granted through the
process developed in Sec. 438.68(d) is estimated under Sec. 438.66 so
we do not estimate any additional burden for this requirement.

[[Page 31182]]

13. ICRs Regarding Stakeholder Engagement When LTSS Is Delivered
Through a Managed Care Program (Sec. 438.70)
Section 438.70(c) would require that states continue to solicit and
address public input for oversight purposes. Existing MLTSS programs
already meet this requirement and we estimate no more than 14 new
programs.
We estimate an annual state burden of 4 hr at $53.32/hr for a
business operations specialist to perform this task. In aggregate, we
estimate 56 hr (14 states x 4 hr) and $2,985.92 (152 hr x $53.32/hr).
14. ICRs Regarding Beneficiary Support System (Sec. 438.71)
Section 438.71(a) would require the state to develop and implement
a system for support to beneficiaries before and after enrollment in a
MCO, PIHP, PAHP, or PCCM. This will most likely be accomplished via a
call center including staff having email capability--internal to the
state or subcontracted--that will assist beneficiaries with questions.
As most state Medicaid programs already provide this service, we
estimate only 20 states may need to take action to address this
requirement.
We estimate a state would need 150 hr to either procure a vendor
for this function or create an internal call center. The one-time state
burden would consist of 125 hr (at $53.32/hr) for a business operations
specialist, and 25 hr (at $127.72/hr) for a general and operations
manager. In aggregate, we estimate 3,000 hr (20 states x 150 hr) and
$197,160 [20 states x ((125 hr x $53.32/hr) + (25 hr x $127.72/hr))].
Section 438.71(b) would require the system to include choice
counseling for enrollees, training for providers, outreach for
enrollees, and education and problem resolution for services, coverage,
and access to LTSS. This system must be accessible in multiple ways
including at a minimum, by telephone and email. Some in-person
assistance may need to be provided in certain circumstances. Most
states will likely use the call center created in Sec. 438.71(a) to
handle the majority of these responsibilities and use existing
community-based outreach/education and ombudsman staff, whether state
employees or contractors, for the occasional in person request. The use
of existing staff will add no additional burden as it is part of
standard operating costs for operating a Medicaid program.
The provider training will likely involve developing materials thus
we are estimating 3 hr at $53.32/hr for a business operations
specialist to create materials specifically for provider education on
MLTSS and 1 hr to update those materials (given the fluid nature of
community resources). As almost all materials for providers are sent
electronically, we estimate only the additional time needed to produce
the materials here. In aggregate, we estimate a one-time state burden
of 126 hr (42 states x 3 hr) and $6,718.32 (126 hr x $53.32/hr). We
also estimate an annual state burden of 42 hr (42 states x 1 hr) and
$2,239.44 (42 hr x $53.32/hr).
15. ICRs Regarding Member Advisory Committee (Sec. 438.110)
Section 438.110(a) would require each MCO, PIHP, and PAHP to
establish and maintain a member advisory board if the LTSS population
is covered under the contract. We estimate an annual private sector
burden of 6 hr at $53.32/hr for a business operations specialist to
maintain the operation of the committee (hold meetings, distribute
materials to members, and maintain minutes) for up to 14 new programs.
Existing programs already meet this requirement. In aggregate, we
estimate 84 hr (14 states x 6 hr) and $4,478.88 (84 hr x $53.32/hr).
16. ICRs Regarding Assurances of Adequate Capacity and Services (Sec.
438.207)
Section 438.207(c) would add a requirement that the documentation
required in Sec. 438.207(b) be submitted to the state at least
annually. As the MCOs, PIHPs, and PAHPs would already run and review
these reports periodically to monitor their networks as part of normal
network management functions and as part of the provisions of Sec.
438.68, the only additional burden would possibly be (if the state
doesn't already require this at least annually) for the MCOs, PIHPs,
and PAHPs to revise their policy to reflect an annual submission. We
estimate a one-time private sector burden of 1 hr at $53.32/hr for a
business operations specialist to revise the policy, if needed. In
aggregate, we estimate 568 hr (568 entities x 1 hr) and $30,285.76 (568
hr x $53.32/hr). We also estimate an annual private sector burden of 2
hr to compile and submit the information necessary to meet the
requirements Sec. 438.207(b) through (d). In aggregate, we estimate
1,136 hr (568 entities x 2 hr) and $60,571.52 (1,136 hr x $53.32/hr).
17. ICRs Regarding Coordination and Continuity of Care (Sec. 438.208)
Section 438.208(b)(2)(iii) would require that MCOs, PIHPs and PAHPs
coordinate service delivery with the services the enrollee receives in
the FFS program (carved out services). This involves using data from
the state to perform the needed coordination activities. The exchange
of data and the reports needed to perform the coordination activity is
addressed in the requirements in Sec. 438.62(b)(2). Since only a small
percentage of enrollees receive carved out services and need assistance
with coordination, we estimate 5 percent of all MCO, PIHP, and PAHP
enrollees (2,746,476) will be affected. We estimate an ongoing private
sector burden of 10 min (per enrollee) at $59.20/hr for a healthcare
social worker to perform the care coordination activities. In
aggregate, we estimate 457,746 hr (2,746,476 enrollees x 10 min) and
$27,099,105.17 (457,746 hr x $59.20/hr).
Section 438.208(b)(3) would require that a MCO, PIHP or PAHP make
its best effort to conduct an initial assessment of each new enrollee's
needs within 90 days of the enrollment. We believe that most MCOs and
PIHPs already meet this requirement and only 25 percent of the MCOs and
PIHPs (127) will need to alter their processes; however, we do not
believe this to be as common a practice among PAHPs and assume that all
41 PAHPs will be need to add this assessment to their initial
enrollment functions. We estimate a one-time private sector burden of 3
hr at $53.32/hr for a business operations specialist to revise their
policies and procedures. In aggregate, we estimate 504 hr [(127 MCOs/
PIHPs + 41 PAHPs) x 3 hr] and $26,873.28 (504 hr x $53.32/hr).
We estimate that in a given year, only 5 percent (485,872) of 25
percent of MCO and PIHP and all PAHP enrollees are new to a managed
care plan. We estimate an annual private sector burden of 10 min (on
average) at $29.68/hr for a customer service representative to complete
the assessment. In aggregate, we estimate 80,980 hr (485,872 enrollees
x 10 min) and $2,403,494.90 (80,980 hr x $29.68/hr).
Section 438.208(b)(4) would require that MCOs, PIHPs, and PAHPs
share with other MCOs, PIHPs, and PAHPs serving the enrollee the
results of its identification and assessment of any enrollee with
special health care needs so that those activities need not be
duplicated. The burden associated with this requirement is the time it
takes each MCO, PIHP or PAHP to disclose information on new enrollees
to the MCO, PIHP or PAHP providing a carved out service. This would
most likely be accomplished by developing a report to collect the data
and posting the completed report for the other MCO, PIHP, or PAHP to
retrieve.

[[Page 31183]]

We estimate a one-time burden of 4 hr at $73.60/hr for a computer
programmer to develop the report. In aggregate, we estimate 2,272 hr
(568 MCOs, PIHPs, and PAHPs x 4 hr) and $167,219 (2,272 hr x $73.60/
hr). However, while the currently approved burden sets out 45 min per
enrollee and 464,782 annual hours, to provide more accurate estimates
we are adjusting the burden by using one-time per plan estimates and
recognizing the use of automated reporting. In aggregate, we estimate a
one-time private sector burden of -462,510 hr (2,272 hr -464,782 hr)
and -$34,040,736 (-462,510 hr x $73.60/hr). Once put on a production
schedule, no additional staff time would be needed, thus no additional
burden is estimated.
Section 438.208(c)(2) and (3) currently require that MCOs, PIHPs
and PAHPs complete an assessment and treatment plan for all enrollees
that have special health care needs; we propose to add ``enrollees who
require LTSS'' to this section. These assessments and treatment plans
should be performed by providers or MCO, PIHP or PAHP staff that meet
the qualifications required by the state. We believe the burden
associated with this requirement is the time it takes to gather the
information during the assessment. (Treatment plans are generally
developed while the assessment occurs so we are not estimating any
additional time beyond the time of the assessment.) We believe that
only enrollees in MCOs and PIHPs will require this level of assessment
as most PAHPs provide limited benefit packages that do not typically
warrant a separate treatment plan.
While this is an existing requirement, we estimate an additional 1
percent of the total enrollment of 42,812,879 (428,128) given the surge
in enrollment into managed care of enrollees utilizing LTSS. We
estimate an annual private sector burden of 1 hr (on average) at
$65.40/hr for a registered nurse to complete the assessment and
treatment planning. In aggregate, we estimate an additional 428,128 hr
(428,128 enrollees x 1 hr) and $27,999,571 (428,128 hr x $65.40/hr).
Section 438.208(c)(3)(v) would add a requirement that treatment
plans be updated at least annually or upon request. We estimate a one-
time private sector burden of 1 hr at $53.32/hr for a business
operations specialist to revise policies and procedures to reflect a
compliant time frame. In aggregate, we estimate 568 hr (568 MCOs,
PIHPs, PAHPs x 1 hr) and $30,285.76 (568 hr x $53.32/hr).
18. ICRs Regarding Coverage and Authorization of Services (Sec.
438.210)
Section 438.210(a)(4)(ii)(B) would require that MCOs, PIHPs, and
PAHPs authorize services for enrollees with chronic conditions or
receiving LTSS in a way that reflects the on-going nature of the
service. While we expect this to already be occurring, we would expect
that most MCOs, PIHPs, and PAHPs would review their policies and
procedures to ensure compliance. We estimate a one-time private sector
burden of 20 hr at $65.40/hr for a registered nurse to review and
revise, if necessary, authorization policies and procedures. In
aggregate, we estimate 11,360 hr (568 MCOs, PIHPs, and PAHPs x 20 hr)
and $742,944 (11,360 x $65.40/hr)
Section 438.210(c) currently requires that each contract provide
for the MCO or PIHP to notify the requesting provider, and give the
enrollee written notice of any decision by the MCO, PIHP, or PAHP to
deny a service authorization request, or to authorize a service in an
amount, duration, or scope that is less than requested. In this
proposed rule, PAHPs would be added to this requirement.
The burden associated with sending adverse benefit determination
notices is included in Sec. 438.404. While we believe PAHPs already
provide notification of denials, we expect they may need to be revised
to be compliant with Sec. 438.404. We estimate a one-time public
sector burden of 1 hr at $53.32/hr for a business operations specialist
to revise the template. In aggregate, we estimate 61 hr (61 PAHPs x 1
hr) and $3,252.52 (61 hr x $53.32/hr).
19. ICRs Regarding Subcontractual Relationships and Delegation (Sec.
438.230)
Section 438.230 would require additional provisions in MCO, PIHP,
or PAHP subcontracts, other than agreements with network providers. We
estimate a one-time private sector burden of 3 hr at $53.32/hr for a
business operations analyst to amend appropriate contracts. In
aggregate, we estimate 1,704 hr (568 MCO, PIHP, or PAHP x 3 hr) and
$90,857.28 (1,704 x $53.32/hr).
20. ICRs Regarding Health Information Systems (Sec. 438.242)
Section 438.242(b) and (c) currently requires MCOs and PIHPs to
collect and submit to the state enrollee encounter data. We propose to
add PAHPs to the requirement. We estimate a one-time private sector
burden of 20 hr at $73.60/hr for a computer programmer to extract this
data from a PAHP's system and report it to the state. In aggregate, we
estimate 820 hr (41 entities x 20 hr) and $60,352 (820 hr x $73.60/hr).
After creation, these reports would be set to run and sent to the state
at on a production schedule.
21. ICRs Regarding Basis, Scope, and Applicability (Sec. 438.310)
Section 438.310(c)(2) is new and would have states assess the
performance of each PCCM entity described in Sec. 438.3(r). Section
438.3(r) describes a specific subset of PCCM entities; therefore we
estimate that this change will affect 10 states, or approximately 15
PCCM entities. At a minimum, the assessment would include the elements
in Sec. 438.330(b)(3), (c), and (e).
We estimate a one-time state burden of 2 hr at $53.32/hr for a
business operations specialist to address the performance assessment of
PCCM entities specified at Sec. 438.3(r) by revising a state's
policies and procedures. In aggregate, we estimate 20 hr (10 states x 2
hr) and $1,066.40 (20 hr x $53.32/hr).
22. ICRs Regarding Quality Assessment and Performance Improvement
Program (Sec. 438.330, Formerly Sec. 438.240)
Section 438.330(a)(2) alters the process we would use to specify
performance measures and PIP topics to include a public notice and
comment process. Assuming that we do use this process to identify
performance measures and PIP topics at least once every 3 years, the
burden for states will be altered. Some may experience a decrease in
the time spent selecting performance measures and PIP topics while
others might experience a slight increase in the form of programming
their MMIS systems to account for the specified performance measures
and PIP topics.
We estimate an annual state burden of 10 hr (every 3 years) at
$73.60/hr for a computer programmer to make the MMIS programming
changes. In aggregate, we estimate an annualized burden of 133.3 hr
[(40 states x 10 hr)/3 years] and $9,810.88 (133.3 hr x $73.60/hr). We
cannot estimate the amount of possible decrease in burden as we have no
way to know the average amount of time a state expended on selecting
performance measures or PIP topics and how this might change based on
this revision.
Section 438.330(a)(2)(i) would allow states to select performance
measures and performance improvement projects (PIPs) in addition to
those specified by CMS under Sec. 438.330(a)(2). Since this

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language continues the flexibility available to states today, we do not
believe this creates any change in burden for states or the private
sector.
Section 438.330(a)(2)(ii) would allow states to apply for an
exemption from the CMS-specified performance measures and PIP topics
established under Sec. 438.330(a)(2). While we have no data on how
many states would take advantage of this option, given that the
performance measures and PIP topics under Sec. 438.330(a)(2) would be
identified through a public notice and comment process, we estimate
that 25 percent of states (11 states) would ask for an exemption every
3 years. We estimate an annual state burden of 1 hr at $53.32/hr for a
business operations specialist to comply with the exemption process. In
aggregate, we estimate an annualized burden of 3.7 hr [(11 states x 1
hr)/3 years] and $197.28 (3.7 hr x $53.32/hr).
Section 438.330(b)(3) clarifies that MCOs, PIHPs, and PAHPs would
have an approach to evaluate and address findings regarding the
underutilization and overutilization of services. Because utilization
review in managed care has become commonplace in the commercial,
Medicare, and Medicaid settings, we do not believe that this regulatory
provision imposes any new burden on MCOs, PIHPs, or PAHPs. However, in
accordance with Sec. 438.310(c)(2), some PCCM entities (we estimate
15) would now be subject to this operational component.
We recognize that PCCM entities may not currently have in place
mechanisms to assess and address underutilization and overutilization
of services in accordance with Sec. 438.330(b)(3). We estimate a one-
time private sector burden of 10 hr at $53.32/hr for a business
operations specialist to establish the policies and procedures. In
aggregate, we estimate 150 hr (15 PCCM entities x 10 hr) and $7,998
(150 hr x $53.32/hr) for program establishment. We also estimate an
annual burden of 10 hr to evaluate and address the findings. In
aggregate, we estimate 150 hr (15 PCCM entities x 10 hr) and $7,998
(150 hr x $53.32/hr) for program maintenance.
Section 438.330(c)(1) through (3) would include conforming changes,
specifically the addition of PAHPs to the list of affected managed care
entities and updated citations. The section states that each MCO and
PIHP annually measures its performance using standard measures
specified by the state and report its performance to the state. We
assume that each of the 335 MCOs and 176 PIHPs would report on three
performance measures to the state. The use of performance measures is
commonplace in commercial, Medicare, and Medicaid managed care markets;
therefore we believe that MCOs and PIHPs already collect performance
measures.
For MCOs (335) and PIHPs (176), we estimate an annual private
sector burden of 0.1 hr at $53.32/hr for a business operations
specialist to report on a single performance measure to the state. In
aggregate, we estimate 153.3 hr (511 MCOs and PIHPs x 3 performance
measures x 0.1 hr) and $8,173.96 (153.3 hr x $53.32/hr).
In accordance with Sec. 438.310(c)(2), some PCCM entities would
now be subject to the performance measurement standards under Sec.
438.330(c). We recognize that PAHPs and PCCM entities may not currently
engage in performance measurement as described in Sec. 438.330(c). We
estimate that each PCCM entity and each PAHP would report to the state
on 3 performance measures annually. For the 15 PCCM entities and 41
PAHPs, we estimate an annual private sector burden of 4 hr (per
measure) at $53.32/hr for a business operations specialist to collect,
calculate, and submit each performance measure to the state. In
aggregate, we estimate 672 hr (56 PAHPs and PCCMs x 3 performance
measures x 4 hr) and $35,831.04 (672 hr x $53.32/hr).
In Sec. 438.330(c)(4) we propose that, in addition to the
performance measures otherwise specified under Sec. 438.330(c)(1)
through (3), MCOs, PIHPs, and PAHPs that provide LTSS services would
collect and report on two categories of measures specific to LTSS.
Assuming that each of the 179 MLTSS plans reports on at least one
measure per category and a burden of 4 hr (per measure) at $53.32/hr
for a business operations specialist to collect, calculate, and submit
each LTSS performance measure to the state, we estimate an aggregated
private sector burden of 1,432 hr (179 MLTSS plans x 2 performance
measures x 4 hr) and $76,354.24 (1,432 hr x $53.32/hr).
Section 438.330(d)(1) would have states ensure that each MCO and
PIHP has an ongoing program of PIPs. In Sec. 438.330(d)(2), each MCO
and PIHP would report the status and results of each such PIP to the
state as requested. For the standards for ongoing PIPs in Sec.
438.240(d), we estimate that each MCO and PIHP would conduct at least 3
PIPs in any given year. We further expect that states would request the
status and results of each entity's PIPs annually. The currently
approved burden under this control number estimates that each of 539
MCOs and PIHPs conducts 3 PIPs, for a burden of 12,936 hr (539 MCOs and
PIHPs x 3 PIPs x 8 hr). However, this figure overestimates the number
of MCOs and PIHPs. Therefore, we estimate an annual private sector
burden of 8 hr at $53.32/hr for a business operations specialist to
report on each PIP. In aggregate, we estimate 12,264 hr (511 MCOs and
PIHPs x 8 hr x 3 PIPs) and $653,916.48 (12,264 hr x $53.32/hr).
Section 438.330(d)(1) and (2) would add PAHPs to the list of
affected managed care entities. While we recognize that PAHPs may not
currently be conducting PIPs, we assume that each PAHP would conduct at
least one PIP each year. We expect that states would request the status
and results of each PAHP's PIP annually. We estimate a one-time private
sector burden of 2 hr at $53.32/hr for a business operations specialist
to develop policies and procedures. In aggregate, we estimate 82 hr (41
PAHPs x 2 hr) and $4,372.24 (82 hr x $53.32/hr). We also estimate an
annual private sector burden of 8 hr to prepare a PIP report. In
aggregate, we estimate 328 hr (41 PAHPs x 1 PIP x 8 hr) and $17,488.96
(328 hr x $53.32/hr).
Per Sec. 438.310(c)(2), PCCM entities specified at Sec. 438.3(r)
would also be subject to the program components in Sec. 438.330(e). We
estimate an annual state burden of 15 hr at $53.32/hr for a business
operations specialist to assess the performance of a single Sec.
438.3(r) PCCM entity. In aggregate, we estimate 225 hours (15 PCCM
entities x 15 hr) and $11,997 (225 hr x $53.32/hr).
Under section 438.330(e)(1)(ii), states would include outcomes and
trended results of each MCO, PIHP, and PAHP's PIPs in the state's
annual review of quality assessment and performance improvement
programs. We estimate a one-time state burden of 0.5 hr at $53.32/hr
for a business operations specialist to modify policies and procedures
for the 40 states with MCOs, PIHPs and PAHPs. In aggregate, we estimate
20 hr (40 states x 0.5 hr) and $1,066.40 (20 hr x $53.32/hr). We also
estimate an annual state burden of 1 hr to conduct the additional
annual review of the outcomes and trended results for MCOs, PIHPs, and
PAHPs. In aggregate, we estimate 40 hr (40 states x 1 hr) and $2,132.80
(40 hr x $53.32/hr).
Section 438.330(e)(1)(iii) is a new program component, related to
Sec. 438.330(b)(5), which would have a state (in its annual review)
assess the results of any efforts to support state goals to promote
community integration of beneficiaries using LTSS in place at the MCO,
PIHP, or PAHP. We estimate that the 16 states with MLTSS plans would
need to modify their policies and procedures regarding the annual
review

[[Page 31185]]

of quality assessment and performance improvement programs in their
managed care entities. We estimate a one-time state burden of 0.5 hr at
$53.32/hr for a business operations specialist to modify the state's
policies and procedures. In aggregate, we estimate 8 hr (16 states x
0.5 hr) and $426.56 (8 hr x $53.32/hr). We also estimate an annual
burden of 1 hr for the assessment of rebalancing efforts. In aggregate,
we estimate 16 hr (16 states x 1 hr) and $853.12 (16 hr x $53.32/hr)
for the assessment.
23. ICRs Regarding State Review and Approval of MCOs, PIHPs, and PAHPs
(Sec. 438.332)
Under this new section, states would review and approve MCO, PIHP,
and PAHP performance, at least once every 3 years, in accordance with
standards at least as strict as those used by a private accrediting
entity that is approved or recognized by CMS under the existing
Marketplace and MA programs, as a condition of contracting with the
state. It would also grant states the option of allowing MCOs, PIHPs,
and PAHPs to meet this standard by presenting proof of accreditation by
a private accrediting entity recognized by CMS. MCOs, PIHPs, and PAHPs
would maintain state approval for the duration of participation in the
Medicaid program. State approval of MCOs, PIHPs, and PAHPs would be
renewed every 3 years.
A number of states already either include accreditation by a
private accrediting entity as a component of their managed care
contracting process or recognize such accreditation. We estimate that
half of states (20 states) would elect to establish their own state
review and approval process (per Sec. 438.332(a)) and the remainder
(20 states) will elect to use the accreditation deeming option (per
Sec. 438.332(b)). We further estimate that half (276) of the total
number of MCOs, PIHPs, and PAHPs (552) will be subject to each process.
Section 438.332(a) would establish that to enter into a contract
with the state, the performance of each MCO, PIHP, and PAHP would be
reviewed and approved by the state, using a set of standards that are
at least as stringent as those used by a private accrediting entity
recognized by CMS either for MA or Qualified Health Plan accreditation.
It would also define maintenance of state approval as a condition of
its contract. While we are aware of at least one state that operates
its own accreditation process, we do not have any data regarding the
costs of this type of review and approval system and thus estimate all
burdens associated with this process.
We expect that states would have to purchase the accreditation
standards of a private accrediting entity recognized by CMS to
determine if its standards for MCOs, PIHPs, and PAHPs are at least as
stringent as those used by a private accrediting entity. We estimate
that this would cost $20,000 per state, and that states would have to
purchase these standards at least once every 3 years. In aggregate, we
estimate an ongoing annualized state burden of $133,333.33 [(20 states
x $20,000)/3 years] for the purchase of the accreditation standards of
a private accrediting entity.
After purchasing these standards, the state would use them to
develop its own standards which are at least as stringent as those used
by the private accrediting entity. We estimate that states would
conduct this process at least once every 3 years. We estimate an annual
state burden of 15 hr at $53.32/hr for a business operations specialist
and 5 hr at $127.72/hr for a general and operations manager. In
aggregate, we estimate an annualized burden of 133.3 hr [(20 states x
20 hr)/3 years] and $9,589.33 [((20 states x 15 hr x $53.32/hr) + (20
states x 5 hr x $127.72/hr))/3 years].
The state would then use its standards to review and approve the
performance of each plan at least once every 3 years. For plan review
and approval, we estimate an annual state burden of 80 hr at $53.32/hr
for a business operations specialist, 5 hr at $127.72/hr for a general
and operations manager, and 5 hr at $29.92/hr for an office and
administrative support worker. In aggregate, we estimate an annualized
state burden of 8,280 hr (276 MCOs, PIHPs, and PAHPs x 90 hr/3 years)
and $464,949.60 [(276 MCOs/PIHPs/PAHPs x [(80 hr x $53.32/hr) + (5 hr x
$127.72/hr) + (5 hr x $29.92/hr)])/3 years] to review and approve MCOs,
PIHPs, and PAHPs.
For the state to review and approve a plan, the MCO, PIHP, or PAHP
would have to provide certain information to the state. As a condition
of contracting with the states, plans would have to maintain state
approval (a process which we estimate will occur at least once every 3
years); therefore plans would provide this information to the state at
least once every 3 years. We estimate a burden of 40 hr at $53.32/hr
for a business operations specialist, 5 hr at $29.92/hr for an office
and administrative support worker, and 4 hr at $127.72/hr for a general
and operations manager to compile and provide this information. In
aggregate we estimate an annualized private sector burden of 4,508 hr
[(276 MCOs, PIHPs, and PAHPs x 49 hr/3 years) and $256,981.76 [(276
MCOs, PIHPs, and PAHPs x [(40 hr x $53.32/hr) + (5 hr x $29.92/hr) + (4
hr x $127.72/hr)])/3 years].
Section 438.332(b) would allow states to deem compliance with the
process in Sec. 438.332(a) for MCOs, PIHPs, and PAHPs that provide
proof and documentation of accreditation by a private accrediting
entity recognized by CMS. We estimate the burden for the operation of
the state deeming process as 40 hr at $53.32/hr for a business
operations specialist to oversee and collect private accreditation
information from MCOs, PIHPs, and PAHPs. In aggregate, we estimate an
annualized state burden of 266.7 hr [(20 states x 40 hr)/3 years] and
$14,220.44 (266.7 hr x $53.32/hr) for the oversight and operation of
the accreditation deeming process.
Under Sec. 438.332(b)(2), MCOs, PIHPs, and PAHPs would authorize
the private accrediting entity to release accreditation information to
the state to deem compliance with Sec. 438.332(a). We believe that an
indeterminate number (estimated to be half, or 138 MCOs, PIHPs, and
PAHPs) of these entities may already have received or are independently
seeking accreditation, and thus would not face any additional burden
associated with this section.
The remaining 138 MCOs, PIHPs, and PAHPs would have to seek initial
accreditation from a private accrediting entity. The burden for
accreditation varies widely, depending on a number of factors including
the type of managed care entity, the size of its population, and the
accrediting body. We estimate that initial accreditation costs $70,700
per plan (given that private accrediting entities structure prices in
terms of accreditation activities, not hours, an hourly burden estimate
is not available) and would be renewed once every 3 years for the same
cost. In aggregate, we estimate the one-time private sector burden for
initial accreditation is $9,756,600 (138 MCOs, PIHPs, and PAHPs x
$70,700) and an annualized private sector burden of $3,252,200 [(138
MCOs, PIHPs, and PAHPs x $70,700)/3 years] for accreditation renewal.
Section 438.332(c) would have the state document its determinations
for all MCOs, PIHPs, and PAHPs on the state's Web site. The burden is
included in Sec. 438.10.
24. ICRs Regarding Medicaid Managed Care Quality Rating System (Sec.
438.334)
Section 438.334 (a) would have each state which contracts with an
MCO,

[[Page 31186]]

PIHP or PAHP establish a quality rating system to generate plan
ratings. These quality ratings would: (1) Be based on the three
specified components (clinical quality management, member experience,
and plan efficiency, affordability, and management), (2) use outcomes
data from the CMS-specified performance measures in 438.330(a)(3), and
(3) be prominently displayed by the state on its Web site.
We assume each state would create a single quality rating system
for all its MCOs, PIHPs, and PAHPs. Section 438.334(c) would provide
states with the option to use their own quality rating system in place
of the system proposed under this section; therefore, we estimate that
30 states would have to create quality rating systems. We further
estimate that 75 percent (414) of MCOs, PIHPs, and PAHPs operate in
these 30 states. We also assume that each state would utilize a public
engagement process to solicit feedback on its quality rating system.
We estimate the burden for the development of a state quality
rating system as 100 hr at $53.32/hr for a business operations
specialist, 40 hr at $73.60/hr for a computer programmer, and 15 hr at
$127.72/hr for a general and operations manager. We estimate an
additional 2 hr at $29.92/hr for an office and administrative support
worker for the public engagement process and an additional 15 hr at
$53.32/hr for a business operations specialist to review and
incorporate public feedback. In aggregate, we estimate a one-time state
burden of 5,160 hr (30 states x 172 hr) and $331,543.20 [30 states x
((100 hr x $53.32/hr) + (40 hr x $73.60/hr) + (15 hr x $127.72/hr) + (2
hr x $29.92/hr) + (15 hr x $53.32/hr))] for the development of a
state's quality rating system.
Under Sec. 438.334(b) each state would collect information from
its MCOs, PIHPs, and PAHPs to calculate and then issue a quality
rating. We expect that states would rely on information and data
already provided to them by their MCOs, PIHPs, and PAHPs; therefore, we
do not expect this data collection to pose an additional burden on the
private sector. However, each year states would rate each MCO, PIHP, or
PAHP with which they contract. We estimate 20 hr at $53.32/hr for a
business operations specialist for a state to rate a MCO, PIHP, or
PAHP. In aggregate, we estimate an annual state burden of 8,280 hr (414
MCOs, PIHPs, and PAHPs x 20 hr) and $441,489.60 (8,280 hr x $53.32/hr).
To elect the option under Sec. 438.334(c) for states to use their
own quality rating system in place of the system under Sec.
438.334(a), a state would submit a request to CMS and receive written
CMS approval. Knowing that some states already operate their own
quality rating systems, we estimate that one quarter (10) of states
will elect to use their own quality rating system. We estimate a one-
time state burden of 5 hr at $53.32/hr for a business operations
specialist to seek and receive approval from CMS for the state's own
quality rating system. In aggregate, we estimate 50 hr (10 states x 5
hr) and $2,666 (50 hr x $53.32/hr).
Section 438.334(d) would provide states with the option to use the
MA five-star rating, instead of the quality rating system established
under this section, for plans that serve only dual eligibles. We
estimate that states may utilize this option for 25 MCOs, PIHPs, or
PAHPs. This option would reduce the burden under Sec. 438.334(b) by -
500 hr (-25 MCOs, PIHPs, and PAHPs x 20 hr) and -$26,660 (-500 hr x
$53.32/hr).
Section 438.334(e) would have states prominently display quality
rating information for plans on the state Web site described in Sec.
438.10. The burden associated with this process is captured in Sec.
438.10.
25. ICRs Regarding Managed Care Elements of State Comprehensive Quality
Strategies (Sec. 438.340, Formerly Sec. 438.204)
Section 438.340 would identify the additional items which states
that contract with MCOs, PIHPs, and/or PAHPS would include in the
comprehensive quality strategy under Sec. 431.502. To include the
additional managed care-related items in their comprehensive quality
strategies, we estimate a state burden of 10 hr at $53.32/hr for a
business operations specialist each time a state revises its
comprehensive quality strategy (once every 3 years, per Sec.
431.504(b)). In aggregate, we estimate an annualized burden of 133.3 hr
[(40 states x 10 hr)/3 years] and $7,107.56 (133.3 hr x $53.32/hr).
Current regulations at Sec. 438.204(b)(2) describe a quality
strategy element, specifically that states contracting with MCOs and/or
PIHPs identify the race, ethnicity, and primary language spoken of each
Medicaid enrollee, and report this information to MCOs and PIHPs upon
enrollment into a plan. We propose removing this item from the proposed
managed care elements for a comprehensive quality strategy. The
currently approved burden estimates 80 hr per state (for 15 states) to
complete the programming necessary to collect and report on these three
factors; we would remove this burden, for an aggregate reduction in
burden of -1200 hr (15 states x 80 hr).
26. ICRs Regarding Activities Related to External Quality Review (Sec.
438.358)
Section 438.358(b) describes the mandatory EQR-related activities.
These activities may be conducted by the state, its agent that is not
an MCO, PIHP, or PAHP, or an EQRO; we will describe the burden assuming
that the state conducts these activities. The burden associated with
these activities would be the time and effort for a state to conduct
and document the findings of the four mandatory activities: (1) The
annual validation of PIPs conducted by the MCO, PIHP, or PAHP, (2) the
annual validation of performance measures calculated by the MCO, PIHP,
or PAHP, (3) a review of MCO, PIHP, or PAHP compliance with structural
and operational standards, performed once every 3 years, and (4)
validation of MCO, PIHP, or PAHP network adequacy during the preceding
12 months. Each of the activities would be conducted on the 552 MCOs,
PIHPs, and PAHPs that we estimate are currently providing Medicaid
services.
The types of services provided by MCOs, PIHPs, and PAHPs and the
number of PIPs conducted and performance measures calculated will vary.
The currently approved burden under control number 0938-0786 (CMS-R-
305) for these three activities assumes that each of the then-estimated
458 MCOs and PIHPs validate one PIP by a professional at $63/hr for 65
hr, validate one performance measure by a professional at $63/hr for 53
hr, and complete an annual a compliance review by a professional at
$63/hr for 361 hr. The currently approved annual burden is 219,382 hr
(479 hr x 458 MCOs and PIHPs) and $13,821,066 (219,382 hr x $63/hr).
However, based on recent experience, we estimate that each MCO or PIHP
will conduct 3 PIPs, each PAHP will conduct 1 PIP, and that each MCO,
PIHP, or PAHP will calculate 3 performance measures. Furthermore, using
the time estimates developed for MCOs and PIHPs for the currently
approved burden estimates under control number 0938-0786 (CMS-R-305)
(and assuming that the same time estimates will also apply to PAHPs),
we estimate it would take an average of 65 hr/PIP validation, 53 hr/
performance measure validation, and 361 hr/compliance review (occurs
once every 3 years) for a business operations specialist, at $53.32/hr,
to conduct the mandatory EQR activities. For MCOs and PIHPS, we
estimate an annual state burden of 242,367.3 hr (511 MCOs and PIHPs x
[(65 hr x 3 PIPs) + (53 hr x 3 performance measures) + (361 hr/3
year)]) and $12,923,024.44 (242,367.3 hr

[[Page 31187]]

x $53.32/hr) for the first three mandatory EQR-related activities.
For PAHPs, we estimate an annual state burden of 14,116.3 hr (41
PAHPs x 344.3 hr [(65 hr x 1 PIPs) + (53 hr x 3 performance measures) +
(361 hr/3 years)]) and $752,681.12 (14,116.3 hr x $53.32/hr) for the
first three mandatory EQR-related activities.
Section 438.358(b)(4) would establish a new mandatory activity (the
fourth) to validate MCO, PIHP, and PAHP network adequacy during the
preceding 12 months. States would conduct this activity for each MCO,
PIHP, and PAHP. Given that this is a new activity, we do not have
historic data on which to base an hourly burden estimate for the
network validation process. We estimate that it will take less time
than the validation of a PIP but more time than the validation of a
performance measure. Therefore, we estimate an annual state burden of
60 hr at $53.32/hr for a business operations specialist to support the
validation of network adequacy activity. In aggregate, we estimate
33,120 hr (552 MCOs, PIHPs, and PAHPs x 60 hr) and $1,765,958.40
(33,120 hr x $53.32/hr) for the validation of network adequacy
activity.
To summarize, for the proposed four mandatory EQR-related
activities, we estimate an annual aggregated state burden of 70,221.6
hr [(22,985.3 hr + 14,116.3 hr + 33,120 hr)-219,382 hr] and
$1,620,597.96 [(-$898,041.56 + $752,681.12 + $1,765,958.40)-
$13,821,066].
The burden associated with Sec. 438.358(b)(1) through (4) would
also include the time for an MCO, PIHP, or PAHP to prepare the
information necessary for the state to conduct the mandatory EQR-
related activities. We estimate that it would take each MCO, PIHP, or
PAHP 200 hr to prepare the documentation for these four activities,
half (100 hr) at $53.32/hr by a business operations specialist and half
(100 hr) at $29.92/hr by an office and administrative support worker.
In aggregate, we estimate an annual private sector burden of 110,400 hr
(552 MCOs, PIHPs, and PAHPs x 200 hr) and $4,594,848 [(55,200 hr x
$53.32/hr) + (55,200 hr x $29.92/hr)]. However, the currently approved
burden under control number 0938-0786 (CMS-R-305) estimates 160 hr per
MCO or PIHP to prepare the information for the three existing mandatory
EQR-related activities (Sec. 438.358(b)(1) through (3)), half by a
professional at $63/hr and half by clerical staff at $12/hr, The
currently approved burden for information preparation is 73,280 hr (438
MCOs and PIHPs x 160 hr) and $2,748,000 [(36,640 hr x $63/hr) + (36,640
hr x $12/hr)]. When comparing the currently approve burden against this
rule's proposed burden, we estimate a net burden of 37,120 hr (110,400
hr-73,280 hr) and $1,846,848 ($4,594,848-$2,748,000) for the
preparation of information for the mandatory EQR-related activities
described in Sec. 438.358(b)(1) through (4).
Section 438.358(c) describes the five optional EQR-related
activities: (1) Validation of client level data (such as claims and
encounters); (2) administration or validation of consumer or provider
surveys; (3) calculation of performance measures; (4) conduct of PIPs;
and (5) conduct of focused studies. As with the mandatory activities
described in Sec. 438.358(b), these activities may be conducted by the
state, its agent that is not an MCO, PIHP, or PAHP, or an EQRO, but for
the purposes of this burden estimate we assume that the state conducts
the activities.
We have no data to estimate the hours associated with how long it
will take to conduct the optional EQR activities. Without that
information, we estimate is that it would take 350 hr to validate
client level data and 50 hr to validate consumer or provider surveys.
We estimate it would take three times as long to calculate performance
measures as it takes on average to validate (159 hr) and three times as
long to conduct PIPs and focused studies as it takes on average to
validate PIPs (195 hr). We also estimate that it would take three times
as long to administer a consumer or provider survey than it takes to
validate a survey (150 hr).
The currently approved burden under control number 0938-0786 (CMS-
R-305) uses state-reported data from 2001 to estimate that states will:
(1) Validate the encounter data of 69 percent (316) of MCOs and PIHPs;
(2) administer or validate consumer or provider surveys of 43 percent
(197) of MCOs and PIHPs; (3) calculate performance measures of 29
percent (133) of MCOs and PIHPs; (4) conduct PIPs of 38 percent (174)
of MCOs and PIHPs; and (5) conduct focused studies of 76 percent (348)
of MCOs and PIHPs. Using the hourly estimates (above) for each task and
assuming the work is completed by a professional at $63/hr, CMS-R-305
estimates a total burden of 240,759 hr and $15,167,817. However, based
on our review of EQR technical report submissions since the original
promulgation of these regulations, we have observed that many states do
not conduct the optional EQR-related activities as frequently as
assumed in our original estimates. While the exact states and number
vary from year to year, we have not observed participation at the level
observed in 2001 state-reported data. Therefore, we revise our estimate
and assume that 10 percent (51) of MCOs and PIHPs will be subject to
each of the optional EQR-related activities. Regarding the
administration or validation of consumer or provider surveys, we assume
that half of the MCOs and PIHPs (25) will administer surveys while half
(26) will validate surveys. We also estimate that a mix of
professionals will work on each optional EQR-related activity: 20
percent by a general and operations manager ($127.72/hr); 25 percent by
a computer programs ($73.60/hr); and 55 percent by a business
operations specialist ($53.32/hr).
To validate client level data, we estimate 17,850 hr (51 MCOs and
PIHPs x 350 hr) and $1,307,869.50 [(17,850 hr x 20 percent x $127.72/
hr) + (17,850 hr x 25 percent x $73.60/hr) + (17,850 hr x 55 percent x
$53.32/hr)]. To administer consumer or provider surveys, we estimate
3,750 hr (25 MCOs and PIHPs x 150 hr) and $274,762.50 [(3,750 hr x 20
percent x $127.72/hr) + (3,750 hr x 25 percent x $73.60/hr) + (3,750 hr
x 55 percent x $53.32/hr)]. To validate consumer or provider surveys,
we estimate 1,300 hr (26 MCOs and PIHPs x 50 hr) and $95,251 [(1,300 hr
x 20 percent x $127.72/hr) + (1,300 hr x 25 percent x $73.60/hr) +
(1,300 hr x 55 percent x $53.32/hr)]. To calculate performance
measures, we estimate 8,109 hr (51 MCOs and PIHPs x 159 hr) and
$594,146.43 [(8,109 hr x 20 percent x $127.72/hr) + (8,109 hr x 25
percent x $73.60/hr) + (8,109 hr x 55 percent x $53.32/hr)]. To conduct
PIPs, we estimate 9,945 hr (51 MCOs and PIHPs x 195 hr) and $728,670.15
[(9,945 hr x 20 percent x $127.72/hr) + (9,945 hr x 25 percent x
$73.60/hr) + (9,945 hr x 55 percent x $53.32/hr)]. To conduct focused
studies, we estimate 9,945 hr (51 MCOs and PIHPs x 195 hr) and
$728,670.15 [(9,945 hr x 20 percent x $127.72/hr) + (9,945 hr x 25
percent x $73.60/hr) + (9,945 hr x 55 percent x $53.32/hr)]. In
aggregate, the annual burden for optional EQR-related activities for
MCOs and PIHPs is 50,899 hr (17,850 hr + 3,750 hr + 1,300 hr + 8,109 hr
+ 9,945 hr + 9,945 hr) and $3,729,369.73 [(50,899 hr x 20 percent x
$127.72/hr) + (50,899 hr x 25 percent x $73.60/hr) + (50,899 hr x 55
percent x $53.32/hr)].
Section 438.358(c) would also be revised to include PAHPs. Since
PAHPs are not currently subject to EQR, we do not have any data on
which to base an estimate regarding how states would apply the optional
EQR-related activities. Therefore, we will apply the time, wage, and
participation estimates

[[Page 31188]]

developed for MCOs and PIHPs to PAHPs. To validate client level data,
we estimate 1,400 hr (4 PAHPs x 350 hr) and $102,578 [(1,400 hr x 20
percent x $127.72/hr) + (1,400 hr x 25 percent x $73.60/hr) + (1,400 hr
x 55 percent x $53.32/hr)]. To administer consumer or provider surveys,
we estimate 300 hr (2 PAHPs x 150 hr) and $21,981 [(300 hr x 20 percent
x $127.72/hr) + (300 hr x 25 percent x $73.60/hr) + (300 hr x 55
percent x $53.32/hr)]. To validate consumer or provider surveys, we
estimate 100 hr (2 PAHPs x 50 hr) and $7,327 [(100 hr x 20 percent x
$127.72/hr) + (100 hr x 25 percent x $73.60/hr) + (100 hr x 55 percent
x $53.32/hr)]. To calculate performance measures, we estimate 636 hr (4
PAHPs x 159 hr) and $46,599.72 [(636 hr x 20 percent x $127.72/hr) +
(636 hr x 25 percent x $73.60/hr) + (636 hr x 55 percent x $53.32/hr)].
To conduct PIPs, we estimate 780 hr (4 PAHPs x 195 hr) and $57,150.60
[(780 hr x 20 percent x $127.72/hr) + (780 hr x 25 percent x $73.60/hr)
+ (780 hr x 55 percent x $53.32/hr)]. To conduct focused studies, we
estimate 780 hr (4 PAHPs x 195 hr) and $57,150.60 [(780 hr x 20 percent
x $127.72/hr) + (780 hr x 25 percent x $73.60/hr) + (780 hr x 55
percent x $53.32/hr)]. In aggregate, the total annual burden for
optional EQR-related activities for PAHPs is 3,996 hr (1,400 hr + 300
hr + 100 hr + 636 hr + 780 hr + 780 hr) and $292,786.92 [(3,996 hr x 20
percent x $127.72/hr) + (3,996 hr x 25 percent x $73.60/hr) + (3,996 hr
x 55 percent x $53.32/hr)].
27. ICRs Regarding Nonduplication of Mandatory Activities (Sec.
438.360)
Section 438.360(a) would grant states the option to use the
information obtained from a Medicare or private accreditation review of
an MCO, PIHP, or PAHP in place of information otherwise generated from
the three mandatory activities specified in Sec. 438.358(b)(1) through
(3). The proposed revisions would: (1) Allow states to apply the non-
duplication option to PAHPs, in addition to MCOs and PIHPs; (2) allow
states to apply the non-duplication option to the validation of
performance measures and PIPs, in addition to the compliance review,
for all MCOs, PIHPs, and PAHPs; (3) remove current Sec. 438.360(c), as
there would no longer be a difference in the application of non-
duplication to plans serving only dual eligibles; and (4) combine
current Sec. 438.360(b)(4) and (c)(4) into proposed Sec. 438.360(c),
to maintain a discussion of non-duplication as an element of the
comprehensive quality strategy.
Section 438.360(b) would describe when a state could elect to use
information from a Medicaid or private accreditation review in place of
information that would otherwise be generated by the mandatory EQR-
related activities in Sec. 438.358(b)(1) through (3). The burden
associated with non-duplication is the time and effort for an MCO,
PIHP, or PAHP to disclose the reports, findings, and other results of
the Medicare or private accreditation review to the state agency.
While states could elect to allow all 552 MCOs, PIHPs, and PAHPs to
substitute information from a Medicare or private accreditation review
for the three mandatory EQR-related activities specified at Sec.
438.358(b)(1) through (3), in practice we find that states utilize this
option infrequently. Therefore, we estimate that states would apply the
non-duplication option to 10 percent (55) of MCOs (33), PIHPs (18), and
PAHPs (4). The currently approved burden under control number 0938-0786
(CMS-R-305)) estimates that 336 MCOs and/or PIHPs take advantage of the
nonduplication provision, requiring 8 hr at $37.50/hr per MCO or PIHP
to disclose the necessary information to the state, for a total
currently approved burden of 2,688 hr (336 MCOs and PIHPs x 8 hr) and
$100,800 (2,688 hr x $37.50/hr). Since this appears to be an
overestimate of the burden for MCOs and PIHPs, we estimate a revised
annual private sector burden of 2 hr at $53.32/hr for a business
operations specialist and 6 hr at $29.92/hr for an office and
administrative support worker to disclose the necessary documentation
to the state each year for a single MCO or PIHP. In aggregate, we
estimate 408 hr (51 MCOs and PIHPs x 8 hr) and $14,594.16 [(51 MCOs and
PIHPs x (2 hr x $53.32/hr) + (6 hr x $29.92/hr)]. Under this proposal,
states could apply the nonduplication provisions to PAHPs. In
aggregate, we estimate 32 hr (4 PAHPs x 8 hr) and $1,144.64 [4 PAHPs x
(2 hr x $53.32/hr) + (6 hr x $29.92/hr)].
The process in Sec. 438.360(b) would include having a state agency
provide all of the reports, findings, and other results of the Medicare
or private accreditation review to the appropriate EQRO. The currently
approved burden under control number 0938-0786 (CMS-R-305) estimates
that sharing the reports, findings, and results with EQROs for 336 MCOs
and PIHPs would take states 8 hr at $37.50/hr per plan, for a total
burden of 2,688 hr (336 MCOs x 8 hr) and $100,800 (2,688 hr x $37.50/
hr). However, we estimate it would take, on average, 2 hr at $29.92/hr
for an office and administrative support worker to disclose the
necessary documentation to the appropriate EQRO. This represents a
decrease in the estimated hourly burden for this task, as we believe
that the use of electronic tracking and transmission tools has
significantly decreased the hourly burden associated with state staff
forwarding the documentation to the EQRO. In aggregate, we estimate an
annual state burden of 110 hr (55 MCOs, PIHPs, and PAHPs x 2 hr) and
$3,291.20 (110 hr x $29.92/hr) to forward non-duplication-related
documentation to the EQROs.
Assuming that states would apply the non-duplication provision to
10 percent of MCOs, PIHPs, and PAHPs, we estimate that this provision
would offset the burden associated with Sec. 438.358(b)(1) through (3)
for 51 MCOs and PIHPs, and 4 PAHPs (since these activities would no
longer be necessary for these 55 plans). Consistent with the estimates
used in Sec. 438.358(b)(1) through (3), we estimate an aggregated
offset of -25,566.50 hr [(-51 MCOs and PIHPs x 474.3 hr) + (-4 PAHPs x
344.3 hr)] and -$1,363,205.78 (-25,566.50 hr x $53.32).
Additionally, the MCOs, PIHPs, and PAHPs subject to non-duplication
would not have to prepare the documentation necessary for the three
mandatory EQR-related activities. Based on the assumption in Sec.
438.358(b) that an MCO, PIHP, or PAHP would need 200 hr to prepare the
documentation for the four mandatory activities, we estimate that it
would take 150 hr to prepare the documentation for the three activities
subject to non-duplication, half (100 hr) at $53.32/hr by a business
operations specialist and half (100 hr) at $29.92/hr by an office and
administrative support worker. In aggregate, we estimate a decrease in
annual private sector burden of -8,250 hr (-55 MCOs, PIHPs, and PAHPs x
150 hr) and -$343,365 [(-4,125 hr x $53.32/hr) + (-4,125 x $29.92)].
28. ICRs Regarding Exemption From External Quality Review (Sec.
438.362)
Section 438.362 would be modified to reflect that PIHPs cannot be
exempted from EQR, as they do not qualify as a MA Organization under
part C of Title XVII of the Act or under section 1876 of the Act, and
they do not qualify as an MCO under section 1903(m) of the Act. This
would lead to a decrease in our estimate of the number of plans that
might be exempt from the EQR process.
Under Sec. 438.362, exempted MCOs would have to provide (annually)
to the state agency the most recent Medicare review findings reported
to the MCO by CMS or its agent. Of the approximately 335 MCOs, we
estimate that

[[Page 31189]]

approximately half (168) might provide Medicare services in addition to
Medicaid services. Of these 168 MCOs that might potentially provide
Medicare services in addition to Medicaid services, we further estimate
that state agencies would allow approximately 10 percent (17) of the
MCOs to be exempt from the EQR process.
We estimate an annual private sector burden of 8 hr (2 hr at
$53.32/hr for a business operations specialist and 6 hr at $29.92/hr
for an office and administrative support worker) for an MCO to prepare
and submit the necessary documentation to the state agency. In
aggregate, we estimate 136 hr (17 MCOs x 8 hr) and $4,864.72 (17 MCOs x
[(2 hr x $53.32/hr) + (6 hr x $29.92/hr)]).
The currently approved burden under control number 0938-0786 (CMS-
R-305) estimates that states would allow 10 percent (20) of the 202
MCOs (which might provide Medicare services in addition to Medicaid
services) to be exempt from the EQR process, and that it would take
each MCO approximately 8 hr at $37.50/hr to prepare the necessary
materials for a total burden of 160 hr (20 MCOs x 8 hr) and $6,000 (160
hr x $37.50/hr).
Therefore, we estimate a net burden of -24 hr (136 hr-h160 hr) and
-$1,135.28 ($4,864.72-$6,000).
29. ICRs Regarding External Quality Review Results (Sec. 438.364)
Section 438.364(a) would describe the information that would be
included in the annual detailed technical report that is the product of
the EQR. Section 438.364(a)(1)(iii) would specify that the EQR
technical report include baseline and outcomes data regarding PIPs and
performance measures. Many states already provide much of this
information in their final EQR technical report. The burden of
compiling this data for MCOs, PIHPs, and PAHPs is captured in Sec.
438.358. Under Sec. 438.364(a)(3), EQR technical reports would include
recommendations on how the state can use the goals and objectives of
its comprehensive quality strategy to support improvement in the
quality, timeliness, and access to care for beneficiaries. We believe
that states would amend their EQRO contracts to address the changes to
Sec. 438.364(a). We estimate a one-time state burden of 0.5 hr at
$53.32/hr for a business operations specialist to amend the EQRO
contract. In aggregate, we estimate 20 hr (40 states x 0.5 hr) and
$1,066.40 (20 hr x $53.32/hr).
Section 438.364(b)(1) would clarify that the EQRO would produce and
submit to the state an annual EQR technical report, and that states may
not substantively revise the report without evidence of error or
omission, or permission from CMS. This is consistent with existing
policy and should not pose a burden on the states or the private
sector. The proposed April 30th deadline for the finalization and
submission of EQR technical reports is consistent with existing
subregulatory guidance.
While we do not anticipate that these changes would pose a
significant burden on states or the private sector, we estimate that
this provision may necessitate a change in a state's EQRO contract for
approximately 10 states. In this regard, we estimate a one-time state
burden of 0.5 hr at $53.32/hr for a business operations specialist to
modify the EQRO contract. In aggregate, we estimate 5 hr (10 states x
0.5 hr) and $266.60 (5 hr x $53.32/hr).
Under Sec. 438.364(b)(2), each state agency would provide copies
of technical reports, upon request, to interested parties such as
participating health care providers, enrollees and potential enrollees
of the MCO, PIHP, or PAHP, beneficiary advocacy groups, and members of
the general public. States would also make the most recent EQR
technical report publicly available on the state's Web site, the burden
for which is included in Sec. 438.10.
We believe that by making these reports available online, states
would be able to significantly decrease the burden associated with
responding to requests from the public for this information, as it will
already be easily accessible. The burden associated with section is the
time and effort for a state agency to furnish copies of a given
technical report to interested parties. The currently approved burden
under control number 0938-0786 (CMS-R-305) estimates a burden of 91,600
hr and $1,099,200. This assumed 329 MCOs and 129 PIHPs (for a total of
458), 25 requests per MCO or PIHP, and 8 hr to respond to each request
by staff at $12/hr. In light of recent technological changes described
in this section of this proposed rule, we estimate an annual state
burden of 5 min (on average) at $29.92/hr for an office and
administrative support worker to disclose the reports (per request),
and that a state would receive 5 requests per MCO, PIHP, or PAHP per
year. In aggregate, we estimate 230 hr [(552 MCOs, PIHPs, and PAHPs x 5
requests x 5 min)/60 min] and $6,881.60 (230 hr x $29.92/hr). Overall,
we estimate a net burden of -91,370 hr (230 hr-91,600 hr) and -
$1,092,318.40 ($6,881.60-$1,099,200).
30. ICRs Regarding Federal Financial Participation (Sec. 438.370)
Section 438.370(c) would have states submit their EQRO contracts to
CMS for review and approval prior to claiming FFP at the 75 percent
rate. Since most states already consult with CMS regarding EQRO
contracts, we estimate only 12 states will need to amend their policies
and procedures to comply with this process. We estimate a one-time
state burden of 0.5 hr at $53.32/hr for a business operations
specialist to amend their state's policies and procedures. In
aggregate, we estimate 6 hr (12 states x 0.5 hr) and $319.92 (6 hr x
$53.32/hr).
The 12 states which do not currently work with CMS on their EQRO
contracts would need to submit the EQRO contracts to CMS for review and
approval if they plan to claim the enhanced 75 percent federal match.
We estimate 0.25 hr at $29.92/hr for an office and administrative
support worker to submit the EQRO contract to CMS. In aggregate, we
estimate 3 hr (12 states x 0.25 hr) and $89.76 (3 hr x $29.92/hr).
31. ICRs Regarding Statutory Basis and Definitions (Sec. 438.400)
Section 438.400(b) would replace ``action'' with ``adverse benefit
determination'' and revise the definition. It would also revise the
definitions of ``appeal'' and ``grievance'' and add a definition for
``grievance system.'' In response, states, MCOs and PIHPs would need to
update any documents where these terms are used. (PAHPs will use these
updated definitions when they develop their systems in Sec. 438.402.)
We estimate a one-time private sector burden of 5 hr at $53.32/hr
for a business operations specialist to amend all associated documents
to the new nomenclature and definitions. In aggregate, we estimate
2,535 hr (507 MCO and PIHP entities x 5 hr) and $135,166.20 (2,535 hr x
$53.32/hr). We also estimate a one-time state burden for states of 200
hr (40 states x 5 hr) and $10,664 (200 hr x $53.32/hr) to make similar
revisions.
32. ICRs Regarding General Requirements for Grievance System (Sec.
438.402)
Section 438.402(a) would add PAHPs to the existing requirement for
MCOs and PIHPs to have a grievance system. There are 41 non-NEMT PAHPs
that would need to have their contract amended. The burden for revising
their contract is included in Sec. 438.3.
To set up a grievance system, we estimate it would take 100 hr (10
hr at

[[Page 31190]]

$127.72/hr for a general and operations manager, 75 hr at $53.32/hr for
a business operations specialist, and 15 hr at $73.60/hr for a computer
programmer) for each PAHP. In aggregate, we estimate a one-time private
sector burden of 4,100 hr (41 PAHPs x 100 hr) and $261,383.20 [41 PAHPs
x ((10 hr x $127.72/hr) + (75 hr x $53.32/hr) + (15 hr x $73.60/hr))].
We further estimate that the average PAHP would only receive 10
grievances per month due to their limited benefit package and will only
require 3 hr at $53.32/hr for a business operations specialist to
process and handle grievances and adverse benefit determinations. In
aggregate, we estimate an annual private sector burden of 14,760 hr (41
PAHPs x 10 grievances x 3 hr x 12 months) and $787,003.20 (14,760 hr x
$53.32/hr).
Section 438.402(b) would limit MCOs, PIHPs, and PAHPs to one level
of appeal for enrollees. This will likely eliminate a substantial
amount of burden from those that currently have more than one, but we
are unable to estimate that amount since we do not know how many levels
each managed care plan currently utilizes. We request comment from
managed care plans to help us estimate the savings from this provision.
33. ICRs Regarding Timely and Adequate Notice of Adverse Benefit
Determination (Sec. 438.404)
Section 438.404(a) would add PAHPs as an entity that must give the
enrollee timely written notice. It also sets forth the requirements of
that notice. Consistent with the requirements for MCOs and PIHPs, PAHPs
must give the enrollee timely written notice if it intends to: Deny,
limit, reduce, or terminate a service; deny payment; deny the request
of an enrollee in a rural area with one plan to go out of network to
obtain a service; or fails to furnish, arrange, provide, or pay for a
service in a timely manner.
We estimate an annual private sector burden of 1 min at $26.40/hr
for a mail clerk to send this notification. We also estimate that 2
percent (240,000) of the 12 million PAHP enrollees will receive one
notice of adverse benefit determination per year from a PAHP. In
aggregate, we estimate an annual state burden of 4,000 hr (240,000
enrollees x 1 min) and $105,811.20 (4,000 hr x $26.40/hr).
34. ICRs Regarding Resolution and Notification: Grievances and Appeals
(Sec. 438.408)
Section 438.408(b) would change the time frame for appeal
resolution from 45 days to 30 days. For MCOs, PIHPs, and PAHPs that
have Medicare and/or QHP lines of business, this reflects a reduction
in burden as this would align Medicaid time frames with Medicare and
QHP. For MCOs, PIHPs, and PAHPs that do not have Medicare and/or QHP
lines of business, and whose state has an existing time frame longer
than 30 days, they would need to revise their policies and procedures.
Among the 200 MCOs, PIHPs, and PAHPs, we estimate a one-time private
sector burden of 1 hr at $53.32/hr for a business operations
specialist. In aggregate, we estimate 200 hr (200 MCOs, PIHPs, and
PAHPs x 1 hr) and $10,664 (200 hr x $53.32).
35. ICRs Regarding Recordkeeping Requirements (Sec. 438.416)
This section would add PAHPs to the requirement to maintain records
of grievances and appeals. We estimate that approximately 240,000
enrollees (2 percent) of the approximately 12 million PAHP enrollees
file a grievance or appeal with their PAHP. As the required elements
will be stored and tracked electronically, we estimate 1 min per
grievance and appeal at $29.92/hr for an office and administrative
support worker to maintain each grievance and appeals record. In
aggregate, we estimate an annual private sector burden of 4,000 hr
(240,000 grievances x 1 min) and $119,919.36 (4,000 hr x $29.92/hr).
Maintaining records for grievances and appeals has always been
required for MCOs and PIHPs. However, we propose specific data so MCOs
and PIHPs will have to revise their policies and systems to record the
required information. We estimate 3 hr at $73.60 for a computer
programmer to make necessary changes. We estimate a one-time private
sector burden of 168 hr (56 MCOs and PIHPs x 3 hr) and $12,364.80 (168
hr x $73.60/hr). As the required elements will be stored and tracked
electronically, we estimate 1 min per grievance and appeal at $29.92/hr
for an office and administrative support worker to maintain each
grievance and appeals record. In aggregate, we estimate an annual
private sector burden of 14,271 hr (856,257 grievances x 1 min) and
$426,986.82 (14,271 hr x $29.92/hr).
Section 438.420(c)(4) would remove the ``time period or service
limit of a previously authorized service has been met'' as a criteria
for defining the duration of continued benefits and would add ``PAHP''
as a conforming change to Sec. 438.400. This action would require that
MCOs and PIHPs revise current policies and procedures to reflect having
only 3 criteria instead of 4. PAHPs would incorporate the options in
Sec. 438.420(c)(1) through (3) when developing their system under
Sec. 438.402 and thus the elimination of paragraph (c)(4) would have
no impact on PAHPs.
For MCOs and PIHPs, we estimate a one-time private sector burden of
4 hr at $53.32/hr for a business operations specialist to revise
current policies and procedures. In aggregate, we estimate 2,028 hr
(507 MCOs and PIHPs x 4 hr) and $108,132.96 (2,028 hr x $53.32/hr).
Section 438.420(d) would add PAHPs to the list of entities that can
recover costs if the adverse determination is upheld. PAHPs would
include the policies and procedures necessary to recover costs when
developing their system under Sec. 438.402 and thus would incur no
additional burden.
36. ICRs Regarding State Responsibilities (Sec. 438.602)
Section 438.602(a) would detail state responsibilities for
monitoring MCO, PIHP, PAHP, PCCM or PCCM's compliance with Sec. Sec.
438.604, 438.606, 438.608, 438.610, 438.230, and 438.808. As all of
these sections are existing requirements, the only new burden is for
states to update their policies and procedures, if necessary, to
reflect revised regulatory text. We estimate a one-time state burden of
6 hr at $53.32/hr for a business operations specialist to create and/or
revise their policies. In aggregate, we estimate 252 hr (42 states x 6
hr) and $13,436.64 (252 hr x $53.32/hr).
Section 438.602(b) would require states to screen and enrollee MCO,
PIHP, PAHP, PCCM and PCCM entity providers in accordance with 42 CFR
part 455, subparts B and E. Given that states already comply with these
subparts for their FFS programs, the necessary processes and procedures
have already been implemented. Additionally, since some states require
their managed care plan providers to enroll with FFS, the overlap that
occurs in many states due to provider market conditions, and the
exemption from this requirement for Medicare approved providers, we
believe the pool of managed care providers that will have to be newly
screened and enrolled by the states is small. Since we do not have data
on which to base our estimate, we seek comment from states on the
quantity of managed care providers that would require screening and
enrollment. We expect the MCOs, PIHPs, and PAHPs will need to create
data files to submit new provider applications to the state for the
screening and enrollment processes. As PCCMs and PCCM entities are
already FFS providers, there would be no additional burden on them or
the state.

[[Page 31191]]

As such, we estimate a one-time private sector burden of 6 hr at
$73.60/hr for a computer programmer to create the necessary programs to
send provider applications/data to the state. In aggregate, we estimate
3,408 hr (568 MCOs, PIHPs, and PAHPs x 6 hr) and $250,828.80 (3,408 hr
x $73.60/hr). Once created, the report would likely be put on a
production schedule and generate no additional burden.
Section 438.602(e) would require states to conduct or contract for
audits of MCO, PIHP, and PAHP encounter and financial data once every 3
years. As validation of encounter data is also required in Sec.
438.818(a), we assume no additional burden. For the financial audits,
states could use internal staff or an existing contractual resource,
such as their actuarial firm. For internal staff, we estimate an annual
state burden of 20 hr at $63.10/hr for an accountant. In aggregate, we
estimate 3,787 hr (568 MCOs, PIHPs, and PAHPs x 20 hr)/3) and
$238,959.70 (3,787 hr x $63.10/hr).
Section 438.602(g) would require states to post the MCO's, PIHP's,
and PAHP's contracts, data from Sec. 438.604, and audits from Sec.
438.602(e) on their Web site. As most of these activities will only
occur no more frequently than annually, we estimate an annual state
burden of 1 hr at $73.60/hr for a computer programmer to post the
documents. In aggregate, we estimate 40 hr (40 states x 1 hr) and
$2,944 (40 hr x $73.60/hr).
37. ICRs Regarding Program Integrity Requirements (Sec. 438.608)
Section 438.608(a) would require that MCOs, PIHPs, and PAHPs have
administrative and management arrangements or procedures that are
designed to guard against fraud and abuse. The arrangements or
procedures must include a compliance program as set forth under Sec.
438.608(a)(1), provisions for reporting under Sec. 438.608(a)(2),
provisions for notification under Sec. 438.608(a)(3), provisions for
verification methods under Sec. 438.608(a)(4), and provisions for
written policies under Sec. 438.608(a)(5).
The compliance program must include: Written policies, procedures,
and standards of conduct that articulate the organization's commitment
to comply with all applicable federal and state standards and
requirements under the contract; the designation of a Compliance
Officer; the establishment of a Regulatory Compliance Committee on the
Board of Directors; effective training and education for the
organization's management and its employees; and provisions for
internal monitoring and a prompt and effective response to
noncompliance with the requirements under the contract.
While Sec. 438.608(a)(1) is an existing regulation, we expect all
MCOs, PIHPs, and PAHPs review their policies and procedures to ensure
that all of the above listed items are addressed. We estimate a one-
time private sector burden of 2 hr at $53.32/hr for a business
operations specialist to review and (if necessary) revise their
policies and procedures. In aggregate, we estimate 1,136 hr (568 MCOs,
PIHPs, and PAHPs x 2 hr) and $60,571.52 (1,136 hr x $53.32/hr).
Section 438.608(a)(2) and (3) require reporting of improper
payments and enrollee fraud. As these would be done via an email from
the MCO, PIHP, or PAHP to the state and do not occur very often, we
estimate an annual private sector burden of 2 hr at $53.32/hr for a
business operations specialist. In aggregate, we estimate 1,136 hr (568
MCOs, PIHPs, and PAHPs x 2 hr) and $60,571.52 (1,136 hr x $53.32/hr).
Section 438.608(a)(4) would require the MCO, PIHP, or PAHP to use a
sampling methodology to verify receipt of services. Given that this is
already required of all states in their FFS programs, many states
already require their MCOs, PIHPs, and PAHPs to do this. Additionally,
many health plans perform this as part of usual and customary business
practice. Therefore, we estimate only approximately 200 MCOs, PIHPs, or
PAHPs may need to implement this as a new procedure. As this typically
involves mailing a letter or sending an email to the enrollee, we
estimate that 200 MCOs, PIHPs, or PAHPs would mail to 100 enrollees
each. We estimate an annual private sector burden of 1 min at $26.40/hr
for a mail clerk to send each letter. In aggregate, we estimate 333 hr
(20,000 letters x 1 min/letter) and $8,817.60 (333 hr x $26.40/hr).
This estimate will be significantly reduced as the use of email
increases.
Section 438.608(b) reiterates the requirement in Sec. 438.602(b)
whereby the burden is stated in section IV.B.36. of this proposed rule.
Section 438.608(c) and (d) would require states to include in all
MCO, PIHP, and PAHP contracts, the process for the disclosure and
treatment of certain types of recoveries and reporting of such
activity. While the burden to amend the contracts is included in Sec.
438.3, we estimate a one-time private sector burden of 1 hr at $73.60/
hr for a computer programmer to create the report. In aggregate, we
estimate 568 hr (568 MCOs, PIHPs, and PAHPs x 1 hr) and $41,804.80 (568
hr x $73.60/hr). Once developed, the report would be put on a
production schedule and add no additional burden.
38. ICRs Regarding Disenrollment During Termination Hearing Process
(Sec. 438.722)
After a state has notified an MCO, PIHP, PAHP or PCCM of its
intention to terminate its contract, Sec. 438.722(a) would provide
that the state may give the entity's enrollees written notice of the
state's intent to terminate its contract. States already have the
authority to terminate contracts according to state law and they have
already opted to provide written notice to MCO and PCCM enrollees.
We estimate that no more than 12 states may terminate 1 contract
per year. We also estimate an annual state burden of 1 hr at $53.32/hr
for a business operations specialist to prepare the notice. In
aggregate, we estimate a one-time state burden of 12 hr (12 states x 1
hr) and $639.84 (12 hr x $53.32/hr).
To send the notice, we estimate 1 min (per beneficiary) at $26.40/
hr for a mail clerk. We estimate an aggregate annual state burden of
18,075 hr (12 states x 90,378 enrollees/60 mins) and $477,195 (18,075
hr x $26.40/hr).
39. ICRs Regarding Enrollee Encounter Data (Sec. 438.818)
Section 438.818(a)(2) would require that the encounter data be
validated prior to its submission. States can perform this validation
activity themselves, contract it to a vendor, or contract it to their
External Quality Review Organization (EQRO). In this regard, a state
already using EQRO to validate its data at an appropriate frequency
would incur no additional burden. Since approximately 10 states already
use their EQRO to validate their data, only 27 states may need to take
action to meet this requirement. The method selected by the state will
determine the amount of burden incurred. We assume an equal
distribution of states selecting each method, thus 9 states per method.
A state using EQRO to validate data on less than an appropriate
frequency may need to amend their EQRO contract. In this case, we
estimate 1 hr at $53.32/hr for a business operations specialist. In
aggregate, we estimate a one-time state burden of 9 hr (9 states x 1
hr) and $479.88 (9 hr x $53.32/hr).
A state electing to perform validation internally would need to
develop processes and policies to support implementation. In this case,
we estimate 10 hr at $53.32/hr for a business operations specialist to
develop policy and 100 hr at $73.60/hr for a computer programmer to
develop,

[[Page 31192]]

test, and automate the validation processes. In aggregate, we estimate
a one-time state burden of 990 hr (9 states x 110 hr) and $71,038.80 [9
states x ((10 hr x $53.32/hr) + (100 hr x $73.60/hr))].
For a state electing to procure a vendor, given the wide variance
in state procurement processes, our burden is conservatively estimated
at 150 hr for writing a proposal request, evaluating proposals, and
implementing the selected proposal. We estimate 75 hr at $53.32/hr for
a business operations specialist to participate in the writing,
evaluating, and implementing, 50 hr at $53.32/hr for a business
operations specialist to participate in the writing, evaluating, and
implementing, and 25 hr at $127.72/hr for a general and operations
manager to participate in the writing, evaluating, and implementing. In
aggregate, we estimate an annual state burden of 1,350 hr [9 states x
(150 hr)] and $88,722 [9 states x ((125 hr x $53.32/hr) + (25 hr x
$127.72/hr))].
40. ICRs Regarding CHIP Component of the State Comprehensive Quality
Strategy.
Per Sec. 457.760, states would address all delivery systems for
their CHIP programs as a component of the state comprehensive quality
strategy under part 431, subpart I. While the majority of the burden
associated with the comprehensive quality strategy is captured in part
431, subpart I, we estimate an additional burden of 10 hr (every 3
years) at $53.32/hr for a business operations specialist to address
CHIP within the comprehensive quality strategy. In aggregate, we
estimate an annualized burden of 110 hr [(33 states and territories x
10 hr)/3 years] and $5,864.61 (110 hr x $53.32/hr).
41. ICRs Regarding Standard Contract Requirements (Sec. Sec. 457.1201,
457.1205, 457.1207, 457.1208, 457.1210, 457.1212, 457.1218, 457.1220,
457.1222, 457.1224, 457.1226, 457.1228, 457.1230, 457.1233, 457.1240,
457.1250, 457.1260, 457.1270, and 457.1285)
Section 457.1201 would provide a list of standard requirements that
must be included in MCO, PIHP, PAHP, and PCCM contracts. The following
burden estimate addresses the effort to amend such contracts in
addition to the contract amendments associated with Sec. Sec.
457.1205, 457.1207, 457.1208, 457.1210, 457.1212, 457.1218, 457.1220,
457.1222, 457.1224, 457.1226, 457.1228, 457.1230, 457.1233, 457.1240,
457.1250, 457.1260, 457.1270, and 457.1285. We estimate a one-time
state burden of 6 hr at $53.32/hr for a business operations specialist
to amend all contracts associated with the aforementioned requirements.
In aggregate, we estimate 396 hr (66 contracts x 6 hr) and $21,114.72
(396 hr x $53.32/hr).
42. ICRs Regarding Medical Loss Ratio (Sec. 457.1205)
Section 457.1205 would apply the requirements of Sec. 438.8 to
CHIP. Section 438.8(c) would require that MCOs, PIHPs, and PAHPs report
to the state annually their total expenditures on all claims and non-
claims related activities, premium revenue, the calculated MLR, and, if
applicable under other authority, any remittance owed.
We estimate the total number of MLR reports that MCOs, PIHPs, and
PAHPs would be required to submit to the state would amount to 62
contracts. We estimate a one-time burden of 168 hr for the initial
administration activities. In the first year, we estimate that 60
percent of the time would be completed by a computer programmer (101 hr
at $73.60/hr), 30 percent would be completed by a business operations
specialist (50 hr at $53.32/hr), and 10 percent would be completed by a
general and operations manager (17 hr at $127.72/hr). The first year
burden amounts to 168 hr and $12,270.84 ((101 hr x $73.60) + (50 hr x
$53.32) + (17 hr x $127.72)) per report or, in aggregate, 10,416 hr (62
reports x 168 hr) and $760,792.086 (62 x $12,270.84).
In subsequent years, since the programming and processes
established in year 1 will continue to be used, the burden will be
decrease from 168 hr to an ongoing burden of approximately 53 hr. Using
the same proportions of labor allotment, we estimate 53 hr and
$3,865.18 ((31.8 hr x $73.60) + (15.9 hr x $53.32) + (5.3 hr x
$127.72)) per report and a total of 3,127 hr (53 hr x 59 reports) and
$228,045.62 (59 reports x $3,865.18). We expect states to permit MCOs
and PIHPs to submit the report electronically. Since the submission
time is included in our reporting estimate, we are not setting out the
burden for submitting the report.
43. ICRs Regarding Non-Emergency Medical Transportation PAHPs (Sec.
457.1206)
Section 457.1206 would provide a list of standard requirements that
must be included in NEMT PAHP contracts. The following burden estimate
addresses the effort to amend such contracts in addition to the
contract amendments associated with Sec. Sec. 457.1205, 457.1207,
457.1210, 457.1212, 457.1220, 457.1222, 457.1224, 457.1226, 457.1230,
and 457.1233. We estimate a one-time state burden of 4 hr at $53.32/hr
for a business operations specialist to amend all contracts associated
with the aforementioned requirements. In aggregate, we estimate 12 hr
(3 contracts x 4 hr) and $639.84 (12 hr x $53.32/hr).
44. ICRs Regarding Information Requirements (Sec. 457.1207)
Section 457.1207 would apply the requirements of Sec. 438.10 to
CHIP. Section 438.10(c)(1) would require that states provide enrollment
notices, informational materials, and instructional materials in an
easily understood format. We anticipate that most states already do
this and will only have to make minor revisions. We estimate an annual
burden of 4 hr at $53.32/hr for a business operations specialist to
make these revisions. In aggregate, we estimate 132 hr (33 states x 4
hr) and $7,038.24 (132 hr x $53.32/hr).
Section 438.10(c)(3) would require that states operate a Web site
which provides the information set out under Sec. 438.10(f). Since all
states already have Web sites for their Medicaid programs and most also
include information about their managed care program, most states will
probably only have to make minor revisions to their existing Web site.
We estimate a one-time state burden of 6 hr at $73.60/hr for a computer
programmer to make the initial changes. In aggregate, we estimate 198
hr (33 states x 6 hr) and $14,572.80 (198 hr x $73.60/hr). We also
estimate an annual burden of 3 hr at $73.60/hr for a computer
programmer to periodically add or update documents and links on the Web
site. In aggregate, we estimate 99 hr (33 states x 3 hr) and $7,286.40
(99 hr x $73.60/hr).
Section 438.10(c)(4)(i) would recommend that states develop
definitions for commonly used terms to enhance consistency of the
information provided to enrollees. We estimate a one-time state burden
of 6 hr at $53.32/hr for a business operations specialist to develop
these definitions. In aggregate, we estimate 198 hr (33 states x 6 hr)
and $10,557.36 (198 hr x $53.32/hr).
Section 438.10(c)(4)(ii) would recommend that states create model
enrollee handbooks and notices. Since many states already provide model
handbooks and notices to their entities, we estimate that 15 states may
need to take action to comply with this provision. We estimate a one-
time state burden of 40 hr at $53.32/hr for a business operations
specialist to create these documents. In aggregate, we estimate 600 hr
(15 states x 40 hr) and $31,992.00 (600 hr x $53.32/hr). We also
estimate an annual state burden of 2 hr at $53.32/hr for a business
operations specialist to maintain these documents. In aggregate, we
estimate 30 hr (15 states

[[Page 31193]]

x 2 hr) and $1,599.60 (30 hr x $53.32/hr).
Section 438.10(d)(1) would require that states identify prevalent
non-English languages spoken in each managed care entity's service
area. Given that states must already determine the prevalent non-
English languages spoken in their entire Medicaid service area based on
the policy guidance ``Enforcement of Title VI of the Civil Rights Act
of 1964--National Origin Discrimination Against Persons With Limited
English Proficiency'' from the U.S. Department of Justice, we believe
that dividing the information by plan service area requires only
minimal IT programming. More specifically, we estimate a one-time state
burden of 4 hr at $73.60/hr for a computer programmer to create these
reports. In aggregate, we estimate 132 hr (33 states x 4 hr) and
$9,715.20 (132 hr x $73.60/hr) to create these reports. We estimate no
additional burden for the running of these reports as they would be put
into a production schedule, and putting a report into production adds
no additional burden.
Section 438.10(d)(2)(i) would require that states add taglines to
all printed materials for potential enrollees explaining the
availability of translation and interpreter services as well as the
phone number for choice counseling assistance. We estimate a one-time
state burden of 2 hr at $53.32/hr for a business operations specialist
to create the taglines and another 4 hr to revise all document
originals. In aggregate, we estimate 198 hr (33 states x 6 hr) and
$10,557.36 (198 hr x $53.32/hr). As the prevalent languages within a
state do not change frequently, we are not estimating burden for the
rare updates that would be needed to these taglines.
Section 438.10(e)(1) would clarify that states can provide required
information in paper or electronic format. As the amount and type of
information that can be provided electronically will vary greatly among
the states due to enrollee access and knowledge of electronic
communication methods, it is not possible to estimate with any accuracy
the amount that will be able to be converted from written to electronic
format. Therefore, we will use estimates for all written materials
knowing that some of this burden will be alleviated as the states are
gradually able to convert to electronic communication methods. In this
regard, we estimate a one-time state burden of 40 hr at $53.32/hr for a
business operations specialist to create the materials. Many states
already provide similar information to potential enrollees, so we
anticipate that only 15 states would need to create these materials. We
also estimate 1 min at $29.92/hr for an office and administrative
support worker to mail the materials annually. For existing states, we
estimate 1 hr at $53.32/hr for a business operations specialist to
update or revise existing materials and 1 min at $29.92/hr for a mail
clerk to mail the materials to 5 percent of the enrollees that are new
(306,937 enrollees). In aggregate, we estimate a one-time state burden
of 600 hr (15 states x 40 hr) and $31,992 (600 hr x $53.32/hr) to
create materials. We estimate a one-time state burden of 33 hr (33
states x 1 hr) and $1,759.56 (33 hr x $53.32/hr) to update or revise
existing materials. The state will also need to mail the materials. We
estimate an ongoing burden of 5,115.6 hr (306,937 enrollees x 1 min)
and $153,058.75 (5,115.6 hr x $29.92/hr) to mail materials.
Although Sec. 438.10(g)(1) and (2) would require the provision of
an enrollee handbook, Medicaid regulations have always required the
provision of this information (although it did not specifically call it
a ``handbook'') so we do not anticipate that all entities would need to
create a new handbook. Additionally, given the requirement in Sec.
438.10(c)(4)(ii) (which would be adopted in CHIP through Sec.
457.1207) for the state to provide a model template for the handbook,
the burden on an entity is greatly reduced. We estimate approximately 5
new managed care entities per year using 10 hr at $53.32/hr for a
business operations specialist to create a handbook using their state's
model template. In aggregate, we estimate 50 hr (5 entities x 10 hr)
and $2,666 (50 hr x $53.32/hr). For existing MCOs, PIHPs, PAHPs, and
PCCMs that already have a method for distributing the information, we
believe that 20 entities will need to modify their existing handbook to
comply with a new model provided by the state. We also estimate a one-
time private sector burden of 4 hr at $53.32/hr for a business
operations specialist to update their entity's handbook. Once revised,
we estimate 1 min at $29.92/hr for an office and administrative support
worker to send these handbooks to 3,069,371 enrollees (50 percent of
total enrollment). In aggregate, we estimate 80 hr (20 entities x 4 hr)
and $4,265.60 (80 hr x $53.32/hr) to update handbooks. To send the
updated handbooks, we estimate 51,156.2 hr (3,069,371 enrollees x 1
min) and $1,530,593.50 (51,156.2 hr x $29.92/hr).
All new enrollees must receive a handbook within a reasonable time
after receiving notice of the beneficiary's enrollment. We assume a 5
percent enrollee growth rate thus 306,937 enrollees (5 percent of
6,138,743) would need to receive a handbook each year. (Existing
enrollees typically do not receive a new handbook annually unless
significant changes have occurred so this estimate is for new
beneficiaries only.) We estimate a private sector state burden of 1 min
at $29.92/hr for an office and administrative support worker to mail
the handbook. In aggregate, we estimate 5,115.6 hr (306,937 enrollees x
1 min) and $153,058.75 (5,115.6 hr x $29.92/hr) to send handbooks to
new enrollees.
All entities would need to keep their handbook up to date. In this
regard, we estimate an annual private sector burden of 1 hr at $53.32/
hr for a business operations specialist to update the handbook. While
the updates would need to be made as program changes occur, we estimate
1 hr since each change may only take a few minutes to make. In
aggregate, we estimate 66 hr (66 entities x 1 hr) and $3,519.12 (66 hr
x $53.32/hr).
Section 438.10(h) would require that MCOs, PIHPs, PAHPs, and PCCMs
make a provider directory available in paper or electronic form.
Producing a provider directory is a longstanding Medicaid requirement
in Sec. 438.10 as well in the commercial health insurance market.
Additionally, given the time sensitive nature of provider information
and the notorious high error rate in printed directories, most provider
information is now obtained via Web site or by calling the customer
service unit. Thus, the only new burden estimated would be the time for
a computer programmer to add a few additional fields of data as
appropriate, specifically, provider Web site addresses, additional
disability accommodations, and adding behavioral and long-term services
and support providers. We estimate a one-time private sector burden of
1 hr at $73.60/hr for a computer programmer to update the existing
directory. In aggregate, we estimate 66 hr (66 entities x 1 hr) and
$4,858 (66 hr x $73.60/hr). Updates after creation of the original
program would be put on a production schedule, which generates no
additional burden.
45. ICRs Regarding Requirements That Apply to MCO, PIHP, PAHP, and PCCM
Contracts Involving Indians, Indian Health Care Providers, and Indian
Managed Care Entities (Sec. 457.1208)
Section 457.1208 would apply the requirements of Sec. 438.14 to
CHIP. Section 438.14(c) would require states to make supplemental
payments to Indian providers if the managed care entity does not pay at
least the amount paid to Indian providers under the FFS

[[Page 31194]]

program. There are approximately 25 states with separate CHIPs that
have federally recognized tribes. We do not know how many managed care
entities have Indian providers, but estimate that it is approximately
40 entities. This type of payment arrangement typically involves the
managed care entity sending a report to the state, which then
calculates and pays the amount owed to the Indian health care provider.
We estimate it would take 1 hr at $73.60/hr for a computer programmer
to create the claims report and approximately 12 hr at $53.32/hr for a
state business operations specialist to process the payments. We
estimate that approximately 25 states will need to use this type of
arrangement. In aggregate, we estimate a one-time private sector burden
of 40 hr (40 entities x 1 hr) and $2,944.00 (40 hr x $73.60/hr). We
also estimate an ongoing state burden of 300 hr (25 states x 12 hr) and
$15,996.00 (300 hr x $53.32/hr).
After the MCO, PIHP, PAHP, and PCCM report is created, it will most
likely run automatically at designated times and sent electronically to
the state as the normal course of business operations; therefore, no
additional burden is estimated after the first year.
(Note: this process is not necessary when the MCO, PIHP, PAHP, or
PCCM entity pays the ICHP at least the full amount owed under this
regulation.)
46. ICRs Regarding Managed Care Enrollment (Sec. 457.1210)
Section 457.1210(a) would require state to establish a process for
prioritizing individuals for enrollment into managed care plans.
Establishing a default enrollment process would require policy changes
and require the state to send notices to enrollees once they have been
enrolled in a plan. We estimate that states would need to use the
default enrollment process specified in Sec. 457.1210(a) for 5 percent
of enrollees (306,937), and that it would take 1 min at $29.92/hr for a
mail clerk to send the notice. In aggregate, we estimate 5,115.6 hr
(306,937 beneficiaries x 1 min) and $153,059.25 (5,115.6 hr x $29.92/
hr) to send the notices.
47. ICRs Regarding Disenrollment (Sec. 457.1212)
Section 457.1212 would apply the requirements of Sec. 438.56 to
CHIP. To disenroll, Sec. 438.56(d)(1) would require that the
beneficiary (or his or her representative) submit an oral or written
request to the state agency (or its agent) or to the MCO, PIHP, PAHP,
or PCCM, where permitted. We estimate that 5 percent of MCO, PIHP,
PAHP, and PCCM enrollees will request that they be disenrolled from an
MCO, PIHP, PAHP, or PCCM each year. We also estimate approximately one-
fourth of the enrollees will choose a written rather than an oral
request.
We estimate an ongoing burden of 10 min for an enrollee to generate
a written disenrollment request and 3 min per oral request. In
aggregate, we estimate an annual burden (written requests) of 12,789 hr
(76,734 enrollees x 10 min) and 11,510.1 hr (230,202 enrollees x 3 min)
for oral requests.
48. ICRs Regarding Conflict of Interest Safeguards (Sec. 457.1214)
Section 457.1214 would apply the requirements of Sec. 438.58 to
CHIP. Section 438.58 would require that states have in place safeguards
against conflict of interest for employees or agents of the state who
have responsibilities relating to the MCO, PIHP, or PAHP. We anticipate
that most states already have such safeguards in place, and only 5
states would need to develop new standards to comply with this
provision. We estimate a one-time state burden of 10 hr at $53.32/hr
for a business operations specialist to develop those standards. In
aggregate, we estimate 50 hr (5 states x 10 hr) and $2,666.00 (50 hr x
$53.32/hr).
49. ICRs Regarding Continued Services to Beneficiaries (Sec. 457.1216)
Section 457.1216 would apply the requirements of Sec. 438.62 to
CHIP. Section 438.62(b)(1) would require that states have a transition
of care policy for all beneficiaries moving from FFS CHIP into a MCO,
PIHP, PAHP or PCCM, or when an enrollee is moving from one MCO, PIHP,
PAHP, or PCCM to another and that enrollee would experience a serious
detriment to health or be at risk of hospitalization or
institutionalization without continued access to services. We estimate
a one-time state burden of 10 hr at $53.32/hr for a business operations
specialist to develop the transition of care policy. In aggregate, we
estimate 330 hr (33 states x 10 hr) and $17,595.60 (330 hr x $53.32/
hr).
Section 438.62(b)(2) would require that MCOs, PIHPs, PAHPs, or
PCCMs implement their own transition of care policy that meets the
requirements of Sec. 438.62(b)(1). We estimate it would take 4 hr at
$73.60/hr for a computer programmer to create the program that gathers
and sends the FFS data to the MCOs, PIHPs, PAHPs, or PCCMs. We also
estimate each MCO, PIHP, PAHP, or PCCM will use 4 hr of a computer
programmer time to create programs to receive and store data as well as
gather and send data to other plans. We are not estimating additional
burden for the routine running of these reports as they will be put
into a production schedule. In aggregate, we estimate a one-time state
burden of 132 hr (33 states x 4 hr) and $9,715.20 (132 hr x $73.60/hr)
to create the program that gathers and sends the FFS data to the MCOs,
PIHPs, PAHPs, or PCCMs. We also estimate a one-time private sector
burden of 264 hr (66 MCOs, PIHPs, PAHPs, or PCCMs x 4 hr) and
$19,430.40 (264 hr x $73.60/hr) to create programs to receive and store
data as well as gather and send data to other plans.
Once a MCO, PIHP, PAHP, or PCCM receives a request or identifies a
need to arrange for the transition of services, we estimate a
registered nurse at the managed care plan may need 10 min, on average,
to access the stored information and take appropriate action. We
believe that an average of 25,000 beneficiaries will transition into
managed care each year from FFS and 5,000 may switch between plans that
would meet the state defined standards to qualify for the transition of
care policy. In aggregate, we estimate an annual for private sector
burden of 5,000 hr (30,000 beneficiaries x 10 min) and $327,000.00
(5,000 hr x $65.40/hr).
50. ICRs Regarding Network Adequacy Standards (Sec. 457.1218)
Section 457.1218 would apply the requirements of Sec. 438.68 to
CHIP. Section 438.68(a) would require that states set network adequacy
standards that each MCO, PIHP and PAHP must follow. Section 438.68(b)
and (c) would require that states set standards that must include time
and distance standards for specific provider types and network
standards for LTSS (if the MCO, PIHP or PAHP has those benefits covered
through their contract).
We believe some states already comply with these requirements and
that only 12 states would need to develop the standards. We estimate a
one-time first year burden of 15 hr at $53.32/hr for a business
operations specialist to develop network standards meeting the specific
provider types found in Sec. 438.68(b)(1). In aggregate, we estimate
180 hr (12 states x 15 hr) and $9,597.60 (180 hr x $53.32/hr).
Very few states include LTSS in CHIP, therefore we estimate only 5
states will need to develop related standards. We estimate a one-time
burden of 10 additional hr at $53.32/hr for a business operations
specialist to develop those standards. In aggregate, we estimate 50 hr
(5 states x 10 hr) and $2,666.00 (50 hr x $53.32/hr) for the
development of LTSS standards. After network standards are established,
we estimate

[[Page 31195]]

that the maintenance of the network standards will be part of usual and
customary business practices and therefore, we do not estimate any
burden for states after the first year.
Section 438.68(d) would require that states: (1) develop an
exceptions process for plans unable to meet the state's standards; and
(2) review network performance for any MCO, PIHP or PAHP to which the
state provides an exception. We estimate a one-time state burden of 3
hr at $53.32/hr for a business operations specialist to establish an
exceptions process. In aggregate, we estimate 99 hr (33 states x 3 hr)
and $5,278.68 (99 hr x $53.32/hr).
The exception process should not be used very often as MCOs, PIHPs,
and PAHPs meeting the established standards is critical to enrollee
access to care. As such, after the exceptions process is established,
we estimate that the occasional use of it will not generate any
measurable burden after the first year.
51. ICRs Regarding Enrollee Rights (Sec. 457.1220)
Section 457.1220 would apply the requirements of Sec. 438.100 to
CHIP. We do not anticipate a burden associated with implementing this
section, because the proposed requirements to provide enrollees with
treatment options and alternatives, allow enrollees to participate in
decisions regarding health care, ensure that enrollees are free from
restraint or seclusion, are standard practice in the field. The burden
associated with providing information in accordance with 45 CFR 164.524
and 164.526 is accounted for in the collection of information
associated with those regulations. The burden associated with modifying
contracts to comply with this regulation are accounted for under Sec.
457.1202.
52. ICRs Regarding Provider-Enrollee Communication (Sec. 457.1222)
Section 457.1222 would apply the requirements of Sec. 438.102 to
CHIP. Section 438.102(a)(2) provides that MCOs, PIHPs, and PAHPs are
not required to cover, furnish, or pay for a particular counseling or
referral service if the MCO, PIHP, or PAHP objects to the provision of
that service on moral or religious grounds and that written information
on these policies is available to: (1) Prospective enrollees, before
and during enrollment; and (2) current enrollees, within 90 days after
adopting the policy for an any particular service.
We believe the burden for providing written notice to current
enrollees within 90 days of adopting the policy for a specific service,
would affect no more than 3 MCOs or PIHPs annually since it would apply
only to the services they discontinue providing on moral or religious
grounds during the contract period. PAHPs are excluded from this
estimate because they generally do not provide services that would be
affected by this provision.
We estimate that each of the 3 MCOs or PIHPs would have such a
policy change only once annually. We estimate that it would take 1 hr
at $53.32/hr for a business operations analyst to update the policies.
In aggregate, we estimate 3 hr (3 MCOs/PIHPs x 1 hr) and $159.96 (3 hr
x $53.32/hr). We further estimate that it would take 4 hr at $53.32/hr
for a business operations specialist to create the notice and 1 min at
$29.92/hr for an office and administrative support worker to mail each
notice. With an average MCO/PIHP enrollment of 78,000 enrollees, we
estimate a total annual burden of 12 hr (3 MCOs/PIHPs x 4 hr/notice)
and $639.84 (12 hr x $53.32/hr) to create the notice. To mail the
notice we estimate 3,900 hr (3 MCOs/PIHPs x 78,000 enrollees x 1 min/
notice) and $116,688 (3,900 hr x $29.92/hr).
53. ICRs Regarding Marketing Activities (Sec. 457.1224)
Section 457.1224 would apply the requirements of Sec. 438.104 to
CHIP. Section 438.104(c) would require that the state review marketing
materials submitted by managed care entities. We believe that each
entity would revise its materials once every 3 years. We estimate a
state burden of 3 hr at $53.32/hr for a business operations specialist
to review an entity's materials. In aggregate, we estimate an annual
state burden of 75 hr [3 hr x 25 entities (one third of the total
entities)] and $3,999 (75 hr x $53.32/hr).
We estimate that 5 entities may need to revise and submit updated
materials. We estimate a private sector burden of 2 hr at $53.32/hr for
a business operations specialist to update and submit the materials. In
aggregate, we estimate a one-time burden of 10 hr (5 entities x 2 hr)
and $533.20 (10 hr x $53.32).
54. ICRs Regarding Access Standards (Sec. 457.1230)
Section 457.1230 would apply the requirements of Sec. Sec.
438.206, 438.207, 438.208, and 438.210 to CHIP. Section 438.206(c)(3)
through 457.1230(a), would require that MCOs, PIHPs, and PAHPs ensure
that providers assure access, accommodations, and equipment for
enrollees with physical and/or mental disabilities. We believe that
MCOs, PIHPs, and PAHPs will need to review and revise (possibly) their
policies and procedures for network management to ensure compliance
with this requirement.
We estimate a one-time private sector burden of 3 hr at $53.32/hr
for a business operations specialist to review and revise their network
management policies and procedures. In aggregate, we estimate 189 hr
(63 MCO/PIHP/PAHPs x 3 hr) and $10,077.48 (189 hr x $53.32/hr).
Section 438.207(b) through 457.1230(b) and 438.207(b) would require
that each MCO, PIHP, and PAHP (where applicable) submit documentation
to the state, in a format specified by the state, to demonstrate that
it: (1) Complies with specified requirements, and (2) has the capacity
to serve the expected enrollment in its service area in accordance with
the state's standards for access to care. Section 438.207(c) would
require that the documentation be submitted to the state at least
annually, at the time the MCO, PIHP, or PAHP enters into a contract
with the state, and at any time there has been a significant change (as
defined both by the state) in the MCO, PIHP, or PAHP's operations that
would affect adequate capacity and services.
We estimate an annual private sector burden of 20 hr at $53.32/hr
for a business operations specialist to compile the information
necessary to meet this requirement. In aggregate, we estimate 1,260 hr
(63 entities x 20 hr) and $67,183.20 (1,260 hr x $53.32/hr).
After reviewing the documentation, Sec. 438.207(d) through
457.1230(a), would require that the state certify (to CMS) that the
entity has complied with the state's requirements regarding the
availability of services, as set forth at Sec. 438.68. We estimate an
annual state burden of 1 hr/contract at $53.32/hr for a business
operations specialist to review documentation and submit the
certification to CMS. In aggregate, we estimate 63 hr (63 entities x 1
hr) and $3,359.16 (63 hr x $53.32/hr).
Section 438.208(b)(2)(iii) through 457.1230(c), would require that
MCOs, PIHPs and PAHPs coordinate service delivery with the services the
enrollee receives in the FFS program (carved out services). This would
involve using data from the state to perform the needed coordination
activities. Since only a small percentage of enrollees receive carved
out services and need assistance with coordination, we estimate 2
percent of all MCO, PIHP, and PAHP enrollees (122,775) will be
affected.
We estimate an annual private sector burden of 10 min/enrollee at
$59.20/hr for a healthcare social worker. In

[[Page 31196]]

aggregate, we estimate 20,463hr (122,775 enrollees x 10 min) and
$1,211,380.00(20,463 hr x $59.20/hr).
Section 438.208(b)(3) through 457.1230(c), would require that an
MCO, PIHP or PAHP make its best effort to conduct an initial assessment
of each new enrollee's needs within 90 days of the enrollment. We
believe that most MCOs and PIHPs already meet this requirement and only
25 percent of the MCOs and PIHPs (15) would need to alter their
processes; however, we do not believe this to be as common a practice
among PAHPs and assume that all 3 PAHPs will be need to add this
assessment to their initial enrollment functions.
We estimate a one-time private sector burden of 3 hr at $53.32/hr
for a business operations specialist to revise their policies and
procedures. In aggregate, we estimate 54 hr [(15 MCOs and PIHPs + 3
PAHPs) x 3 hr] and $2,879.28 (54 hr x $53.32/hr).
We estimate that in a given year, approximately 10 percent of all
enrollees are new to a managed care plan. Thus, 613,874 enrollees would
be considered new and in need of an initial assessment. As PAHPs are
typically a single entity within the state, we will only estimate that
5 percent of their enrollees (10,000 enrollees) would need an initial
assessment. In general, we believe these assessments will take 10 min
on average to complete by Call Center staff at $29.92/hr. In aggregate,
we estimate an annual private sector burden of 102,312.33 hr (613,874
enrollees x 10 min) and $3,061,185.01 (102,312.33 hr x $29.92/hr).
Section 438.208(b)(4) through 457.1230(c), would require that MCOs,
PIHPs, and PAHPs share with other MCOs, PIHPs, and PAHPs serving the
enrollee the results of its identification and assessment of any
enrollee with special health care needs so that those activities need
not be duplicated. The burden associated with this requirement is the
time it takes each MCO, PIHP or PAHP to disclose information on
enrollees with special health care needs to the MCO, PIHP or PAHP
providing a carved out service. This would most likely be accomplished
by developing a report to collect the data and sending that report to
the other MCO, PIHP, or PAHP.
We estimate a one-time private sector burden of 4 hr at $73.60/hr
for a computer programmer to develop the report. In aggregate, we
estimate of 252 hr (63 MCOs, PIHP, and PAHPs x 4 hr) and $18,547.20
(288 hr x $73.60/hr). Once put into production on a schedule, no
additional staff time would be needed, thus no additional burden is
estimated.
Section 438.208(c)(2) and (3) through 457.1230(c), would require
that the MCOs, PIHPs and PAHPs complete a comprehensive assessment and
treatment plan for all enrollees that have special health care needs.
The assessments and treatment plans should be completed by providers or
MCO, PIHP or PAHP staff that meet the qualifications specified by the
state. We believe the burden associated with this requirement is the
time it takes to gather the information during the assessment.
(Treatment plans are generally developed while the assessment occurs so
we are not estimating any additional time beyond the time of the
assessment.) We believe that only enrollees in MCOs and PIHPs will
require this level of assessment as most PAHPs provide limited benefit
packages that do not typically warrant a separate treatment plan.
We estimate that 1 percent of the total enrollment of 6,138,743
(61,387) are enrolled in either a MCO, PIHP or both, and would qualify
as an individual with special health care needs. The time needed for
the assessment and for treatment planning will, on average, take 1 hr
at $65.40/hr for a registered nurse to complete. In aggregate, we
estimate an annual private sector burden of 61,387 hr (61,387 enrollees
x 1 hr) and $4,014,709.80 (61,387 hr x $65.40/hr).
Section 438.210(c) through 457.1230(d), would require that each
contract provide that the MCO, PIHP, or PAHP notify the requesting
provider, and give the enrollee written notice of any decision by the
MCO, PIHP, or PAHP to deny a service authorization request, or to
authorize a service in an amount, duration, or scope that is less than
requested.
We estimate an annual private sector burden of 30 min at $65.40/hr
for a registered nurse to generate the notice. We estimate that each of
63 MCOs, PIHPs and PAHPs would process 20 denials/service reductions
per 1,000 members. With average enrollment of 78,000, each entity is
estimated to process a total of 1,560 denials and service reductions
annually. In aggregate, we estimate 49,140 hr (63 entities x 1,560
denials or service reductions/entity x 30 min) and $3,213,756.00
(49,140 hr x $65.40/hr).
55. ICRs Regarding Structure and Operation Standards (Sec. 457.1233)
Section 457.1233 would apply the requirements of Sec. Sec.
438.214, 438.230, 438.236, and 438.242 to CHIP. Section 438.214 would
require that MCOs, PIHPs, and PAHPs have policies for the selection and
retention of providers. As described in section IV.B.55. of this
proposed rule, we believe that the requirements in Sec. Sec. 438.214
are part of the usual course of business and will not add additional
burden onto entities because the entities will have policies for
selecting and retaining providers even in the absence of these
regulations.
Section 438.230 through Sec. 457.1233(b), would require that MCOs,
PIHPs, and PAHPs oversee subcontractors and would specify the
subcontracted activities. We estimate 3 hr at $53.32/hr for a business
operations analyst to amend appropriate contracts. We estimate a one-
time private sector burden of 189 (63 MCOs, PIHPs, and PAHPs x 3 hr)
and $10,077.48 (189 hr x $53.32). Section 438.236(c) through Sec.
457.1233(c), would require that each MCO, PIHP, and PAHP disseminate
guidelines to its affected providers and, upon request, to enrollees
and potential enrollees. The burden associated with this requirement is
the time required to disseminate the guidelines, usually by posting on
their Web site. This is typically done annually. We estimate an annual
private sector burden of 2 hr at $53.32/hr for a business operations
specialist. In aggregate, we estimate 124 hr (62 entities x 2 hr) and
$6,611.68 (124 hr x $53.32/hr).
In Sec. 438.242(b)(2) through Sec. 457.1233(b), the state would
be required to stipulate that each MCO and PIHP 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 such methods as may be specified by the state). We estimate a
one-time private sector burden of 20 hr at $73.60/hr for a computer
programmer to extract this data from an entity's system and report to
the state. In aggregate, we estimate 1,180 hr (59 entities x 20 hr) and
$86,848 (1,180 hr x $73.60/hr). After the initial creation, the reports
would be set to run and sent to the state at specified times as part of
a production schedule.
56. ICRs Regarding Quality Measurement and Improvement (Sec. 457.1240)
Section 457.1240 would apply the requirements of Sec. Sec.
438.330, 438.332, 438.334, and 438.340 to CHIP. Section 438.330(a)(2)
through Sec. 457.1240(b), would authorize CMS to use a public notice
and comment process to identify performance measures and PIP topics
that states would include in their contracts with MCOs, PIHPs, and
PAHPs. Should CMS use this process to identify specific performance
measures

[[Page 31197]]

and PIP topics at least once every 3 years, we expect that states would
need to program their MMIS systems to account for the specified
performance measures and PIP topics. We estimate that MMIS programming
changes would require 10 hr (every 3 years) at $73.60/hr for a computer
programmer. In aggregate, we estimate an ongoing annualized state
burden of 110 hr [(33 states x 10 hr)/3 years] and $8,096 (110 hr x
$73.60/hr).
Section 438.330(a)(2)(i) through Sec. 457.1240(b), allows states
to select performance measures and performance improvement projects
(PIPs) in addition to those specified by CMS under Sec. 438.330(a)(2).
Since this language continues the flexibility available to states
today, we do not believe this creates any change in burden for states
or the private sector.
Section 438.330(a)(2)(ii) allows states to apply for an exemption
from the CMS-required performance measure and PIP topic requirements
established under Sec. 438.330(a)(2). While we have no data on how
many states would take advantage of this option, given that the
performance measures and PIP topics under Sec. 438.330(a)(2) would be
identified through a public notice and comment process, we estimate
that 2 states would ask for an exemption every 3 years. We estimate
that the exemption process would require 1 hr at $53.32/hr for a
business operations specialist. In aggregate, we estimate an ongoing
annualized state burden of 0.67 hr [(2 states x 1 hr)/3 years] and
$36.72 (0.67 hr x $53.32/hr).
Section 438.330(b)(3) would clarify that MCOs, PIHPs, and PAHPs
must have an approach to evaluate and address findings regarding the
underutilization and overutilization of services. Because utilization
review in managed care has become commonplace in the commercial,
Medicare, and Medicaid settings, we do not believe that this regulatory
provision imposes any new burden on MCOs, PIHPs, or PAHPs.
In accordance with Sec. 438.310(c)(2), some PCCM entities (we
estimate 3) will now be subject to the requirements of Sec.
438.330(b)(3). We estimate a one-time private sector burden of 10 hr at
$53.32/hr for a business operations specialist to establish the
policies and procedures. In aggregate, we estimate 30 hr (3 PCCMs x 10
hr) and $1,599.60 (30 hr x $53.32/hr). We also estimate an ongoing
burden of 10 hr to evaluate and address the findings. In aggregate, we
estimate an annual burden of 30 hr (3 PCCMs x 10 hr) and $1,599.60 (30
hr x $53.32/hr) for program maintenance.
Section 438.330(c)(1) through (3) through Sec. 457.1240(b), would
require that each MCO, PIHP, and PAHP annually measure its performance
using standard measures required by the state and report its
performance to the state. 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.
In accordance with Sec. 438.310(c)(2) through Sec. 457.1240(b),
some PCCM entities will now be subject to this requirement. We
recognize that PAHPs and PCCM entities may not currently engage in
performance measurement, and estimate that 7 entities might be
impacted. We estimate that, in any given year, each PCCM entity and
each PAHP would report to the state on at least 3 performance measures.
We estimate an annual private sector burden of 4 hr per measure at
$53.32/hr for a business operations specialist to prepare a report for
each performance measure. In aggregate, we estimate 84 hr [(3 PAHPs + 4
PCCMs) x 3 performance measures x 4 hr] and $4,478.88 (84 hr x $53.32/
hr).
In Sec. 438.330(d)(1) through Sec. 457.1240(b), states would
ensure that each MCO, PIHP and PAHP have an ongoing program of
performance improvement projects (PIPs). In Sec. 438.330(d)(2) each
MCO, PIHP, and PAHP would be required to report the status and results
of each such project to the state, as requested. We estimate that, in
any given year, each of the 59 MCOs and PIHPs would conduct at least 3
PIPs and each of the 4 PAHPs would conduct at least 1 PAHP. We further
expect that states will request the status and results of each entity's
PIPs annually. Given that PAHPs may not currently conduct PIPs, we
estimate a one-time private sector burden of 2 hr at $53.32/hr for a
business operations specialist to develop policies and procedures, for
an aggregate burden of 8 hr (4 PAHPs x 2 hr) and $426.56 (8 hr x
$53.32/hr). We estimate an annual burden of 8 hr to prepare a report on
each PIP. In aggregate, we estimate 1,448 hr [((59 MCOs and PIHPs x 3
PIPs) + (4 PAHPs x 1 PIP)) x 8 hr] and $77,207.36 (1,448 hr x $53.32/
hr) to prepare the report.
Per Sec. 438.310(c)(2), PCCM entities specified are also subject
to the requirements in Sec. 438.330(e) through Sec. 457.1240(b). We
estimate an annual state burden of 15 hr at $53.32/hr for a business
operations specialist to assess the performance of a single Sec.
438.3(r) PCCM entity. In aggregate, we estimate 45 hours (3 PCCM
entities x 15 hr) and $2,399.40 (45 hr x $53.32/hr).
Section 438.330(e)(1)(ii) through Sec. 457.1240(b), would require
that states include outcomes and trended results of each MCO, PIHP, and
PAHP's PIPs in the state's annual review of quality assessment and
performance improvement programs. We estimate a one-time state burden
of 0.5 hr at $53.32/hr for a business operations specialist to modify
the state's policies and procedures. In aggregate, we estimate 16.5 hr
(33 states x 0.5 hr) and $879.78 (16.5 hr x $53.32/hr). We also
estimate an annual burden of 1 hr for the additional review. In
aggregate, we estimate 33 hr (33 states x 1 hr) and $1,759.56 (33 hr x
$53.32/hr). Section 438.330(e)(1)(iii) would set out a new requirement,
related to Sec. 438.330(b)(5), requiring that the state must assess
the rebalancing effort results for LTSS in its annual review. We do not
know of any states that have an LTSS plan in CHIP, so there is no
burden associated with the proposed provision.
Under Sec. 438.332(a) through Sec. 457.1240(c), states would
review and approve the performance of all CHIP MCO, PIHP, and PAHP at
least once every 3 years. We assume that no state would set up a
separate review and approval process for CHIP, and would instead follow
the same process used for Medicaid managed care plans. We estimate an
annual state burden of 80 hr at $53.32/hr for a business operations
specialist, 5 hr at $127.72/hr for a general and operations manager,
and 5 hr at $29.92/hr for an office and administrative support worker
to assess a CHIP plan, which would occur at least once every 3 years.
In aggregate, we estimate an annualized state burden of 1,980 hr (66
MCOs, PIHPs, and PAHPs x 90 hr/3 years) and $157,594.80 [(66 MCOs,
PIHPs, and PAHPs x [(80 hr x $53.32/hr) + (5 hr x $127.72/hr) + (5 hr x
$29.92/hr)])/3 years] to review and approve CHIP MCOs, PIHPs, and
PAHPs. We estimate an annualized private sector burden of 1,078 hr [(66
MCOs, PIHPs, and PAHPs x 49 hr/3 years) and $61,452.16 [(66 MCOs,
PIHPs, and PAHPs x [(40 hr x $53.32/hr) + (5 hr x $29.92/hr) + (4 hr x
$127.72/hr)])/3 years] for CHIP MCOs, PIHPs, and PAHPs to provide the
necessary information to the state for review and approval.
Section 438.332(b)(2) through Sec. 457.1240(c), would allow states
to deem compliance with Sec. 438.332(a) for accredited MCOs, PIHPs,
and PAHPs that authorize the private accrediting entity to release
accreditation information to the state. The burden associated with
operating this program

[[Page 31198]]

at a state is captured in Sec. 438.332(b), were we assume that half of
states will elect this option. We believe that approximately half of
the CHIP MCOs, PIHPs, and PAHPs (17) in these states may already have
received or are independently seeking accreditation, and thus would not
face any additional burden associated with this requirement. The
remaining 16 MCOs, PIHPs, and PAHPs (half the entities in half the
states) would have to seek initial accreditation from a private
accrediting entity. The burden for accreditation varies widely,
depending on a number of factors including the type of managed care
entity, the size of its population, and the accrediting body. We
estimate that initial accreditation costs $70,700 per plan (given that
private independent entities structure prices in terms of accreditation
activities, not hours, an hourly burden estimate is not available) and
must be renewed once every 3 years for the same cost. In aggregate, we
estimate the one-time private sector burden for initial accreditation
is $1,131,200 (16 MCOs, PIHPs, and PAHPs x $70,700), and the ongoing
annualized private sector burden for accreditation renewal is
$377,066.67 [(16 MCOs, PIHPs, and PAHPs x $70,700)/3 years].
Section 438.332(c) through Sec. 457.1240(c), requires the state to
document its determinations for all MCOs, PIHPs, and PAHPs on the
state's Web site, the burden for which is included in Sec. 438.10.
Section 438.334 through Sec. 457.1240(d), would have states
establish and operate a quality ratings system for MCOs, PIHPs, and
PAHPs. We assume that states would utilize the same system and
processes developed for CHIP managed care plans as was developed for
Medicaid managed care plans. Using the assumptions developed for Sec.
438.332, we estimate that 25 states (with 47 MCOs, PIHPs, and PAHPs)
will operate a quality rating systems as proposed in Sec. 438.334(a)
and would rate plans each year. We estimate 20 hr at $53.32/hr for a
business operations specialist in a state to rate a MCO, PIHP, or PAHP.
In aggregate, we estimate an annual state burden of 940 hr (47 MCOs,
PIHPs, and PAHPs x 20 hr) and $50,120.80 (940 hr x $53.32/hr). We
assume the remaining 8 states (with 16 MCOs, PIHPs, and PAHPs) will
utilize the flexibility at Sec. 438.334(c) to continue to use their
own quality rating system. As this would not be a change from the
status quo, we estimate no additional burden in these states for the
quality rating system.
Section 438.340 through Sec. 457.1240(e), would describe the
additional comprehensive quality strategy elements that states
contracting with MCOs, PIHPs, or PAHPs would include in their
comprehensive quality strategies. To include the additional managed
care-related items in their comprehensive quality strategies, we
estimate a state burden of 10 hr at $53.32/hr for a business operations
specialist each time a state revises its comprehensive quality strategy
(once every 3 years, per Sec. 431.504(b)). In aggregate, we estimate
an annualized burden of 110 hr [(33 states x 10 hr)/3 years] and
$5,865.20 (110 hr x $53.32/hr).
57. ICRs Regarding External Quality Review (Sec. 457.1250)
Section 457.1250 would apply the requirements of Sec. Sec.
438.350, 438.352, 438.354, 438.356, 438.358, and 438.364 to CHIP.
Section 438.350 through Sec. 457.1250(a), would require that states
include CHIP in their external quality review. We anticipate that most
states would include CHIP in their Medicaid contract with the EQRO and
that the burden for adding CHIP would be included in the burden for
adding PAHPs to the EQRO contract. We anticipate that 5 states may
contract separately for CHIP EQR services and that this would require
states to procure a new vendor.
Given the wide variance in state procurement processes, the burden
is conservatively estimated at 185 hr for writing an RFP, evaluating
proposals, and implementing the selected proposal. More specifically,
we estimate a one-time state burden of 125 hr at $53.32/hr for a
business operations specialist, 50 hr at $73.60/hr for a computer
programmer, and 10 hr at $127.72/hr for a general and operations
manager. In aggregate, we estimate 925 hr [(125 hr + 50 hr + 10 hr) x 5
states] and $58,111.00 [((125 hr x $53.32/hr) + (50 hr x $$73.60/hr) +
(10 hr x $127.72/hr) x 5 states)].
Section 438.356(a)(3) through Sec. 457.1250(a), would require that
states submit their EQRO contracts to CMS for review and approval prior
to implementation. We estimate a one-time state burden of 2 hr at
$53.32/hr for a business operations specialist to submit the contract
to CMS. In aggregate, we estimate 10 hr (5 states x 2 hr) and $533.20
(10 hr x $53.32/hr).
Section 438.358 through Sec. 457.1250(a), would require that the
EQRO perform certain activities. The burden associated with this
provision is the time for a state to conduct and document the findings
of the four mandatory activities: (1) The annual validation of
performance improvement projects conducted by the MCO/PIHP/PAHP; (2)
the annual validation of performance measures calculated by the MCO/
PIHP/PAHP; (3) once every 3 years, a review of MCO/PIHP/PAHP compliance
with structural and operational standards; and (4) validation of MCO,
PIHP, and PAHP network adequacy. Each of these activities would be
conducted on the 5 MCOs/PIHPs/PAHPs that are currently providing CHIP
services separately from Medicaid. The types of services provided by
these managed care entities, the number of performance improvement
projects conducted, and the performance measures calculated will vary.
We assume that each MCO/PIHP will conduct at least 3 performance
improvement projects, each PAHP will conduct at least 1 performance
improvement project, and that each MCO/PIHP/PAHP will calculate at
least 3 performance measures.
For a business operations specialist to conduct the mandatory EQR
activities at $53.32/hr, we estimate an annual state burden of 65 hr
(performance improvement project validation), 53 hr (performance
measure validation), 361 hr (compliance review; occurs once every 3
years), and 60 hr (validation of network adequacy activity). In
aggregate, we estimate 2,671.67hr (5 x [(65 hr x 3 performance
improvement projects) + (53 hr x 3 performance measures) + (361 hr/3) +
60 hr]) and $142,453.27 (2,372 hr x $53.32/hr).
In Sec. 438.358(b), the burden would include the time for an MCO/
PIHP/PAHP to prepare the information necessary for the state to conduct
the three mandatory activities. We estimate that it will take each MCO/
PIHP/PAHP 160 hr to prepare the documentation for these activities. We
estimate that one-half of the time would be for preparing the
information which will be performed by a business operations specialist
at $53.32/hr while the other half will be performed by office and
administrative support worker at $29.92/hr. In aggregate, we estimate a
private sector burden of 800 hr (5 states x 160 hr) and $33,296.00 [(5
states x 80 hr x $53.32/hr) + (5 states x 80 hr x $29.92/hr).
Section 438.358(b)(1) through Sec. 457.1250(a), would stipulate
that all of the PIPs required by the state and CMS be validated. We
have added the reference to CMS-required PIPs to be consistent with our
proposed provision at Sec. 438.330(a)(3). While current regulations do
not specify the number of PIPs that must be validated in each state,
the majority of states validate multiple PIPs for each MCO or PIHP.

[[Page 31199]]

Given current practice, we do not anticipate this will pose a
burden on states or the private sector beyond the need to modify MCO,
PIHP, PAHP, and EQRO contracts. We anticipate that most states would
include CHIP in their Medicaid contract with the EQRO and that the
burden for adding CHIP would be included in the burden under Sec.
438.350. The burden associated with amending MCO/PIHP/PAHP contracts is
captured in Sec. 457.1202.
Section 438.358(c) through Sec. 457.1250(a), describes optional
EQR-related activities. For the optional EQR activities, we have no
data to estimate how long it would take to conduct these activities.
We, therefore, estimate that it will take 350 hr to validate client
level data and 50 hr to validate consumer or provider surveys. We
estimate it will take three times as long to calculate performance
measures as it takes on average to validate (159 hr) and three times as
long to conduct performance improvement projects and focused studies as
it takes on average to validate performance improvement projects (195
hr). We also estimate that it will take three times as long to
administer a consumer or provider survey than it takes to validate a
survey (60 hr).
For a business operations specialist $53.32/hr, we estimate: (1)
16,800 hr (350 hr x 48 MCOs/PIHPs) and $895,776.00 (16,800 hr x $53.32/
hr) to validate client level data; (2) 1500 hr (50 hr x 30 MCOs/PIHPs)
and $79,980.00 (1500 hr x $53.32/hr) to validate consumer or provider
surveys; (3) 3,180 hr (159 hr x 20 MCOs/PIHPs) and $169,557.60 (3,180
hr x $53.32/hr) to calculate performance measures; (4) 5,070 hr (195 hr
x 26 MCOs/PIHPs) and $270,332.40 (5,070 hr x $53.32/hr) to conduct
performance improvement projects; and (5) 8,268 hr (159 hr x 52 MCOs/
PIHPs) and $440,849.76 (8,268 hr x $53.32/hr) to conduct focused
studies. In aggregate, we estimate 34,818 hr and $1,856,495.76 for the
optional EQR-related activities.
We do not have any data to estimate the amount of time to prepare
data and information for the optional EQR activities for PAHPs. We also
do not have data regarding how states will apply these optional
activities to PAHPs. Therefore, at this time, we are unable to develop
a burden estimate for optional EQR-related activities for PAHPs. We
welcome comment to help us develop these estimates.
Section 438.364(a)(1) through Sec. 457.1250(a), specifies that
information regarding the EQR activities may include information
obtained from Medicare or private accreditation reviews in accordance
with Sec. 438.360. Section 438.364(a)(1)(iii) would require that the
EQR technical report include baseline and outcomes data regarding PIPs
and performance measures. The burden of compiling this data for MCOs,
PIHPs, and PAHPs is captured in Sec. 438.358.
Section 438.364(b)(1) through Sec. 457.1250(a), would clarify that
the EQRO must produce and finalize the annual EQR-technical report and
that states may not substantively revise the report without evidence of
error or omission, or permission from CMS. The proposed April 30th
deadline for the finalization and submission of EQR technical reports
is consistent with existing Medicaid sub-regulatory guidance. In an
effort to ensure that the EQR process offers states timely and valuable
insight into the quality of their managed care programs, we propose
that the annual EQR technical report must address data collected in the
previous 15 months.
We do not anticipate that these changes will pose a burden on
states or the private sector. The burden associated with changing
contracts for those programs that contract with EQROs with Medicaid is
included under Sec. 438.364. States that contract with an EQRO
separately for CHIP will include this requirement in the contract.
Section 438.364(b)(2) through Sec. 457.1250(a), would require that
each state agency provide copies of technical reports, upon request, to
interested parties such as participating health care providers,
enrollees and potential enrollees of the MCO/PIHP/PAHP, beneficiary
advocacy groups, and members of the general public. States would also
be required to make the most recent EQR technical report publicly
available in a manner specified by CMS. This will likely be
accomplished by posting to the state's Web site, the burden for which
is included in Sec. 457.1206. We believe that by making these reports
available online, states would be able to significantly decrease the
burden associated with responding to requests from the public for this
information, as it will already be easily accessible. The burden
associated with this requirement is the time for a state agency to
disclose copies of a given technical report to interested parties.
We estimate an annual state burden of 5 min at $15/hr for office
and administrative support worker to disclose the required information
per request. We also estimate that each state will receive 5 requests
per MCO/PIHP/PAHP per year. In aggregate, we estimate 26 hr (62 MCOs/
PIHPs/PAHPs x 5 requests x 5 min) and $772.93 (26 hr x $29.92/hr).
58. ICRs Regarding Grievances (Sec. 457.1260)
Section 457.1260 would apply subpart F of part 438 to CHIP. We
anticipate that most states currently follow the Medicaid grievance
procedures, so we adopt the burden associated with the proposed changes
to the Medicaid regulation.
Section 438.400(b) through Sec. 457.1260, would update the
definition of ``Action'' to ``Adverse benefit determination,'' clarify
``appeal'' and ``grievance,'' and add the definition of ``grievance
system.'' We estimate a one-time state burden of 5 hr at $53.32/hr for
a business operations specialist to amend all relevant documents to the
new nomenclature and definitions. In aggregate, we estimate 165 hr (5
hr x 33 states) and $8,797.80 (165 hr x $53.32/hr).
Aligning the definition of ``adverse benefit determination'' to
include medical necessity, appropriateness, health care setting, or
effectiveness would require that plans provide additional hearing
resources to actions previously not included. We estimate 3 hr at
$53.32/hr for a business operations specialist and expect that each
plan would provide 3 additional hearings per month (36 per year). In
aggregate, we estimate an annual private sector burden of 6,696 hr (62
MCOS, PIHPS, and PAHPS x 36 hearings x 3 hr) and $357,030.72 (6,696 hr
x $53.32/hr).
Section 438.402 through Sec. 457.1260, would specify the general
requirements associated with the grievance system. More specifically,
Sec. 438.402 would: (1) Require MCOs, PIHPs, and PAHPs to have a
grievance system; (2) set out general requirements for the system; (3)
establish filing requirements; and (4) provide that grievances and
appeals may be filed either orally or in writing. The proposed
provisions would apply to 62 entities. The burden for revising the
contracts for these entities is included in Sec. 457.1201.
With regard to setting up a grievance system, we estimate it would
take 100 hr (10 hr at $127.72/hr for a general and operations manager,
75 hr at $53.32/hr for a business operations specialist, and 15 hr at
$73.60/hr for a computer programmer) for each entity. We estimate that
the entities would receive 400 grievances per month. We estimate it
will take a business operations specialist 30 min to process and handle
each grievance and adverse benefit determinations.
We estimate a one-time private sector burden of 6,200 hr and
$395,572.40 [62 MCOs, PIHPs, and PAHPs x ((10 x $127.72/hr) + (75 x
$53.32/hr) + (15 x

[[Page 31200]]

$73.60/hr)). We also estimate an annual burden of 148,800 hr [62 PAHPs
x 400 grievances/month x 12 months x (0.5 hr/grievance x 12 months)]
and $7,934,016.00 (148,800 hr x $53.32/hr) for processing each
grievance and adverse benefit determination.
Section 438.404(a) through Sec. 457.1260, would add PAHPs as an
entity that must give the enrollee timely written notice and would set
forth the requirements of that notice. More specifically, the enrollee
must be provided timely written notice if an MCO, PIHP, or PAHP intends
to: (1) Deny, limit, reduce, or terminate a service; (2) deny payment;
(3) deny the request of an enrollee in a rural area with one plan to go
out of network to obtain a service; or (4) fails to furnish, arrange,
provide, or pay for a service in a timely manner.
We estimate an annual private sector burden of 1 min at $29.92/hr
for an office and administrative support worker to provide written
notice of the MCO, PIHP, or PAHP's intended action. We estimate that 5
percent (306,937) of the approximately 6 million MCO, PIHP, or PAHP
enrollees will receive one notice of intended action per year from
their MCO, PIHP, or PAHP. In aggregate, we estimate 5,116 hr (306,937 x
1 min) and $153,059.25 (5,116 hr x $29.92/hr).
In Sec. 438.416 through Sec. 457.1260, the state must require
that MCOs, PIHPs and PAHPs maintain records of grievances and appeals.
We estimate that approximately 6,139 enrollees (1 percent) of the
approximately 6 million MCO and PIHP enrollees file a grievance or
appeal with their MCO or PIHP. We estimate an annual private sector
burden of 1 min (per request) at $29.92/hr for an office and
administrative support worker to record and track grievances. In
aggregate, we estimate 102 hr (6,139 grievances x 1 min) and $3,061.31
(102 hr x $29.92/hr).
59. ICRs Regarding Sanctions (Sec. 457.1270)
Section 457.1270 would apply subpart I of part 438 to CHIP. In
Sec. 438.722(a) through Sec. 457.1270, states would be provided the
option to give MCO, PIHP, PAHP, or PCCM enrollees written notice of the
state's intent to terminate its MCO, PIHP, PAHP, or PCCM contract.
Notice may be provided after the state has notified the entity of its
intention to terminate their contract.
States already have the authority to terminate MCO, PIHP, PAHP or
PCCM contracts according to state law and have been providing written
notice to the MCO, PIHP, PAHP or PCCM enrollees. While it is not
possible to gather an exact figure, we estimate that 8 states may
terminate 1 contract per year.
We estimate an annual state burden of 1 hr at $53.32/hr for a
business operations specialist to prepare the notice to enrollees. In
aggregate, we estimate 8 hr (1 hr x 8 states x 1 contract/yr.) and
$426.56 (8 hr x $53.32/hr). We also estimate 1 hr at $53.32/hr for a
business operations specialist to prepare the notice. In aggregate, we
estimate an annual state burden of 8 hr (8 states x 1 hr) and $427 (8
hr x $53.32/hr). To send the notice, we estimate an average enrollment
of 30,000 beneficiaries and 1 min (per beneficiary) at $26.40/hr for a
mail clerk. In aggregate we estimate 500 hr (30,000 beneficiaries x 1
min) and $13,200.00 (500 hr x $26.40/hr).
Section 438.724 through Sec. 457.1270, would require that the
state give the CMS Regional Office written notice whenever it imposes
or lifts a sanction. The notice must specify the affected MCO, PIHP,
PAHP, or PCCM, the kind of sanction, and the reason for the state's
decision to impose or lift a sanction.
We anticipate that no more than 15 states would impose or lift a
sanction each year and that it would take 30 min at $53.32/hr for a
business operations specialist to give the regional office notice. In
aggregate, we estimate an annual burden of 7.5 hr (15 states x 30 min)
and $400 (7.5 hr x $53.32/hr).
60. ICRs Regarding Conditions Necessary To Contract as an MCO, PIHP, or
PAHP (Sec. 457.1280)
These requirements have not changed, they have been redesignated
from another section of part 457, and so we do not estimate any
additional burden.
61. ICRs Regarding Program Integrity Safeguards (Sec. 457.1285)
Section 457.1285 would apply most of subpart H of part 438 to CHIP.
Section 438.602(a) through Sec. 457.1285, would detail state
responsibilities for monitoring MCO, PIHP, PAHP, PCCM or PCCM's
compliance with other sections of part 438, screening and enrollment of
providers, reviewing ownership and control information, performing
periodic audits, investigating based on whistleblower information, and
imposing sanctions as appropriate. States would need to revise their
policies and implement these activities, as needed. Once the policies
are revised, the continuing performance would be part of usual and
customary business operations.
We estimate 50 hr at $53.32/hr for a business operations specialist
to create and/or revise their policies for the above activities. In
aggregate, we estimate a one-time state burden of 1,650 hr (33 states x
50 hr) and $87,978.00 (1,650 hr x $53.32/hr).
Section 438.602(b) through Sec. 457.1285, would require states to
screen and enrollee MCO, PIHP, PAHP, PCCM and PCCM entity providers in
accordance with 42 CFR part 455, subparts B and E. States are already
required to screen and enroll providers in both FFS and managed care in
their CHIP programs through 42 CFR 457.990, so there is no additional
burden associated with this requirement.
Section 438.602(e) through Sec. 457.1285, would require states to
conduct or contract for audits of MCO, PIHP, and PAHP encounter and
financial data once every 3 years. Some states already use their EQRO
to validate data. If they conduct this task at an appropriate
frequency, it would incur no additional burden. We estimate 12 states
already use their EQRO to validate their data, so only 21 states may
need to take action to meet this requirement. The method selected by
the state will determine the amount of burden incurred. We assume an
equal distribution of states selecting each method, thus 7 states per
method.
A state using EQRO to validate data on less than an appropriate
frequency may need to amend their EQRO contract. In this case, we
estimate 1 hr at $53.32/hr for a business operations specialist. In
aggregate, we estimate a one-time state burden of 7 hr (7 states x 1
hr) and $373.24 (7 hr x $53.32/hr).
A state electing to perform validation internally would need to
develop processes and policies to support implementation. In this case,
we estimate 10 hr at $53.32/hr for a business operations specialist to
develop policy and 100 hr at $73.60/hr for a computer programmer to
develop, test, and automate the validation processes. In aggregate, we
estimate a one-time state burden of 770 hr (7 states x 110 hr) and
$55,252.40 [7 states x ((10 hr x $53.32/hr) + (100 hr x $73.60/hr))].
For a state electing to procure a vendor, given the wide variance
in state procurement processes, our burden is conservatively estimated
at 150 hr for writing a proposal request, evaluating proposals, and
implementing the selected proposal. We estimate 125 hr at $53.32/hr for
a business operations specialist to participate in the writing,
evaluating, and implementing, and 25 hr at $127.72/hr for a general and
operations manager to participate in the writing, evaluating, and
implementing. In aggregate, we estimate an annual state burden of 1,050
hr [7 states x (150 hr)]

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and $69,006.00 [7 states x ((125 hr x $53.32/hr) + (25 hr x $127.72/
hr))].
Section 438.602(g) through Sec. 457.1285, would require states to
post the MCO's, PIHP's, and PAHP's contracts, data from Sec. 438.604,
and audits from Sec. 438.602(e) on their Web site. As most of these
activities will only occur no more frequently than annually, we
estimate an annual state burden of 1 hr at $73.60/hr for a computer
programmer to post the documents. In aggregate, we estimate 33 hr (33
states x 1 hr) and $2,428.80 (33 hr x $73.60/hr).
Section 438.608(a) through Sec. 457.1285, would require that MCOs,
PIHPs, and PAHPs have administrative and management arrangements or
procedures that are designed to guard against fraud and abuse. The
arrangements or procedures must include a compliance program as set
forth under Sec. 438.608(a)(1), provisions for reporting under Sec.
438.608(a)(2), provisions for notification under Sec. 438.608(a)(3),
provisions for verification methods under Sec. 438.608(a)(4), and
provisions for written policies under Sec. 438.608(a)(5).
The compliance program must include: Written policies, procedures,
and standards of conduct that articulate the organization's commitment
to comply with all applicable federal and state standards and
requirements under the contract; the designation of a Compliance
Officer; the establishment of a Regulatory Compliance Committee on the
Board of Directors; effective training and education for the
organization's management and its employees; and provisions for
internal monitoring and a prompt and effective response to
noncompliance with the requirements under the contract.
We estimate that reviewing their policies and procedures to ensure
that all of the above listed items are addressed. We estimate this
would require 5 hr at $53.32/hr for a business operations specialist to
review and (if necessary) revise their policies and procedures. In
aggregate, we estimate a one-time private sector burden of 315 hr (63
MCOs, PIHPs, and PAHPs x 5 hr) and $16,795.80 (315 hr x $53.32/hr).
Section 438.608(a)(2) and (3) through Sec. 457.1285, require
reporting of improper payments and enrollee fraud. As these would be
done via an email from the MCO, PIHP, or PAHP to the state and do not
occur very often, we estimate only 2 hr per year by a business
operations specialist at $53.32/hr. We estimate an annual burden of 126
hr (63 MCOs, PIHPs, and PAHPs x 2 hr) and $6,718.32 (126 hr x $53.32/
hr).
Section 438.608(a)(4) through Sec. 457.1285, would require the
MCO, PIHP, or PAHP to use a sampling methodology to verify receipt of
services. This typically involves mailing a letter or sending an email
to the enrollee, we estimate 33 states mail to 100 enrollees each (33 x
100 = 3,300 mailings) taking 1 min at $29.92/hr for a mail clerk. We
estimate a total annual aggregate burden for private sector of 55 hr
(3,300 mailings x 1 min) and $1,645.60 (55 hr x $9.92/hr). This
estimate will be significantly reduced as the use of email increases.
Section 438.608(c) and (d) through Sec. 457.1285, would require
states to include in all MCO, PIHP, and PAHP contracts, the process for
the disclosure and treatment of certain types of recoveries and
reporting of such activity. The burden to amend the contracts is
included in Sec. 457.1201. We estimate the burden to comply with the
reporting to include 1 hr at $73.60/hr for a computer programmer to
create the report. In aggregate, we estimate a one-time private sector
burden of 63 hr (63 MCOs, PIHPs, and PAHPs x 1 hr) and $4,636.80 (63 hr
x $73.60/hr). Once developed, the report would be put on a production
schedule and add no additional burden.

D. Summary of Proposed Burden Estimates

Table 2 sets out our proposed annual burden estimates. While the
annual burden estimates (under Frequency) are unchanged, the one-time
estimates have been annualized by dividing the one-time hour and cost
figures by 3 to account for OMB's 3-year approval period.
The burden associated with this proposed rule is divided amongst
four Paperwork Reduction Act (PRA) packages. The burden proposed for
part 431 subpart I will be contained in a new PRA package (CMS-10553).
CMS-10108 will continue to contain all of part 438, except for those
provisions related to external quality review (Sec. Sec. 438.350,
438.352, 438.354, 438.356, 438.358, 438.360, 438.362, 438.364, and
438.370), which will remain in the separate CMS-R-305. The proposed
CHIP managed care regulation burden will be in a new PRA package, CMS-
10554.
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E. Exempt ICRs

1. Administrative Actions
While the requirements under Sec. Sec. 431.220(a)(5) and (6),
431.220(b), 438.710(b)(2), 438.730(b), and 457.1270(a), (b), and (c)
are subject to the PRA, since the information collection requirements
are associated with an administrative action (5 CFR 1320.4(a)(2) and
(c)), they are exempt from the requirements of the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.)
Section 431.220(a)(5) and (6) would add PAHP enrollees as eligible
for a state fair hearing as permitted in subpart B of 42 CFR part 438.
Section 431.220(b) prescribes procedures for an opportunity for a
hearing if the state agency or non-emergency transportation PAHP takes
action to suspend, terminate, or reduce services, or an MCO, PIHP or
PAHP takes action under subpart.
Before imposing any of the sanctions specified in subpart I, Sec.
438.710(a) would require that the state give the affected MCO, PIHP,
PAHP or PCCM written notice that explains the basis and nature of the
sanction. Section 438.710(b)(2) states that before terminating an
MCO's, PIHP's, PAHP's or PCCM's contract, the state would be required
to: (1) Give the MCO or PCCM written notice of its intent to terminate,
the reason for termination, the time and place of the hearing; (2) give
the entity written notice (after the hearing) of the decision affirming
or reversing the proposed termination of the contract and, for an
affirming decision, the effective date of termination; and (3) give
enrollees of the MCO or PCCM notice (for an affirming decision) of the
termination and information, consistent with Sec. 438.10, on their
options for receiving Medicaid services following the effective date of
termination.
Section 438.730(b) would require that if CMS accepts a state
agency's recommendation for a sanction, the state agency would be
required to give the MCO written notice of the proposed sanction.
Section 438.730(c) would require that if the MCO submits a timely
response to the notice of sanction, the state agency must give the MCO
a concise written decision setting forth the factual and legal basis
for the decision. If CMS reverses the state's decision, the state must
send a copy to the MCO.
Section 457.1270 would apply subpart I (Sanctions) of part 438 to
CHIP. Within subpart I, Sec. 438.710(a) would require that the state
provide the affected entity with timely written notice of the basis of
the sanction. Section 438.710(b) would require that the state provide
an entity a pre-termination hearing. If we accept a state agency's
recommendation for a sanction, Sec. 438.730(b) would require that the
agency provide the MCO, PIHP or PAHP written notice of the proposed
sanction. If the MCO submits a timely response to the notice of
sanction, Sec. 438.730(c) would require that the state agency provide
the MCO, PIHP or PAHP with a concise written decision setting forth the
factual and legal basis for the decision. If we reverse the state's
decision, the state must send a copy to the affected MCO, PIHP or PAHP.
2. Fewer Than 10 Respondents
While the requirements under Sec. Sec. 438.8(m), 438.70(a),
438.102(a)(2), 438.350(a)(1) and (2), 438.360(c), 438.724, and
438.818(d) are subject to the PRA, in each instance we estimate fewer
than 10 respondents. Consequently, the information collection
requirements are exempt (5 CFR 1320.3(c)) from the requirements of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
Section 438.8(m) would require the MCO, PIHP, or PAHP to
recalculate its MLR for any year in which a retroactive capitation
change is made. As such retroactive adjustments are not a common
practice, we only estimate that no more than three plans per year may
have to recalculate their MLR.
Section 438.70(a) would require that states have a process to
solicit and address viewpoints from beneficiaries, providers, and other
stakeholders as part of the design, implementation, and oversight of
the managed LTSS program. We estimate no more than 3 states per year
would elect to move to a managed LTSS program.
Section 438.102(a)(2) specifies that MCOs, PIHPs, and PAHPs are not
required to cover, furnish, or pay for a particular counseling or
referral service if the MCO, PIHP, or PAHP objects to the provision of
that service on moral or religious grounds; and that written
information on these policies is made available to: Prospective
enrollees, before and during enrollment; and current enrollees, within
90 days after adopting the policy for an any particular service. We
believe the burden associated with this requirement affects no more
than 3 MCOs or PIHPs annually since it applies only to the services
they discontinue providing on moral or religious grounds during the
contract period. PAHPs are excluded from this estimate because they
generally do not provide services that would be affected by this
provision.
Section Sec. 438.350 would add PAHPs to the list of affected
entities in Sec. 438.350(a)(1) and (2). The addition of PAHPs to the
EQR process would require the nine states with PAHPs and existing EQRO
contracts to modify their existing EQRO contracts. The estimated 3
states with PAHPs that do not currently have an EQRO contract would
need to enter into a contract with an EQRO.
Section 438.360(c) would require states to document, in the
comprehensive quality strategy required at Sec. 431.502, which
mandatory EQR-related activities it will apply the non-duplication
provisions to, and why it believes these activities would be
duplicative. Given that this is already standard practice for the 37
states that currently contract with MCOs and/or PIHPs, only the 3
states that contract only with PAHPs would have to revise their
policies and procedures to include this in their comprehensive quality
strategy.
Section 438.724 would require that the state provide written notice
to their CMS Regional Office whenever it imposes or lifts a sanction on
a PCCM or PCCM entity. Given the limited scope of benefits provided by
a PCCM or PCCM entity, we anticipate that no more than 3 states may
impose or lift a sanction on a PCCM or PCCM entity in any year.
Section 438.818(d) would require states new to managed care and not
previously submitting encounter data to MSIS to submit an
Implementation plan. There are currently only 8 states that do not use
MCOs thus these would be the only states that may have to submit an
Implementation plan should they adopt managed care in the future.
3. Usual and Customary Business Practices
Section 433.138(e)(1) would make a technical correction addressing
state Medicaid agencies' review of claims with trauma codes, to
identify instances where third party liability (TPL) may exist for
expenditures for medical assistance covered under the state plan. The
correction would remove references to the International Classification
of Disease, 9th edition, Clinical Modification Volume 1 (ICD-9-CM) by
replacing the references with a general description of the types of
medical diagnoses indicative of trauma. States would use the
International Classification of Disease that they are using at the time
of claims processing. There is no additional cost to the state related
to the proposed changes to Sec. 433.138(e) because the proposed
changes do not require any action by the

[[Page 31228]]

state, if the state wishes to retain their usual and customary editing
for the same types of traumatic injuries currently identified with ICD-
9-CM.
While the requirements under Sec. Sec. 438.10(c)(7),
438.208(b)(2), 438.208(b)(2)(i) and (iv), 438.208(b)(5), 438.210(b),
438.214, 438.360(c), 438.406(b)(5), 438.408(b)(2) and (3),
438.408(f)(1) and (2), and 438.416(b) and (c) are subject to the PRA,
we believe the associated burden is exempt from the PRA in accordance
with 5 CFR 1320.3(b)(2). We believe that the time, effort, and
financial resources necessary to comply with the aforementioned
requirements would be incurred by persons during the normal course of
their activities and, therefore, should be considered usual and
customary business practices.
Section 438.10(c)(7) would add PAHPs and PCCMs to the managed care
entities that must have mechanisms in place to help enrollees and
potential enrollees understand the requirements and benefits of managed
care.
Section 438.208(b)(2) would require that MCOs, PIHPs and PAHPs
coordinate an enrollee's care between settings or with services
received through a different MCO, PIHP, PAHP and FFS. Section
438.208(b)(2)(i) would require discharge planning which has been a long
standing industry practice since managed care plans consistently
require authorization for all inpatient and facility care.
Section 438.208(b)(5) would require providers to maintain a record
according to medical industry accepted professional standards.
Section 438.210(b) would require contracts with MCOs, PIHPs, or
PAHPs and its subcontractors to have written policies and procedures
for the processing of requests for initial and continuing
authorizations of services. The burden associated with this requirement
is the time required to develop the policies and procedures which is
standard industry practice for managed care plans.
In Sec. 438.214, each state must ensure, through its contracts,
that each MCO, PIHP, or PAHP implements written policies and procedures
for the selection and retention of providers. Since all managed care
programs utilize provider networks, this is industry standard practice.
Section 438.360(c) would require states to document, in the
comprehensive quality strategy required at Sec. 431.502, which
mandatory EQR-related activities it will apply the non-duplication
provisions to, and why it believes these activities would be
duplicative. Given that this is already standard practice for the 37
states that currently contract with MCOs and/or PIHPs, only the three
states that contract only with PAHPs would have to revise their
policies and procedures to include this in their comprehensive quality
strategy.
Section 438.406(b)(5) would modify the language for evidence
standards for appeals to mirror the private market evidence standards.
This aligns the text with commercial requirements but does not alter
the meaning.
Section 438.408(b)(2) would change the timeframe an entity has to
reach a determination from 45 days to 30 days to align with Medicare.
Most insurers offer more than one line of business, and therefore we
believe this timeframe will allow MCOs, PIHPs, and PAHPs to be
consistent with their usual and customary business practices and reduce
their burden. Section 438.408(b)(3) would change the timeframe an
entity has to reach a determination in an expedited appeal from 3 days
to 72 hr to align with Medicare and the private market. Most insurers
offer more than one line of business, and therefore we believe this
timeframe will make Medicaid consistent with usual and customary
business practices and reduce their burden. Section 438.408(f)(1) and
(2) would require that an enrollee exhaust the appeals process before
proceeding to the state fair hearing process, and change the timeframe
in which a beneficiary must request a state fair hearing to 120 days.
MCOs, PIHPs, and PAHPs would no longer have to maintain an appeal and a
fair hearing simultaneously which will decrease administrative burdens.
The changing of the timeframe to request a state fair hearing from
``not less than 20 or in excess of 90 days'' to 120 days aligns with
the private market. Many insurers offer more than one line of business,
and therefore we believe aligning these timeframes will make Medicaid
consistent with their usual and customary business practices and reduce
their burden.
Section 438.416(b) and (c) would set forth a standard for the
minimum types of information an entity must record during the appeals
process and how that information must be stored. This standard aligns
with the standards in the private market. Most insurers offer more than
one line of business, and therefore, we believe aligning record keeping
standards will make Medicaid consistent with usual and customary
business practices.

F. Submission of PRA-Related Comments

We have submitted a copy of this proposed rule to OMB for its
review of the rule's information collection and recordkeeping
requirements. These requirements are not effective until they have been
approved by OMB.
To obtain copies of the supporting statement and any related forms
for the proposed collections discussed above, please visit CMS' Web
site at www.cms.hhs.gov/[email protected]">www.cms.hhs.gov/[email protected], or call the Reports
Clearance Office at 410-786-1326.
We invite public comments on these potential information collection
requirements. If you wish to comment, please submit your comments
electronically as specified in the ADDRESSES section of this proposed
rule.
Comments must be received on/by July 27, 2015.

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Statement of Need

This proposed rule modernizes the Medicaid managed care regulations
recognizing changes in the usage of managed care delivery systems since
the release of the final rule in 2002. As Medicaid managed care
programs have developed and matured in the intervening years, states
have taken various approaches to implementing part 438. This has
resulted in inconsistencies and, in some cases, less than optimal
results. To improve consistency and adopt policies and practices from
states that have proven the most successful, we propose revisions in
this rule to strengthen beneficiary protections, support alignment with
rules governing managed care in other public and private sector
programs, strengthen actuarial soundness and the accountability of
rates paid in the Medicaid managed care program, and implement
statutory provisions issued since 2002.
According to the 2013 Actuarial Report on the Financial Outlook for
Medicaid, total Medicaid outlays in federal FY 2012 exceeded $431
billion;

[[Page 31229]]

$250 billion, or 58 percent represented federal spending, and $181
billion, or 42 percent represented state spending.\19\ States have
continued to expand the use of managed care in the past decade, not
only to new geographic areas but to more complex populations, including
seniors, persons with disabilities, and those who need long-term
services and supports. Today, the predominant form of managed care in
Medicaid is capitated risk-based arrangements--virtually identical in
structure and payment to arrangements in the private insurance market
in many ways. Coordination and alignment with the private insurance
market will improve operational efficiencies for states and health
plans and improve the experience of care for individuals moving between
insurance coverage options. Total Medicaid managed care spending
(federal and state) exceeded $132 billion in 2013,\20\ with
expenditures rising annually as new beneficiaries and programs move
into a managed care delivery system. It is CMS' responsibility to make
sure these dollars are spent wisely, ensuring that there is adequate
funding to support the delivery of required services to beneficiaries
without wasting state and federal tax dollars. Additionally, the
prevalence of MLTSS being delivered through a risk-based capitated
system has increased significantly since the regulations were last
published. Beneficiaries using MLTSS are among the most vulnerable, and
often require enhanced protections to preserve health and welfare. This
regulation would codify these necessary beneficiary protections in
MLTSS. The changes we propose in this rule for rate setting, medical
loss ratio, encounter data, and reporting, would support and reflect
the increased efforts of states and health plans to provide more
comprehensive, coordinated, and effective care while achieving better
health outcomes.
---------------------------------------------------------------------------

\19\ http://www.medicaid.gov/medicaid-chip-program-information/by-topics/financing-and-reimbursement/downloads/medicaid-actuarial-report-2013.pdf.
\20\ CMS, Financial Management Report--Base Payments, 2013.
---------------------------------------------------------------------------

Congress established CHIP in 1997 through the passage of the
Balanced Budget Act (BBA) and reauthorized it in 2009 with the passage
of the Children's Health Insurance Program Reauthorization Act
(CHIPRA). Since CHIP was established, participation has grown steadily,
and the rate of uninsured children has been reduced by half. The most
recent data indicate that more than 87 percent of eligible children are
enrolled in CHIP or Medicaid. Managed care has always been a large part
of CHIP, because the program was established in an era of increased use
of managed care in all health care sectors and the flexibility granted
to states in administering the program. Many states enroll all or
nearly all of their CHIP population in managed care plans. At the same
time, CHIP has historically had few regulations related to the use of
managed care.
When Congress reauthorized CHIP in 2009 in section 403 of CHIPRA,
it applied a number of the Medicaid managed care provisions in section
1932 of the Act to CHIP. In response, we released two State Health
Official (SHO) letters 09-008 and 09-013, issued on August 31, 2009 and
October 21, 2009, respectively, which provided initial guidance on the
implementation of section 403 of CHIPRA. (SHO #09-008 is available at
http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO083109a.pdf. SHO #09-013 is available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO102109.pdf.) This proposed rule
builds on that guidance. It would align CHIP managed care standards
with those of the Marketplace and Medicaid, where practical, ensuring
consistency across programs. Consistency has the benefit of creating
efficiencies for both plans and beneficiaries, including operational
efficiencies for plans from using similar rules and smoother
transitions between programs for beneficiaries.
The BBA established quality standards for Medicaid managed care
programs: A quality assessment and improvement strategy, and an
external, independent review. While these standards initially applied
only to MCOs, the application of several of them has spread to PIHPs
(via the regulations at part 438, subparts D (Quality Assessment and
Performance Improvement, effective on August 13, 2002 (67 FR 40989))
and E (External Quality Review, effective on March 25, 2003 (68 FR
3586)) and to CHIP managed care programs (per the CHIPRA). States that
use a combination of managed care and other delivery systems are
encouraged to use their quality strategies to develop a comprehensive
quality plan across all delivery systems (as described in State Health
Official letter entitled Quality Considerations in Medicaid and CHIP
(SHO #13-007, available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/SHO-13-007.pdf)). Changes, in both MA and the
private sector, related to performance measurement, quality rating
systems, and private accreditation help to improve the health of
beneficiaries while also controlling health care costs. Statewide
comprehensive quality strategies, along with improvements to Medicaid
and CHIP managed care quality, will give states additional tools to
evaluate and improve the care received by beneficiaries.
For all of these reasons, the current regulatory framework is no
longer the most appropriate or efficient to achieve program goals. We
believe that it is necessary to modernize the Medicaid and CHIP managed
care and quality regulations to support health care delivery system
reform, improve population health outcomes, and improve the beneficiary
experience in a cost effective and consistent manner in all states.

B. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4),
Executive Order 13132 on Federalism (August 4, 1999) and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) Having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or

[[Page 31230]]

the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). We estimate that this rule is ``economically significant'' as
measured by the $100 million threshold, and hence also a major rule
under the Congressional Review Act. Accordingly, we have prepared a RIA
that to the best of our ability presents the costs and benefits of this
rule. The numbers presented in this RIA are rounded depending on the
level of precision in the data used to generate them. Specifically, all
COI costs are rounded to $0.1 million while transfers are rounded to
the nearest $100 million. This difference also allows us to display the
smaller numbers in the COI costs, which would reflect zero if rounded
to the nearest $100 million.
Tables 3 and 4 show the overall estimates of the financial impact
of this proposed rule in comparison to the status quo under the current
regulatory framework. These tables and analyses use administrative
burden estimates from the Paperwork Reduction Act documentation as well
as any other quantifiable and qualitative benefits and costs when
available. Table 3 divides the overall cost estimates into federal
costs, state costs, and private sector costs with high and low
estimates as appropriate. Table 4 divides the overall transfer
estimates into federal and state transfers with high and low estimates
as appropriate. Utilizing burden estimates from section IV of this
proposed rule (COI) and estimated transfers, federal, state, and
private sector costs and transfers were derived by applying the
appropriate FMAP and the corresponding burdens in section IV of this
proposed rule. For the revisions in part 438, we applied a weighted
FMAP of 58.44 percent (weighted for enrollment) to estimate the federal
share of private sector costs. This was done to account for private
sector costs that are passed to the federal government through the
managed care capitation rates. For part 457, we applied an enhanced
FMAP of 93.9 for 2016 through 2019 and an enhanced FMAP of 71.5 for
2020 for both state and private sector costs. These represent the
average CHIP FMAP in the respective years under current law. Federal
CHIP funding is capped and is currently appropriated through 2017;
therefore federal CHIP expenditures will not exceed the total
allotments described in section 2104(a) of the Act.
Table 3 separates the overall costs by part 431, which represents
comprehensive quality strategies; part 438, which represents Medicaid
managed care; and part 457, which represents CHIP. As shown in Table 3,
the total cost associated with this proposed rule is a cumulative $0.1
million in the first year for the revisions to part 431, a cumulative
$86 million in the first year for revisions to part 438, and a
cumulative $25.6 million in the first year for revisions to part 457,
for a total cost of a cumulative $111.7 million for all revisions in
the first year. Table 4 represents the overall transfer estimates for
part 438 only, as parts 431 and 457 have no estimated transfers. As
shown in Table 4, the total estimated transfers associated with this
proposed rule range from a potential -$1 billion to a potential $300
million in the first year.
The COI costs estimated for some of the provisions are based on the
number of enrollees. As such, as enrollment grows each year, the cost
for these provisions will grow accordingly. For this analysis, we used
the projected average enrollment growth rate for Medicaid of 3.3
percent \21\ for Medicaid managed care enrollment to trend cost
burdens. Recognizing the success that states have had enrolling
eligible children in CHIP (more than 87 percent of eligible children
enrolled in CHIP or Medicaid \22\) and the current prevalence of
managed care in the program, we used a 3 percent growth rate for CHIP
managed care enrollment. The burdens estimated for the quality
components (proposed amendments to part 431 and part 438 subpart E) are
not associated with enrollment, and therefore do not display any
variable costs.
---------------------------------------------------------------------------

\21\ http://www.medicaid.gov/medicaid-chip-program-information/by-topics/financing-and-reimbursement/downloads/medicaid-actuarial-report-2013.pdf.
\22\ Genevieve M. Kenney, Nathaniel Anderson, Victoria Lynch.
Medicaid/CHIP Participation Rates Among Children: An Update.
September 2013. Available at http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412901-Medicaid-CHIP-Participation-Rates-Among-Children-An-Update.pdf.
---------------------------------------------------------------------------

This RIA includes the administrative costs (wage and labor) related
to implementing and operating a Medicaid managed care delivery system
as well as non-administrative benefit and cost estimates when
available. The burden estimates presented in section IV of this
proposed rule provide the detail supporting the summary COI burden
estimates presented in this RIA. As part of the costs considered
outside of the COI, we included information technology and information
systems costs, such as small system modifications or upgrades. However,
we believe these costs are minimal and consistent with the nature of
business in contracting and providing services to Medicaid and CHIP
managed care enrollees. We also believe that many of these costs would
fall under routine IT maintenance and upgrades. Therefore, we believe
that these costs would have a negligible impact consistent with normal
business practices.
BILLING CODE 4120-01-P

[[Page 31231]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.029

[[Page 31232]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.030

All state Medicaid programs receive a federal matching rate of at
least 50 percent for administrative expenses and 50 to 73 percent
(determined individually by state) for covered service expenses, with
exceptions for

[[Page 31233]]

certain services and eligibility groups. State CHIP programs receive a
higher federal funding rate, ranging from 88 to 100 percent for 2016
through 2019 and ranging from 65 to 82 percent for 2020; states receive
the same federal funding rate for administrative expenses, but they are
capped at 10 percent of a state's total CHIP expenditures. The Medicaid
managed care plans are paid actuarially sound capitation rates to cover
the costs of fulfilling their obligations under their contract. These
rates are included in the expenditures by the state and subsequently
submitted to CMS for federal matching payments at the state's assigned
rate. This is reflected in Table 3 in the ``Private Sector'' row. State
expenditures for external quality review (EQR) and EQR-related
activities performed by EQROs for MCOs with contracts under section
1903(m) of the Act are eligible for a federal matching rate of 75
percent; EQR on other types of managed care entities or EQR-related
activities conducted by non-EQROs are eligible for a 50 percent federal
matching rate. CHIP EQR activities are considered administrative
activities, which receive the CHIP federal funding rate, and count
towards the administrative cap.
Table 5 shows the estimate of the impact for the COI costs of this
proposed rule, divided into fixed and variable costs. Fixed costs are
those which do not change with the number of enrollees while variable
costs change with the number of enrollees.
[GRAPHIC] [TIFF OMITTED] TP01JN15.031

1. Cost Estimates by Guiding Principles
The principles discussed below guided the policy development and
changes proposed in this rule. These guiding principles and proposed
regulatory changes support the coordination and integration of health
care, promote effective forms of information sharing, and require
transparency on cost and quality information to support greater overall
accountability in the Medicaid and CHIP programs. Detailed COI burden
estimates can be found in section IV of this proposed rule. This
section details

[[Page 31234]]

the significant COI costs and transfers related to benefits and costs
associated with this proposed rule.
2. Setting Actuarially Sound Rates and Other Payment and Accountability
Improvements
This guiding principle seeks to provide more data, analytical
rigor, documentation, and transparency in the managed care rate-setting
process and includes setting actuarially sound capitation rates and
program integrity. The estimated first-year COI costs associated with
the provisions under this guiding principle account for a cumulative $1
million of the total estimated first-year burden for the revisions to
part 438 and part 457 (detailed burden estimates can be found in the
COI section of this proposed rule at sections IV.D.4 and IV.D.5 for
rates and IV.D.36 and IV.D.37 for program integrity).
The rule also proposes new requirements related to setting
actuarially sound capitation rates in sections Sec. 438.4 through
Sec. 438.7. Many of these requirements would codify current policy on
developing capitation rates for Medicaid managed care plans. Other
requirements set standards for actuaries developing the capitation
rates, specify requirements for data and information that must be
included in the actuarial certification of the rates, or describe the
CMS process for reviewing and approving the rates. As such, we believe
that many of these provisions are unlikely to have a direct effect on
the actual capitation rates or future Medicaid expenditures. To the
extent that these new standards or requirements do have an effect on
capitation rates or Medicaid expenditures, we believe this could lead
to increases in some cases and decreases in other cases in the
capitation payment rates and Medicaid expenditures.
In particular, we believe that the combination of the new proposed
requirements related to actuarial soundness and the proposed change to
no longer allow states to certify rate ranges and to require states to
certify specific capitation rates may have some financial impact.
Currently, 40 states and the District of Columbia have at least one
managed care program as part of their Medicaid program. Of these, 26
states and the District of Columbia currently certify rate ranges
instead of rates for at least one managed care program in the state
(Arkansas; California; Colorado; Delaware; District of Columbia;
Georgia; Idaho; Indiana; Iowa; Kansas; Kentucky; Louisiana; Maryland;
Massachusetts; Minnesota; Missouri; Nebraska; New Mexico; New York;
North Carolina; North Dakota; Oregon; Pennsylvania; Tennessee; Utah;
Virginia; and West Virginia). The certified rate ranges in many cases
can be large. Based on our review of the most recent actuarial
certifications in states that use rate ranges, the width of the rate
range is 10 percent or smaller in 14 states (that is, the low end and
the high end of the range are within 5 percent of the midpoint of the
range), but in some states the ranges may be as wide as 30 percent
(that is, the low end and the high end are within 15 percent of the
midpoint of the range). In addition, most states tend to set the
contracted capitation payment rates toward the lower end of the rate
range.
For states that currently use relatively narrower rate ranges
(which we would generally define as 10 percent or less), we believe
that the states would be able to meet the proposed requirements and
reasonably set rates that would be equivalent to those at the low end
of the rate ranges (if the states were still able to certify a rate
range). For states with relatively wider rate ranges (those that are
greater than 10 percent), we believe that the states may not be able to
set rates equivalent to the current low end of the rate range. In
general, our opinion is that in cases where the rates would be more
than 5 percent below the midpoint of the rate ranges it would be more
difficult for a state to certify that rate as actuarially sound (and at
the same time meet all of the other actuarial soundness requirements).
To estimate the high end of the range of the potential financial
impact, we assumed that in states that had rate ranges wider than 10
percent and set rates at the low end of the rate range, that future
Medicaid MCO, PIHP, and PAHP premiums would increase 2.5 percent (that
is, roughly the average across all states of how much the low end of
the rate range would need to increase to bring the width of the rate
range to about 10 percent). We also included states for which the rate
certification provided no information about the actual contracted
capitation payment rates. For states with wide rate ranges but that
paid rates at different points within the rate ranges, we assumed that
the rates would increase by 1.25 percent (that is, half of the increase
in rates for states that paid at the low end of the rate range). We
assumed no impact on states with relatively narrower rate ranges (10
percent or less).
These changes increased projected Medicaid managed care
expenditures by $3.6 billion from 2016 to 2020, or about 0.4 percent
overall of about $1.3 trillion in projected Medicaid expenditures on
MCOs, PIHPs, and PAHPs over the 5-year period. These estimates would be
an increase of about 1.5 percent in costs in states assumed to be
affected by this change. We believe that these estimates are a
reasonable upper bound on the projected effect of these proposed
changes.
In addition, we believe that there may be cases where these changes
would reduce capitation rates and Medicaid expenditures. In particular,
there are some states that make significant retroactive changes to the
contracted rates at or after the end of the rating period. We do not
believe that these changes are made to reflect changes in the
underlying assumptions used to develop the rates (for example, the
utilization of services, the prices of services, or the health status
of the enrollee), but are used to provide additional reimbursements to
the plans or to some providers. We believe that the proposed
requirements for actuarial soundness and certifying the capitation
rates would limit these types of changes and may result in some
reduction in Medicaid expenditures.
To estimate the high end of the range of the potential financial
impact, we assumed that in states that we are aware of that make these
types of changes to the capitation rates, that an amount equal to 50
percent of the difference between paying MCOs, PIHPs, and PAHPs at the
low end and the high end of the rate ranges would not be paid to the
plans. These changes decreased projected Medicaid managed care
expenditures by $11.0 billion from 2016 to 2020, or about 0.9 percent
of about $1.3 trillion in projected expenditures on MCOs, PIHPs, and
PAHPs over those 5 years. We believe that these estimates are a
reasonable upper bound on the projected effect of these proposed
changes.
Thus, we believe that the effects of these changes to Medicaid
managed care actuarial soundness requirements and the requirement to
certify the capitation rates could increase expenditures as much as
$3.6 billion from 2016 to 2020 and could decrease expenditures as much
as $11.0 billion from 2016 to 2020. We believe that these estimates
reflect reasonable upper and lower bounds on the potential effect of
these changes in the proposed regulation. Assuming that these changes
in the regulation are effective mid-way through 2016, we estimate that
the proposed changes related to actuarial soundness requirements and
certifying the capitation rates would have the following effects as
shown in Table 6.

[[Page 31235]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.032

It is possible that the impacts could be more or less than
estimated here. More or fewer states may need to adjust capitation
rates than we have assumed here. In particular, it is possible that
states with relatively narrower ranges may decide that the capitation
rates would still need to be higher than what would have been the low
end of the rate range previously. We believe that states that use rate
ranges as wide as 10 percent may still be affected by these changes. In
addition, states may adjust their capitation rates to a greater or less
extent than we have assumed here. These changes may also affect states
that do not use rate ranges. While we believe that the proposed changes
related to rate setting may be more likely to affect states that
currently use relatively wide rate ranges, it is also possible that
this may affect other states, including those that do not use rate
ranges at all.
In addition, for states that historically have made significant
changes to capitation rates within the rate ranges at the end or after
the end of the rating period, those states may adjust their rate
setting approaches as well. The payments might be closer to or farther
from the final payments than we have estimated. Finally, these
projections rely on the data, assumptions, and methodology used to
develop the President's FY 2016 Budget projections for Medicaid.
Changes in enrollment, health care costs, and the use of managed care
plans within Medicaid may differ from these projections and may lead to
greater or lesser Medicaid MCO, PIHP, and PAHP expenditures.
3. Program Integrity
Another aspect of this rule that we evaluated under this principle
was enhancements to program integrity. We believe that many of these
program integrity activities are currently already being performed by
states and MCOs, PIHPs, and PAHPs. For program integrity activities
that would be new or expanded under the proposed changes, there is very
limited information on the effect that program integrity activities in
general have on Medicaid expenditures. The lack of information is
especially true for specific program integrity activities. While we
believe these new activities may lead to some additional recoveries
from plans, providers, or other individuals and may also deter entities
from committing fraud or violating program requirements, it is
difficult to determine the financial impacts of these activities and we
believe that any financial impact is unknown. Therefore, we assume that
the proposed changes are likely to have a negligible financial impact
on future Medicaid expenditures. We invite comment on possible ways to
quantify the costs and/or benefits associated with these proposed
provisions.
4. Alignment With Other Insurers.
This guiding principle seeks to align Medicaid and CHIP managed
care requirements with the Marketplace or MA to better streamline the
beneficiary experience and to reduce operational burdens on health
plans across publicly-funded programs and the commercial market. This
guiding principle covers the regulatory topics of marketing, appeals
and grievances, medical loss ratio, and standard contract provisions.
As shown in Table 7, the COI costs associated with the provisions under
this principle account for a cumulative $6 million in the first year
for the revisions to part 438.

[[Page 31236]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.033

Similarly, as shown in Table 8, the COI costs associated with
implementing the provisions under this principle account for a
cumulative $11.6 million in the first year for the revisions to part
457.

[[Page 31237]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.034

5. Medical Loss Ratio
As an increasing and more diverse set of Medicaid services are
being delivered through managed care, good measurement systems are
increasingly important to ensure that Medicaid funding is used
prudently and that capitation rates are sufficiently based on the
expenses associated with services. The implementation of a MLR is an
integral part of the overall financial accountability aspects of the
proposal and would align Medicaid and CHIP with the private health
insurance market, as well as with MA. MLR reporting is a valuable tool
to ensure that capitation rates for MCOs, PIHPs, and PAHPs are
actuarially sound and adequately based on reasonable expenditures for
covered services. Acknowledging that basis for proposing an MLR
requirement, there are four benefits to having a common national
standard for the calculation, reporting and use of MLR as we have
proposed: (1) It will provide greater transparency for the use of
Medicaid funding; (2) it will allow comparability across states and
facilitate better rate setting; (3) it will facilitate better
comparisons to MLRs in MA and the private health market; and (4) it
will reduce the administrative burden on health plans by providing a
consistent approach to ensuring financial accountability for managed
care plans working in multiple product lines and/or operating in
multiple states. The proposed provisions in Sec. Sec. 438.4, 438.5,
438.8, 457.1203 and 457.1205 require MCOs, PIHPs, and PAHPs to
calculate, report, and use a MLR in the development of capitation
rates. The estimated first-year COI cost for the proposed provisions in
part 438 is a cumulative $4.5 million (detailed burden estimates can be
found in the COI section of this proposed rule at section IV.D.6 for
MLR). The total estimated first-year COI cost associated with
implementing the proposed MLR provisions of part 457 is a cumulative
$0.5 million.
This rule proposes new requirements that would require the states
to calculate and report the medical loss ratios (MLRs) for Medicaid
MCOs, PIHPs, and PAHPs in Sec. 438.4 and Sec. 438.5, and to add new
Sec. 438.8 and Sec. 438.74, as well as incorporate an MLR assumption
in the rate setting process. These changes, however, do not require
that states assess any financial penalties on MCOs, PIHPs, and PAHPs
that do not meet a minimum MLR. We will encourage states to adopt
minimum MLRs or to develop similar financial arrangements to
incentivize better plan performance; however, as states are already
permitted to implement a minimum MLR or similar standards and some
choose not to do so, we believe that this rule is unlikely to encourage
more states to do so and therefore is unlikely to have any direct
financial impact on Medicaid expenditures for MCOs, PIHPs, and PAHPs;
however, we believe that there is the potential for some financial
impacts when considering the proposed MLR requirements and the
actuarial soundness standards requirements.
We do not collect data or information on the MLRs of Medicaid MCOs,
PIHPs, and PAHPs, nor do we collect the data or information necessary
to calculate the

[[Page 31238]]

loss ratios. Milliman has published a series of annual research papers
that review Medicaid MCO performance, including data on MLRs. We have
reviewed the most recent research papers covering 2011, 2012, and 2013
for our review of the potential impacts of the proposed regulation
related to MLRs (``Medicaid Risk-Based Managed Care: Analysis of
Financial Results for 2011,'' Palmer and Pettit, July 2012; ``Medicaid
Risk-Based Managed Care: Analysis of Financial Results for 2012,''
Palmer and Pettit, June 2013; and ``Medicaid Risk-Based Managed Care:
Analysis of Financial Results for 2013,'' Palmer and Pettit, June
2014). These studies provide an analysis of Medicaid managed care
plans, including loss ratios, covering 35 states and territories,
including the District of Columbia and Puerto Rico, and up to 167
managed care plans.
From 2011 to 2013, the mean MLR varied between 85.5 percent and
87.9 percent, with an average of 87.0 percent over the 3-year period
(weighted by the number of plans reporting each year). A significant
percentage of plans experienced loss ratios below the 85-percent target
noted in this proposed rule. In each year, 10 percent of plans
experienced loss ratios below 78.0 percent to 79.4 percent, and 25
percent of plans experienced loss ratios below 82.6 percent to 83.6
percent. Thus, we would expect a substantial number of plans would
likely not meet a minimum loss ratio of 85 percent each year.
We fit a normal distribution to the MLRs based on the average loss
ratios at each percentile shown in the Milliman reports (10th, 25th,
50th, 75th, and 90th) for 2011, 2012, and 2013. This suggested that
between 37 percent and 39 percent of plans would have loss ratios equal
to or less than 85 percent over this period. Assuming that the
distribution of loss ratios is not affected by the size of the MCO or
the MCO's total revenue (in general, the Milliman reports did not
suggest any apparent correlation), we calculate that if all states
enforced a minimum MLR of 85 percent and if MCOs with smaller loss
ratios had to return revenue such that the effective loss ratio would
be equal to 85 percent, that MCOs on average would return 1.5 percent
to 1.9 percent of total revenue. (This does not account for any impact
of the credibility adjustment proposed in the regulation.) To the
extent that smaller MCOs, PIHPs, and PAHPs would receive a credibility
adjustment and thus effectively lower the minimum MLR standard for
those plans, the percentage of total revenue returned may be less than
estimated.
In 2013, the sum of MCO, PIHP, and PAHP payments was $132 billion
(CMS, Financial Management Report--Base Payments); \23\ therefore, we
estimate that if a minimum MLR had been enforced for each MCO, PIHP or
PAHP in all states in 2013, that between $2.0 billion and $2.5 billion
would have been returned by MCOs, PIHPs, and PAHPs to the federal
government and the states in that year.
---------------------------------------------------------------------------

\23\ CMS, Financial Management Report--Base Payments, 2013.
---------------------------------------------------------------------------

As of 2013, we found, based on an internal review, 12 states that
had requirements about a minimum MLR; of those, 6 enforced financial
penalties for MCOs or other plans that did not have loss ratios at
least equal to the minimum MLR. Those 6 states accounted for about 11
percent of Medicaid MCO, PIHP, and PAHP expenditures in 2013.
Relatedly, a study by the Kaiser Family Foundation found that as of
2010 there were 11 states that had a minimum MLR requirement for
Medicaid MCOs, PIHPs, or PAHPs (``A Profile of Medicaid Managed Care
Programs in 2010: Findings from a 50-State Survey,'' Gifford, Smith,
Snipes, and Paradise, September 2011).
There is significant variation in the standards currently in place,
as states may have different methods of calculating the MLRs (for
example, whether or not they include certain costs as medical expenses
or losses, and whether or not they make certain adjustments to plans'
revenues) and have different minimum MLRs (although all such minimums
fell between 80 percent and 88 percent). In addition, many states that
implemented the eligibility expansion under the Affordable Care Act to
all adults up to age 65 with household incomes of 138 percent or less
included a minimum MLR requirement or a similar risk-sharing
arrangement in its contracts with MCOs, PIHPs, and PAHPs for 2014.
These currently existing requirements and standards may have some
effect on the potential impact of the proposed changes.
For the purpose of illustrating the potential impact of these
changes in the regulation, we have developed estimates assuming that
all states would require a minimum MLR. If all states implemented the
85 percent minimum MLR requirement that is required to be calculated in
the proposed regulation, we estimate that the federal government would
collect about $7 billion to $9 billion between 2018 and 2020 and the
states would collect about $4 billion to $5 billion over the 3-year
period (although we note (1) the loss ratio in Medicaid would not be
measured over 3 years like the MLR for QHPs; and (2) the first year an
MCO, PIHP, or PAHP would have to refund Medicaid would be 2018). This
calculation also accounts for states that already have a minimum loss
ratio requirement in place. This amount would account for about 1.3
percent to 1.7 percent of projected MCO, PIHP, and PAHP expenditures.
We assume that this rule would not lead more states to implement an
enforceable, minimum MLR; we therefore conclude that there would be no
direct financial impact of the MLR provisions of the proposed rule.
Considering the proposed MLR requirements and the proposed changes
to the requirements for actuarial soundness in Sec. 438 (a)(7) that
requires rates to be developed in such a way that the MCO, PIHP, or
PAHP would reasonably achieve an MLR of at least 85 percent for the
rate year, we believe it is possible that collecting and reporting MLRs
for each MCO, PIHP, or PAHP and additional oversight of the rate
setting process may lead states to make adjustments to setting
capitation rates in the future. For example, if this additional
information led a state to realize that the loss ratios for the MCOs,
PIHPs, or PAHPs were consistently higher than or lower than expected,
the state may adjust future rates lower or higher. We believe that
there may be cases that lead to rate increases and other cases that
lead to rate decreases relative to what the rates otherwise would have
been.
Because the minimum MLR would not be enforced with a penalty under
this proposed rule, the financial impacts would likely be significantly
less than the estimates provided earlier. We believe that it is likely
that any encouragement or oversight by CMS that would lead states to
adjust rates would be less effective than implementing financial
requirements on MCOs, PIHPs, and PAHPs that do not meet the minimum
MLR. In addition, we believe that in many states there may only be one
plan or a few plans which would not meet the minimum MLR in a given
year (or conversely, one plan or a few plans which would have unusually
high MLRs). In those cases, relatively low or high MLRs may be due in
large part to the plans' own ability to manage costs (including their
ability to manage utilization and costs), and not necessarily the
result of the capitation rates being set too high or too low overall.
Furthermore, some plans may only have MLRs below the minimum in a
single year instead of more regularly; in those cases, while there
would be a financial recovery if the minimum MLR

[[Page 31239]]

was required, it is less likely that there would be longer-term changes
to the capitation rates as a result of that one year's experience.
Using a similar methodology as described previously to estimate the
potential impact if all states were to require a minimum MLR of 85
percent, we have estimated what the effects of reporting the MLR and
the other actuarial soundness requirements would be on Medicaid
payments for MCOs, PIHPs, and PAHPs. Instead of calculating the amount
of payments that would be returned if a minimum MLR of 85 percent was
required, we have measured the amount of payments that would be
returned for plans with MLRs below 82 percent, and assumed that the
indirect effects of these proposed changes would be equal to 50 percent
of that amount. We have assumed for plans with MLRs somewhat below 85
percent (which we defined here to be between 82 and 85 percent) that
the states may not need to make significant adjustments to rate
setting. For plans with MLRs further below 85 percent (82 percent or
less), we assumed that these proposed changes would likely lead to
decreases in future rates and payments below what would have otherwise
occurred; however, we also assumed that the rates and payments would
still have been adjusted by the states, as they would have a financial
incentive not to significantly overpay the managed care plans. The
percentage of all MCO, PIHP, and PAHP payments that would be paid from
the plans to the federal government and the states for plans under
these assumptions is estimated to be between 0.35 and 0.5 percent.
Similarly, we calculated the amount of additional payments that
would need to be made for plans with high MLRs, which we assumed to be
95 percent or greater. In these cases, we believe that the plans may
have a higher likelihood of experiencing a loss. The Milliman reports
found that between 2011 and 2013 that 25 percent of all plans had MLRs
above 90.0 to 91.9 percent, and that 10 percent of plans had MLRs above
96.6 to 97.3 percent. We believe that in the cases that the states may
adjust future capitation rates and payments to be higher than they
otherwise would have been, and assumed that these adjustments would
equal 50 percent of the difference between a MLR of 95 percent and the
actual MLR. We estimated that the percentage of all MCO, PIHP, and PAHP
payments would be increased between 0.1 and 0.2 percent due to these
changes.
The net effect of these changes is estimated to be a decrease in
MCO, PIHP, and PAHP payments of about 0.2 to 0.3 percent. Between 2018
and 2020, a 0.3-percent decrease in MCO, PIHP, and PAHP expenditures is
projected to be a reduction of $1.6 billion in federal expenditures and
of $0.9 billion in state expenditures. We believe that this is a
reasonable lower bound of the effect of these proposed changes. We
believe that a reasonable upper bound of these estimates would be $0,
assuming that the changes led to no financial impact. These estimates
are shown in Table 9 below.
[GRAPHIC] [TIFF OMITTED] TP01JN15.035

There is a significant amount of uncertainty in these estimates
beyond whether or not states would elect to implement an enforceable
minimum MLR requirement. We have not accounted for the impact of the
credibility adjustment. States and plans may also adjust their behavior
as a result of the minimum MLR requirements; for example, states may
set capitation payment rates differently to target certain loss ratios,
and plans may make changes to how they manage health care costs and
utilization for their enrollees. These changes may lead to differences
in future expenditures for MCO, PIHP, and PAHP expenditures,

[[Page 31240]]

and thus the actual experience may differ from our estimates.
In addition, it is not clear that the reports we relied on measure
MLR the same way as is proposed in the regulation. To the extent that
there are differences, the actual range and distribution of MLRs among
MCOs, PIHPs, and PAHPs that would be measured under the proposed
regulation may be different than as shown in the studies (for example,
if there are expenditures that would be considered medical losses under
the proposed regulation but were not considered medical losses in the
Milliman studies). This could lead to the actual effects of the MLR and
actuarial soundness requirements being different than estimated here.
In addition, it is possible that the effects of the proposed actuarial
soundness and certification requirements may capture some of the same
effects as estimated here; however, we have not made any adjustments to
reflect any potential interaction between the two sets of changes.
Moreover, the extent of and the effectiveness of CMS' and states'
efforts to adjust future capitation rates to target certain MLRs are
difficult to predict. How CMS and the states respond to these changes
would likely have a large bearing on the effect that these sections of
the proposed regulation have on future Medicaid expenditures. Finally,
these projections rely on the data, assumptions, and methodology used
to develop the President's FY 2016 Budget projections for Medicaid.
Changes in enrollment, health care costs, and the use of managed care
plans within Medicaid may differ from these projections and may lead to
greater or lesser Medicaid MCO, PIHP, and PAHP expenditures.
6. Appeals and Grievances
Proposed changes to the appeals and grievances provisions in
Sec. Sec. 438.400 through 438.416 and Sec. 457.1260 focus on creating
state and health plan processes that are consistent across product
lines (that is, MA, Medicaid, CHIP, and qualified health plans).
Medicaid currently differs from MA and the qualified health plans in
several key ways and these differences hinder a streamlined grievance
and appeals process across the public and commercial managed care
sectors, and creates unnecessary administrative complexity for health
issuers participating across product lines. Our proposed revisions will
allow enrollees to better understand the grievance processes and
receive a resolution of their grievances and appeals more quickly. We
believe this will be a tremendous benefit to families that have some
family members eligible for Medicaid and other family members eligible
for marketplace coverage; enrollees that change between Medicaid and
the qualified health plans due to life changes that affect eligibility;
and enrollees that are dually eligible for Medicaid and Medicare. We
believe consistency and quicker resolution of issues will not only make
the enrollee more comfortable using the grievance system, but also
confident that there is benefit in utilizing these systems when needed.
Health plans have indicated that alignment of these provisions would
reduce operational burden for those that operate across product lines
and in different states as it would enable them to create and implement
one set of uniform processes and procedures. A significant portion of
the burden associated with this principle is the result of the proposal
that Medicaid non-NEMT PAHPs comply with the same standards as MCOs and
PIHPs. This proposed change will require non-NEMT PAHPs to develop a
compliant grievance system, which will generate some one-time burdens,
but we believe it is important for enrollees to have an avenue within
these entities to raise and receive resolution to their grievances and
appeals. The total estimated first-year COI costs for requiring
Medicaid non-NEMT PAHPs to meet the same standards as MCOs and PIHPs
and provide due process to beneficiaries through provisions in part 438
is a cumulative $1.5 million (detailed burden estimates can be found in
the COI section of this proposed rule at sections IV.D.31 through
IV.D.35 for appeals and grievances). We are also proposing to apply
most of the Medicaid grievance regulations to CHIP MCOs, PIHPs, and
PAHPs. The total estimated first-year COI costs associated with
implementing the proposed grievance provisions of part 457 under this
principle is a cumulative $11.1 million.
7. Allowing Payment for Institution of Mental Disease for Inpatient
Psychiatric Services as an In Lieu of Service
The proposed regulation would allow MCOs and PIHPs, to pay
institutions of mental disease (IMDs) using funds received from
Medicaid to provide services to their beneficiaries as an in lieu of
service, and sets requirements about how to consider the utilization
and costs of covered services rendered in an IMD in developing the
capitation rates. At this time, we do not have sufficient data to
develop an estimate of the impact of these changes in the proposed
regulation.
We do not know how many states currently allow plans to use IMDs to
provide inpatient psychiatric services as an in lieu of service, nor do
we collect data on the utilization and cost of such arrangements paid
by Medicaid MCOs and PIHPs. We are aware that some states allow MCOs or
PIHPs to use an IMD as a substitute provider for covered services.
However, we do not know how many states currently permit this practice.
The information cannot be determined from the contracts between the
states and MCOs or PIHPs. States cannot require a managed care plan to
use in lieu of services, and consequently, contracts do not include
specific provisions for these services through an IMD. Likewise, we do
not collect data on the utilization and cost of IMD services paid by
MCOs or PIHPs.
There are two key potential financial impacts related to these
changes. First, to the extent that inpatient psychiatric services
rendered in an IMD are more cost-effective than the inpatient acute
hospital setting, there is the potential for some reduction in
expenditures; however, as the proposed regulation allows states to
cover inpatient services in an IMD, while the preamble explains that
prices for covered inpatient services rendered in an IMD cannot be used
to determine the capitation rates, we believe that any reduction in
expenditures for the federal government and the states is likely to be
negligible. Second, these changes may encourage more states to cover
mental health and substance abuse in IMDs as in lieu of services within
the managed care plans. Because federal Medicaid payments are otherwise
not permitted for persons in IMDs, allowing IMDs as a substitute
setting for covered services may lead to an increase in federal
Medicaid expenditures; as federal Medicaid outlays are not permitted
for adults in IMDs, this change may lead to more costs eligible for
federal matching funds that would have otherwise been deferred. It is
not clear how much this proposed provision would incentivize states to
allow plans to provide services in IMDs as in lieu of services.
Similarly, it is unknown the extent to which this provision would lead
states to move mental health and substance abuse services from the FFS
program to managed care, although we do not believe that this provision
would be the primary impetus for states to make a change from FFS to
managed care. Given the lack of data and program information, it is not
possible to develop credible estimates of the impacts of either of
these effects or to determine if

[[Page 31241]]

a net increase or a net decrease in expenditures is more likely.
8. Beneficiary Protections
This guiding principle seeks to protect beneficiaries from harm and
includes enrollment and disenrollment; beneficiary support system;
continuation of benefits pending appeal; authorization of services;
continued services and coordination of care; managed long-term services
and supports; and stakeholder engagement. As the use of managed care to
deliver Medicaid benefits has grown, so has the inclusion of more
vulnerable populations into managed care. These new populations include
persons with disabilities, individuals with behavioral health needs,
and beneficiaries needing long-term services and supports. The unique
needs and vulnerability of these newer populations heightens the need
for added beneficiary protections and thus, prompted the proposed
revisions to the regulations. As shown in Table 10, the COI costs
associated with the provisions under this principle account for a
cumulative $50.2 million in the first year for the revisions to part
438 (detailed burden estimates can be found in the COI section of this
proposed rule at sections IV.D.10 and IV.D.17 for coordination/
continuity of care and IV.D.18 for authorization of services).
[GRAPHIC] [TIFF OMITTED] TP01JN15.036

Similarly, as shown in Table 11, the COI costs associated with
implementing the provisions under this principle account for a
cumulative $12.1 million in the first year for the revisions to part
457.

[[Page 31242]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.037

BILLING CODE 4120-01-C
9. Coordination and Continuity of Care
The provisions for coordination and continuity of care are in Sec.
438.62 and Sec. 438.208. Under current regulations, these sections
focus only on primary and acute medical care, which is not appropriate
or consistent with the needs of people with disabilities, frail elders,
and other LTSS populations. These populations rely heavily on less
traditional services, such as support services for work, community
activity access, and assistance with activities of daily living. For
example, people with dementia may prefer and be able to live in the
community with personal care assistance, memory aids, and alerting
systems, but may not be able to identify and notify a care coordinator
in situations of neglect or abuse. A young adult with an intellectual
disability may be able to work with supports in place, but be at risk
of harm if transportation falls through or a support worker does not
show up for a scheduled time. These populations often require
heightened

[[Page 31243]]

levels of monitoring and oversight by the care coordinator to ensure
that they are able to fully access the services and supports needed to
thrive in the community and to be sure that risks of harm or abuse are
mitigated. Additionally, many of the providers for LTSS are small
businesses and unaccustomed to working with managed care plans and care
coordinators can be the bridge to establishing and building a
productive relationship with these providers to best meet enrollees'
needs.
The proposed regulations would address these enhanced care
coordination needs by proposing provisions to strengthen the role of
care coordinators who help beneficiaries transition from providers and
services available through their current delivery system to providers
and services available through a managed care plan. Care coordinators
can help enrollees with finding specialty providers, understanding how
the managed care program works, setting appointments, verifying
delivery of services, and reminding enrollees of their appointments.
The proposed regulations would also be strengthened to ensure that
individuals with LTSS needs complete an accurate and timely person-
centered assessment and service planning process with more frequent
monitoring to assist beneficiaries in fully utilizing services. The
proposed changes to these provisions are designed to enable people with
disabilities and LTSS enrollees to live, work, and participate in the
setting of their choice more safely, effectively, and with fewer lapses
in care. Additionally, we propose to enhance existing requirements for
coordination and continuity of care when enrollees move between plans
or programs. While this has always been a requirement in part 438, we
are aware of gaps in some states' and health plans' implementation for
the LTSS population.
Behavioral health, substance use disorders, and institutional
services are the most common services that managed care enrollees
receive through FFS; coordinating these services with the managed care
services is crucial to comprehensive care management. Enrollees
receiving behavioral health or substance use treatment on a frequent,
sometimes daily, basis are at high risk for emergency department visits
or setbacks to their recovery if they experience a disruption in their
services. The added protections provided by the proposed changes would
ensure that enrollees, particularly those with complex health needs,
experience smoother transitions, have fewer incidents of abuse or
neglect, are able to retain the ability to live in their communities
and have fewer emergency department visits or admissions. For enrollees
receiving on-going care and LTSS, lapses in care can trigger acute
events and even be life threatening. Putting additional protections in
place to prevent such occurrences is critical to enrollees' health
outcomes. Care coordinators can help enrollees in these situations with
finding appropriate providers, understanding how the managed care
program works, setting appointments, and ensuring that appropriate
authorizations are in the system to facilitate claims payment.
While we believe that the benefits of care coordination have a
significant positive impact on the quality of life, consumer
experience, and health outcomes for enrollees, we acknowledge that the
activities that would bring about these positive impacts will likely
generate costs. From an administrative perspective, the proposed
provisions in Sec. 438.62 have an estimated first-year COI cost of a
cumulative $3.5 million, and the proposed provisions in Sec. 438.208
have an estimated first-year COI cost of a cumulative $46.2 million
(detailed burden estimates can be found in the COI section of this
proposed rule at sections IV.D.10 and IV.D.17, respectively). In
general, we expect that most of the activities that would be required
under the proposed regulation are already being provided in some form
by the state Medicaid program or by their MCOs, PIHPs, and PAHPs. We
anticipate little to no new impacts in practice or in expenditures on
activities already occurring with existing populations and benefits.
However, we believe there is a greater likelihood that the proposed
changes in the regulation specific to MLTSS could lead to new or
additional care coordination expenditures. There are currently 20
states that use MLTSS. Unfortunately, there is very limited data
available to determine the potential impact of this section of the
proposed regulation. We do not collect consistent or validated cost
data on Medicaid managed care encounters or administrative costs and,
therefore, it is not possible to determine the amount of new
expenditures for MCOs, PIHPs, and PAHPs to provide particular services
or to serve particular enrollees. In any managed care program, we would
generally expect care coordination expenditures to be a notable portion
of MCO, PIHP, and PAHP administrative costs. Milliman has published
studies \24\ on the financial performance of Medicaid managed care
plans that contains data on administrative costs for plans. These
studies provide an analysis of Medicaid managed care plans covering 35
states and territories, including the District of Columbia and Puerto
Rico, and up to 167 managed care plans. According to these studies, the
average ratio of administrative expenditures to plan revenues ranged
from 11.4 percent to 12.1 percent between 2011 and 2013. We believe
that care coordination costs would likely be some fraction of that
percentage, but are not able to determine the specific proportion.
Given that administrative costs may cover a range of activities, we
believe that it is most likely that care coordination costs are likely
between 1 and 3 percent of plan revenue.
---------------------------------------------------------------------------

\24\ ``Medicaid Risk-Based Managed Care: Analysis of Financial
Results for 2011,'' Palmer and Pettit, July 2012; ``Medicaid Risk-
Based Managed Care: Analysis of Financial Results for 2012,'' Palmer
and Pettit, June 2013; and ``Medicaid Risk-Based Managed Care:
Analysis of Financial Results for 2013,'' Palmer and Pettit, June
2014.
---------------------------------------------------------------------------

Unfortunately, there is also little data or research available on
the amount of care coordination expenditures provided by MCOs, PIHPs,
or PAHPs and the effectiveness of care coordination. Some studies have
found that care coordination may lead to reductions in preventable
inpatient readmissions and costs related to screening, testing, and
evaluation. Studies \25\ of transitional care models have found that
they may reduce hospital readmissions while other demonstrations have
found that care coordination has had some success in reducing
hospitalizations and specialist visits \26\). Conversely, there are
other studies \27\ that have shown that care coordination may not have
a significant effect on health care expenditures; for example, a study
of one Medicare demonstration showed that most care coordination
programs did not have a significant effect on the costs or the quality
of care, and even successful programs were not able to achieve

[[Page 31244]]

savings large enough to offset care coordination costs.
---------------------------------------------------------------------------

\25\ (''Estimated Federal Savings Associated with Care
Coordination Models for Medicare-Medicaid Dual Eligibles,'' Thorpe
2011.
\26\ (``Effects of Primary Care Coordination on Public Hospital
Patients,'' Schillinger, Bibbins-Domingo, Vranizan, Bacchetti, Luce,
and Bindman, Journal of General Internal Medicine, December 2001.
\27\ (``Effects of Care Coordination on Hospitalization, Quality
of Care, and Health Care Expenditures Among Medicare
Beneficiaries,'' Peikes, Chen, Schore, and Brown, The Journal of the
American Medical Association, February 2009; ``Six Features of
Medicare Coordinated Care Demonstration Programs That Cut Hospital
Readmissions of High-Risk Patients,'' Brown, Peikes, Peterson,
Schore, and Razafindrakoto, Health Affairs, June 2012.
---------------------------------------------------------------------------

It should be noted that these studies and most other studies
available have examined the effects of care coordination on
hospitalizations and utilization of physician services on general
Medicaid and/or Medicare populations; we are not aware of any studies
or research that focuses specifically on the impact of care
coordination on beneficiaries who are using long-term services and
supports. To the extent that care coordination may be more likely to
affect hospital and physician service costs and that many Medicaid
enrollees receiving long-term services and supports are also enrolled
in Medicare, any financial impact of care coordination may be more
likely to affect Medicare rather than Medicaid.
While we do not collect the amount of managed care capitation
payments or expenditures in such a way that the amount paid for managed
long-term care services can be determined, we estimate about 38 percent
of total Medicaid managed care expenditures were provided for aged and
disabled enrollees in 2013 ($50 billion of $132 billion), and we expect
a significant amount of those expenditures covered acute care services.
Thus, the potential amount of expenditures on long-term services and
supports under Medicaid managed care programs is expected to be
relatively small compared to the rest of the program. At this time we
believe a reasonable estimate of the financial impact of the proposed
changes to care coordination requirements under the regulation is that
there would be a net impact of $0. We believe that the expected
increase in care coordination costs is likely to be small and that the
effect of those activities on overall health benefit expenditures would
be limited. The effect on overall expenditures would vary significantly
depending on how successfully the managed care plans implement and/or
enhance their current coordination efforts. We expect that provisions
proposed in this rule related to setting actuarially sound rates,
performance reporting, and encounter data reporting would enable more
robust analysis of the effects of care coordination and transition
efforts on expenditures in the future. We invite comment on possible
ways to further quantify the costs and/or benefits associated with
these proposed provisions.
We propose to apply some of the Medicaid beneficiary protections to
CHIP, specifically the requirements in Sec. 438.62, Sec. 438.208, and
Sec. 438.210. We believe these protections will ensure that enrollees,
particularly those with complex health needs, experience smoother
transitions, and have fewer emergency department visits or admissions.
The proposed provisions in Sec. 438.62, Sec. 438.208, and Sec.
438.210 associated with implementing the beneficiary protection
provisions of part 457 have an estimated first-year COI cost of a
cumulative $12.1 million.
10. Modernizing Regulatory Requirements
This guiding principle seeks to incorporate the numerous
advancements in state activities, health plan practices, and federal
oversight interests since the inception of part 438. This guiding
principle covers the regulatory topics of network adequacy and
accessibility of services; quality measurement and improvement; state
monitoring standards; information standards; primary care case
management; choice of managed care plans; non-emergency transportation;
and state plan standards. As shown in Table 12, the COI costs
associated with the provisions under this principle account for a
cumulative $28.3 million in the first year for the revisions to part
438 (detailed burden estimates can be found in the COI section of this
proposed rule at section IV.D.7 for information standards and sections
IV.D.21 through IV.D.30 for quality framework).
BILLING CODE 4120-01-P

[[Page 31245]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.038

Similarly, as shown in Table 13, the COI costs associated with
implementing the provisions under this principle account for a
cumulative $0.1 million in the first year for the revisions to part
431.

[[Page 31246]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.039

Similarly, as shown in Table 14, the COI costs associated with
implementing the provisions under this principle account for a
cumulative $4.1 million in the first year for the revisions to part
457.

[[Page 31247]]

[GRAPHIC] [TIFF OMITTED] TP01JN15.040

BILLING CODE 4120-01-C
The provision of information to potential enrollees by the state
and to enrollees by the managed care plans has always been a
requirement in Sec. 438.10. However, we have proposed changes to this
section to better organize and clarify the standards for states and
managed care plans. These changes are necessary, and important, since
the information provided to potential and current enrollees is critical
in aiding them to make informed decisions when selecting a health plan
and to sufficiently understand the managed care program to maximize the
benefits and rights available to them. For example, without information
presented in an easily understood way, an enrollee may choose a health
plan that does not have their existing providers in the network, which
may force the enrollee to change their providers. This is particularly
challenging for enrollees with disabilities or receiving LTSS, because
these individuals often receive services that assist with activities of
daily living in their home. Disruption in services from their usual
providers can cause numerous problems and may prevent them from living
safely and effectively in their chosen setting.
We propose changes to the content and delivery methods for notices,
handbooks, and provider directories to facilitate the dissemination of
timely and complete information that potential enrollees and enrollees
need. Current Sec. 438.10 pertaining to information requirements do
not reflect current technology advances that enable states and managed
care plans to provide access to information more quickly, accurately,
and less expensively. As more consumers understand and rely on
electronic information, not revising this section and continuing to
mandate that all information be provided by mailing paper would be
unrealistic, unnecessarily costly, and not in the beneficiaries'or
managed care plans'

[[Page 31248]]

best interest. Many states and managed care plans have been providing
required information in both electronic and paper form for several
years. The revisions will eliminate this duplication. Since the
transition to electronic communication will be gradual and at varying
rates, we expect the burden for providing the information required in
Sec. 438.10 to diminish over time. The proposed provisions in Sec.
438.10 have an estimated first-year COI cost of a cumulative $0.9
million (detailed burden estimates can be found in the COI section of
this proposed rule at section IV.D.7 for information standards). As
required by section 2103(f)(3) of the Act, added by section 403 of
CHIPRA, and consistent with the requirements of section 2101(a) to
provide coverage in an effective and efficient manner, we also propose
to apply the standards of Sec. 438.10 to CHIP in Sec. 457.1207. The
total estimated first-year COI costs associated with implementing the
information requirements in part 457 is a cumulative $0.7 million.
11. Quality Measurement and Improvement
There are several items that are driving the new burden associated
with the proposed quality revisions. Given that some PAHPs may provide
clinical services, such as dental or behavioral health services, we
propose to apply the quality standards in part 438 subpart E to PAHPs.
This will ensure that they are subject to the same approach to
measuring and improving quality as are MCOs and PIHPs, which will allow
for better oversight and accountability. Revisions proposed for the
quality assessment and performance improvement (QAPI) program at Sec.
438.330 reflect the expansion of managed care to LTSS. By specifically
addressing LTSS within their QAPI program, MCOs, PIHPs, and PAHPs will
have tools that can be used to provide accountability for the care
provided to this vulnerable population. The proposed new EQR-related
activity (that is, validation of network adequacy) and state review and
approval of MCOs, PIHPs, and PAHPs will also support state oversight of
managed care plans, and help to ensure that consumers have access to
high-quality plans. Similarly, state-based quality rating systems for
MCOs, PIHPs, and PAHPs will assist consumers in identifying the plan
that best meets their needs. The total estimated first-year COI costs
associated with the modifications to the managed care quality
components of the regulations is a cumulative $27.2 million (detailed
burden estimates can be found in the COI section of this proposed rule
at section IV.D.21 through IV.D.30 for quality framework).
States contracting with MCOs or PIHPs currently maintain a written
strategy for assessing and improving the quality of managed care
services offered by all MCOs and PIHPs. Regardless of delivery system,
it is important to have a strategy for measuring performance to
understand what is working and what needs to be improved. Because of
this, we propose adding a new subpart I to part 431 which would extend
the comprehensive quality strategy to all state Medicaid programs.
States that contract with MCOs, PIHPs, or PAHPs would have to address
managed care-specific elements described in Sec. 438.340 within the
comprehensive quality strategy. The proposed provisions in part 431
subpart I have an estimated first-year COI cost of a cumulative $0.1
million, with the creation and periodic evaluation and revision of the
comprehensive quality strategy accounting for the complete cost. As
required by section 2101(f)(3) of the Act, added by section 403 of
CHIPRA, and consistent with the requirements of section 2101(a) to
provide coverage in an effective and efficient manner, we also propose
to apply the quality standards of 438 subpart E and 431 subpart I to
CHIP in Sec. 457.760, Sec. 457.1240, and Sec. 457.1250. The total
estimated first-year COI costs associated with implementing the quality
standards in part 457 is a cumulative $3.3 million.
The proposed regulation makes a number of changes related to
Medicaid quality of care, primarily for Medicaid managed care programs,
including requirements for comprehensive quality strategies, quality
assessment and performance improvement, quality rating systems, state
review and approval of performance of managed care plans by states, and
external quality reviews. While these changes may lead to improvements
in the quality of care delivered by states and Medicaid managed care
plans, it is difficult to determine whether or not these changes would
have any financial impacts on Medicaid expenditures. We would expect
some activities would be unlikely to have a financial impact (such as
state review and approval requirements), while other activities may
lead to some small increases or decreases in expenditures. For example,
some activities may require managed care plans to increase expenditures
to improve the quality of care and meet certain quality standards
associated with some of the proposed changes in the regulation, while
other activities may improve the quality of care and lead to a net
decrease in benefit expenditures. We believe that it is not possible to
estimate the potential financial impacts of these proposed changes and
believe that any impacts on net Medicaid expenditures would be
negligible. We invite comment on possible ways to quantify the costs
and/or benefits associated with these proposed provisions.
12. Network Adequacy
We propose a new Sec. 438.68, to establish minimum standards in
the area of network adequacy. This proposed section aims to maintain
state flexibility while modernizing the current regulatory framework to
reflect the maturity and prevalence of Medicaid managed care delivery
systems, promote processes for ensuring access to care, and align,
where feasible, with other private and public health care coverage
programs. Therefore, we propose to set standards to ensure ongoing
state assessment and certification of MCO, PIHP, and PAHP networks, set
threshold standards for the establishment of network adequacy measures
for a specified set of providers, establish criteria for developing
network adequacy standards for MLTSS programs, and ensure the
transparency of network adequacy standards. As many states currently
have some network standards in place, we estimate only a small
administrative burden to states to implement these provisions. In
general, we would expect strengthening network adequacy standards could
increase expenditures, as some plans would likely need to add more
providers to in their networks and, in doing so, may need to increase
provider reimbursement rates. In addition, adding more providers to
plan networks could potentially lead to more use of health care
services among the providers added, whether primary care physicians,
specialists, or other providers. However, the proposed changes in the
regulation are limited and only set requirements about setting and
reporting network adequacy standards. The proposed regulation does not
establish network adequacy standards. Thus, while a state may need to
adapt its network adequacy standards to include criteria specified in
the proposed regulation or to provide additional reports and
information about those standards, we do not assume that these changes
would likely lead to significant changes to the standards currently in
place in states. Therefore, we believe that these proposed changes are
likely to have no financial impact on future Medicaid

[[Page 31249]]

expenditures. To the extent that these proposed changes do lead to some
states changing their current network adequacy standards, it is
possible that future expenditures would increase if plans increase
provider reimbursement rates to attract new providers to their networks
or if greater access to care leads to more utilization of health care
services. We invite comment on possible ways to quantify the costs and/
or benefits associated with these proposed provisions.
13. Implementing Statutory Provisions
This guiding principle seeks to implement the statutory provisions
impacting Medicaid and CHIP managed care that have passed since the
Balanced Budget Act of 1997 (BBA). This principle covers the regulatory
topics of incorporating provisions for encounter data and health
information systems requirements established in the Affordable Care Act
and requirements for contracts involving Indians established in the
American Recovery and Reinvestment Act (ARRA). The total estimated
first-year COI costs associated to the provisions under this principle
account for a cumulative $0.1 million (provisions in Sec. Sec. 438.14,
438.242, and 438.818) (detailed COI burden estimates can be found in
the COI section of this proposed rule at sections IV.D.8 and IV.D.20
for encounter data and health information systems and IV.D.8 for
contracts involving Indians). No additional quantifiable benefits or
costs were identified for these provisions.
14. Other Provisions
Changes proposed in Subpart F of part 438 that include references
to part 431 require minor changes to Sec. 431.220 and Sec. 431.244.
Without these changes, the sections would be inconsistent with the
changes proposed in part 438. There is no burden associated with this
change as it is a technical correction and any related burden is
included in Sec. 438.408(f).
In Sec. 433.138, technical corrections are being proposed to
remove a soon-to-be obsolete reference to ``ICD-9'' and replace it with
text that does not alter the meaning nor need to be updated as newer
versions of the International Classification of Diseases are published
in the future. There is no burden associated with this change as states
are not mandated to make any changes to their policies or procedures as
a result of this revised text.

C. Anticipated Effects

The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, we estimate that
some PAHPs, PCCMs, and PCCM entities are likely to be small entities as
that term is used in the RFA. For purposes of the RFA, we estimate that
most MCOs and PIHPs are not small entities as that term is used in the
RFA. For purposes of the RFA and according to the Small Business
Administration (SBA) and the Table of Small Business Size Standards,
small entities include small businesses in the health care sector that
are direct health and medical insurance carriers with average annual
receipts of less than $38.5 million and offices of physicians or health
practitioners with average annual receipts of less than $11 million.
For purposes of the RFA, individuals and state governments are not
included in the definition of a small entity.
As of 2012, there are 331 MCOs, 176 PIHPs, 41 PAHPs, 20 NEMT PAHPs,
25 PCCMs, and 9 PCCM entities participating in the Medicaid managed
care program. We estimate that there are an additional 66 entities that
serve only CHIPs, including approximately 59 MCOs and PIHPs, 3 PAHPs,
and 4 PCCMs. We believe that only a few of these entities qualify as
small entities. Specifically, we believe that 10 to 20 PAHPs, 8 to 15
PCCMs, and 2 to 5 PCCM entities are likely to be small entities. We
believe that the remaining MCOs and PIHPs have average annual receipts
from Medicaid and CHIP contracts and other business interests in excess
of $38.5 million. In analyzing the scope of the impact of these
regulations on small entities, we examined the United States Census
Bureau's Statistics of U.S. Businesses for 2010. According to the 2010
data, there are 4,414 direct health and medical insurance carriers with
less than 20 employees and 158,607 offices of physicians or health
practitioners with less than 20 employees. For purposes of the RFA, we
believe that we are impacting less than 1 percent of the small entities
that we have identified.
The primary impact on small entities will be through the standards
proposed to be placed on PAHPs, PCCMs, and PCCM entities through the
following requirements: (1) Adding PCCMs and PCCM entities, where
appropriate, to the information standards in Sec. 438.10 and Sec.
457.1207 regarding enrollee handbooks, provider directories, and
formularies; (2) adding PAHPs, PCCMs, and PCCM entities in Sec. 438.62
to implement their own transition of care policies and PAHPs in Sec.
438.208 to perform initial assessments and care coordination activities
and applying these standards to CHIP in Sec. Sec. 457.1216 and
457.1230(c); (3) adding PAHPs in Sec. 438.242 to collect data on
enrollee and provider characteristics and on services furnished to
enrollees through an encounter data system or other such methods and
applying these standards to CHIP in Sec. 457.1230(d); (4) adding PCCM
entities to the quality assessment and performance improvement program
standards in Sec. 438.330 and applying these standards to CHIP in
Sec. 457.1240; (5) adding PAHPs in Sec. 438.350 to the list of
affected entities regarding the EQR process and applying these
standards to CHIP in Sec. 457.1250; and (6) adding PAHPs to the types
of entities subject to the standards of subpart F to establish a
grievances and appeals system and process and applying these standards
to CHIP in Sec. 457.1260. We do not believe that the remaining impacts
or burdens of the provisions of this proposed rule are great on the
small entities that we have identified.
For purposes of the RFA, all cost estimates were derived from the
Collection of Information calculations in section IV of this proposed
rule. The estimated costs associated with the impacts on small entities
listed above are primarily attributable to the transition of care
policies for PAHPs, PCCMs, and PCCM entities, initial assessments and
care coordination activities for PAHPs, and the establishment of a
grievances and appeals system and process for PAHPs. The transition of
care policies, initial assessments, and care coordination activities
for PAHPs account for approximately $2.4 million of the cumulative $4.5
million annual impact on the 41 PAHPs (detailed burden estimates can be
found in the COI section of this proposed rule at sections IV.D.10 and
IV.D.17 for coordination/continuity of care). The establishment of a
grievances and appeals system and process accounts for approximately
$1.1 million of the cumulative $4.5 million annual impact on the 41
PAHPs (detailed burden estimates can be found in the COI section of
this proposed rule at sections IV.D.31 through IV.D.35 for grievances
and appeals). The total estimated annual burden per PAHP is less than
$0.1 million, or less than 1 percent of the $38.5 million threshold.
The transition of care policies for PCCMs and PCCM entities account for
approximately $0.4 million of the cumulative $0.6 million annual impact
on the 34 PCCMs and PCCM entities (detailed burden estimates can be
found in the COI section of this proposed rule at sections IV.D.10 and
IV.D.17 for coordination/continuity of care). The total estimated
annual burden per

[[Page 31250]]

PCCM or PCCM entity is less than $0.1 million, or less than 1 percent
of the $11 million threshold.
These small entities must meet certain standards as identified in
the provisions of this proposed rule; however, we believe these are
consistent with the nature of their business in contracting with state
governments for the provision of services to Medicaid and CHIP managed
care enrollees. Therefore, based on the estimates in the COI (section
IV of this proposed rule), we have determined, and the Secretary
certifies, that this proposed rule will not have a significant economic
impact on a substantial number of small entities. We invite comment on
our proposed analysis of the impact on small entities and on possible
alternatives to provisions of the proposed rule that would reduce
burden on small entities.
In addition, 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 will
have a substantial economic impact on most hospitals, including small
rural hospitals. Provisions include some proposed new standards for
State governments, MCOs, PIHPs, PAHPs, PCCMs, and PCCM entities but no
direct requirements on individual hospitals. The impact on individual
hospitals will vary according to each hospital's current and future
contractual relationships with MCOs, PIHPs, PAHPs, PCCMs, and PCCM
entities, but any additional burden on small rural hospitals should be
negligible. We invite comment on our proposed analysis of the impact on
small rural hospitals regarding the provisions of this proposed rule.
We have determined that we are not preparing analysis for either
the RFA or section 1102(b) of the Act because we have determined, and
the Secretary certifies, that this proposed rule will not have a
significant economic impact on a substantial number of small entities
or a significant impact on the operations of a substantial number of
small rural hospitals in comparison to total revenues of these
entities.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2015, that
is approximately $144 million. This proposed rule does not contain any
federal mandate costs resulting from (A) imposing enforceable duties on
state, local, or tribal governments, or on the private sector, or (B)
increasing the stringency of conditions in, or decreasing the funding
of, State, local, or tribal governments under entitlement programs. We
have determined that this proposed rule does not impose any mandates on
state, local, or tribal governments, or the private sector that will
result in an annual expenditure of $144 million or more.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule that imposes
substantial direct requirement costs on state and local governments,
preempts state law, or otherwise has Federalism implications. We
believe this proposed regulation gives states appropriate flexibility
regarding managed care standards (for example, setting network adequacy
standards, setting credentialing standards, EQR activities), while also
aligning Medicaid and CHIP managed care standards with those for plans
in the Marketplace and MA to better streamline the beneficiary
experience and to reduce administrative and operational burdens on
states and health plans across publicly-funded programs and the
commercial market. We have determined that this proposed rule would not
significantly affect states' rights, roles, and responsibilities.
1. Effects on Other Providers
The providers directly affected by the provisions of this rule are
the MCOs, PIHPs, PAHPs, PCCMs, and PCCM entities under contract to a
state Medicaid or CHIP agency. As detailed in the sections above, the
effect of the proposed rule varies by entity type and amount of burden.
Setting actuarially sound rates and MLR are the areas with the largest
impact on the managed care plans. We believe that many of the proposed
rate setting provisions are unlikely to have a direct effect on the
actual capitation rates or future Medicaid expenditures. To the extent
that these new standards or requirements do have an effect on
capitation rates or Medicaid expenditures, we believe that generally it
is likely that this could lead to increases in some cases and decreases
in other cases in the capitation payment rates and Medicaid
expenditures. The sum of the estimated financial impacts of these
changes could increase expenditures as much as $3.6 billion from 2016
to 2020 and could decrease expenditures as much as $11.0 billion from
2016 to 2020.
The regulation proposes new requirements that would require the
states to calculate and report the medical loss ratios (MLRs) for
Medicaid MCOs, PIHPs, and PAHPs in Sec. 438.4 and Sec. 438.5, and to
add new Sec. 438.8 and Sec. 438.74. These changes, however, do not
require that states assess any financial penalties on MCOs, PIHPs, and
PAHPs that do not meet a minimum MLR. The net effect of these changes
is estimated to range from zero impact to a decrease in MCO, PIHP, and
PAHP payments of about 0.2 to 0.3 percent. Between 2018 and 2020, a
0.3-percent decrease in MCO, PIHP, and PAHP expenditures is projected
to be a reduction of $1.6 billion in federal expenditures and of $0.9
billion in state expenditures.
Many other proposed changes in this rule will have small COI costs
for MCOs, PIHPs, and PAHPs; however, they are negligible. All COI costs
are described in section IV of this proposed rule.
2. Effects on the Medicare and Medicaid Programs
This rule has may have some positive effect on Medicare, but that
effect is not quantifiable. Sections 438.62 and 438.208 propose
enhanced care planning, transition, and coordination activities. Many
of these activities will affect dually eligible enrollees. If, as
expected, those efforts generate savings from more efficient and
appropriate use of services, then Medicare as the primary payer may
recognize some benefit.
The provisions of proposed part 431 subpart I will apply to
Medicaid programs in all states and territories. The total estimated
first-year COI cost for states is a cumulative $0.1 million, with 50
percent eligible for federal matching funds. This rule will help states
to measure and improve the quality of care provided to all
beneficiaries in the state, regardless of delivery system.
The provisions of proposed part 438 will apply to all states using
a managed care delivery system for the Medicaid program. Federal
matching rates are discussed more fully in section V.B, Overall Impact.
This rule will help states fulfill the goals and mission of the
Medicaid program through better oversight and accountability of their
programs and will enable them to detect deficiencies and implement
corrective action more quickly and consistently.

[[Page 31251]]

D. Alternatives Considered

One alternative considered was leaving part 438 as it is today.
While it has been the guiding regulation for Medicaid managed care
since its finalization in 2002, many questions and issues have arisen
in the intervening 13 years due to the current version's lack of
clarity or detail in some areas. The proposed revisions to the topics
of rate setting and enrollment are good examples of this. With no
guidance in these areas, states have created various standards, leading
to inconsistency and, in some cases, less than optimal program
performance. Additionally, many issues have arisen from the evolution
of managed care in the last twelve years that have rendered parts of
parts 438 nearly obsolete. For example, the existing version gives
little acknowledgement to the use of electronic means of communication
and no recognition to the recently created health care coverage options
offered through the federal and state marketplaces. This creates gaps
that leave states and managed care plans with unclear, non-existent, or
confusing guidance and standards for program operation. We believe that
with consistent standards and clearly defined flexibilities for states,
programs can develop in ways that not only transform the healthcare
delivery system and fulfill the mission of the Medicaid program, but
can improve the health and wellness of Medicaid enrollees. For these
reasons, we believe that leaving part 438 as it is now is not a viable
option.
Another option was to align completely with standards applicable to
plans in Medicare and/or the Marketplace. Given the high rate of cross
program participation among the managed care plans in some states, we
believe it is important to allow managed care plans to take advantage
of operational efficiencies by aligning part 438 with Medicare and the
private insurance market wherever possible by creating and implementing
uniform policies and procedures. Alignment also adds consistency and
ease of understanding for enrollees as they move between healthcare
coverage programs as their life circumstances change. For each
regulatory area where a comparable Medicare or Marketplace practice or
policy existed, staff evaluated the information against existing
Medicaid regulations. When differences were identified, they were
evaluated to determine the benefits and drawbacks to adopting and the
degree of impact the change would have on the Medicaid population,
which is often significantly different from Medicare and the
Marketplace populations. Additionally, as Medicaid is a federal-state
partnership, we wanted to preserve the flexibility historically
provided to states in the design and administration of their programs.
As such, complete alignment was only an option in some provisions,
while partial alignment was selected in others to recognize and
accommodate the unique aspects of the Medicaid program.
Regarding quality measurement and improvement (part 438 subpart E)
and comprehensive quality strategies (part 431 subpart I), two
alternatives were considered: (1) Leaving the language as it exists
today, and (2) revising the regulatory text for only states that
contract with MCOs, PIHPs, and PAHPs. While our regulatory language has
remained unchanged since 2002, there have been significant improvements
regarding quality measurement and improvement for Medicaid. Under the
authority of CHIPRA and the Affordable Care Act, we have developed and
issued a set of performance measures to assess the quality of care
received by adults and children in the Medicaid and CHIP programs. The
National Quality Strategy and CMS Quality Strategy now offer national
guidance regarding how we move forward as a nation to offer better
health care, improved affordability, and support healthy people and
healthy communities. At a state level, Medicaid managed care programs
have undergone shifts both in terms of populations and benefits since
2002. Given these changes, we believe that is it necessary and
appropriate to revise our regulatory language to address needs of the
Medicaid programs both today and into the future. While the role of
managed care in both Medicaid has grown since 2002, we cannot forget
that many individuals still receive care through a FFS delivery model,
and that certain services are still provided FFS to individuals
otherwise enrolled in managed care programs. We believe that,
regardless of delivery system, it is important for states to measure
performance to develop a plan to strengthen and improve the quality of
care. It is also important that managed care quality regulations
support the programs as they exist today and into the future.
Therefore, we determined that the most appropriate course of action
would be to revise the Medicaid and CHIP managed care quality
regulations, and to have states establish a comprehensive quality
strategy for all delivery systems within their Medicaid programs.
For CHIP, we considered two alternatives: (1) Not regulating; or
(2) adopting additional Medicaid requirements. CHIPRA applied several
of the Medicaid managed care standards to CHIP. In response, we
released two SHOs conveying those requirements to states, but have not
provided additional guidance. As a result, states do not have clear
understanding of the expectations of the federal requirements for CHIP
managed care, and CMS does not have needed information about state
oversight of managed care plans. Therefore, we determined that
regulations were appropriate. When deciding whether to adopt all of the
Medicaid regulations, or only the subset proposed in this regulation,
we have worked to balance the need for information about state
oversight of CHIP managed care plans against the administrative burden
of complying with the proposed regulations. To that end, we propose to
only apply the rules that are most important for aligning CHIP managed
care with Marketplace and Medicaid managed care rules. The scope of the
CHIP proposed regulations is narrower than the proposed revisions and
amendments to the Medicaid managed care regulations.

E. Accounting Statement and Table

The estimates that appear in the Transfers section of Table 15
combine both cost savings and transfers between members of society. To
the extent that the proposed rule changes provision of medical care,
the impacts represent cost savings. Otherwise, the rule's impacts
represent transfers to the federal and state governments from MCOs,
PIHPs and PAHPs.

[[Page 31252]]

Table 15--Economic Data: Costs and Benefits Statement
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
--------------------------------------------------------------------------------------------------------------------------------------------------------
Primary Period
Category estimate Low estimate High estimate Year dollars Discount rate covered Notes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified.................... Improved health outcomes; reduced unnecessary services; improved beneficiary experience; improved access; and
improved program transparency which facilitates better decision making.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized Monetized $ millions/ 112.8 .............. .............. 2013 7% 2016-2020
year. 112.7 .............. .............. 2013 3% 2016-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified.................... Costs of activities (other than information collection as defined in the Paperwork Reduction Act) that would be
necessary for generating benefits listed above.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transfers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized $ .............. -390.4 1623.9 2016 7% 2016-2020
millions/year. -395.8 1655.6 2016 3% 2016-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
From/To........................... From: MCOs, PIHPS & PAHPs
To: Federal Government
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other Annualized Monetized $ .............. -310.3 985.8 2016 7% 2016-2020
millions/year. -315.8 1005.2 2016 3% 2016-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
From/To........................... From: MCOs, PIHPS & PAHPs
To: State Governments
--------------------------------------------------------------------------------------------------------------------------------------------------------

List of Subjects

42 CFR Part 431

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

42 CFR Part 433

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

42 CFR Part 438

Grant programs-health, Medicaid, Reporting and recordkeeping
requirements.

42 CFR Part 440

Grant programs-health, Medicaid.

42 CFR Part 457

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

42 CFR Part 495

Administrative practice and procedure, Electronic health records,
Health facilities, Health professions, Health maintenance organizations
(HMO), Medicaid, Medicare, Penalties, Privacy, Reporting and
recordkeeping requirements.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

0
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).

0
2. Section 431.200 is amended by revising paragraph (b) to read as
follows:

Sec. 431.200 Basis and Scope.

* * * * *
(b) Prescribes procedures for an opportunity for a hearing if the
State agency or non-emergency transportation PAHP (as defined in Sec.
438.9(a) of this chapter) takes action, as stated in this subpart, to
suspend, terminate, or reduce services, or an MCO, PIHP or PAHP takes
action under subpart F of part 438 of this chapter; and
* * * * *
0
3. Section 431.220 is amended by revising paragraphs (a)(5) and (a)(6)
to read as follows:

Sec. 431.220 When a hearing is required.

(a) * * *
(5) Any MCO, PIHP, or PAHP enrollee who is entitled to a hearing
under subpart F of part 438 of this chapter.
(6) Any enrollee in a Non-Emergency Medical Transportation PAHP (as
that term is defined in Sec. 438.9 of this chapter) who has an action
as stated in this subpart.
* * * * *
0
4. Section 431.244 is amended by--
0
a. Revising paragraphs (f)(1) and (f)(2) introductory text.
0
b. Removing paragraph (f)(3).
The revisions read as follows:

Sec. 431.244 Hearing decisions.

* * * * *
(f) * * *
(1) Ordinarily, within 90 days from the date the enrollee filed an
MCO, PIHP, or PAHP appeal, not including the number of days the
enrollee took to subsequently file for a State fair hearing.
(2) As expeditiously as the enrollee's health condition requires,
but no later than 3 working days after the agency receives, from the
MCO, PIHP, or PAHP, the case file and information for any appeal of a
denial of a service that, as indicated by the MCO,PIHP, or PAHP--
* * * * *
0
5. Subpart I is added to part 431 to read as follows:
Sec.
Subpart I--General Provisions
431.500 Basis and scope.
431.502 State comprehensive quality strategy.
431.504 State comprehensive quality strategy development,
evaluation, and revision.

[[Page 31253]]

431.506 Applicability to Medicaid managed care programs.

Subpart I--General Provisions

Sec. 431.500 Basis and scope.

(a) Statutory basis. This part is based on sections 1932(c),
1902(a)(4), 1902(a)(6), 1902(a)(19), and 1902(a)(22) of the Act.
(b) Scope. This part sets forth specifications for a comprehensive
quality strategy that all States must implement to ensure the delivery
of quality health care to all Medicaid beneficiaries.

Sec. 431.502 State comprehensive quality strategy.

(a) General rule. Each State must draft and implement a written,
comprehensive quality strategy for assessing and improving the quality
of health care and services furnished to all Medicaid beneficiaries.
(b) Elements of the State comprehensive quality strategy. At a
minimum, the State's comprehensive quality strategy must include the
following:
(1) The State's goals and objectives for continuous quality
improvement, which must be measurable and take into consideration the
health status of all populations served by the Medicaid program.
(2) Specific quality metrics and performance targets for measuring
improvement and performance, including the identification of which
quality metrics and performance outcomes the State will publish at
least annually on the State's public Medicaid Web site.

Sec. 431.504 State comprehensive quality strategy development,
evaluation, and revision.

In drafting and revising the comprehensive quality strategy, the
State must:
(a) Obtain the input of the Medical Care Advisory Committee,
required by Sec. 431.12, beneficiaries, and other stakeholders
(including Tribal consultation, as appropriate) in the development of
the comprehensive quality strategy (and any revisions) and make the
strategy available for public comment before submitting the strategy to
CMS for review.
(b) Review and update the comprehensive quality strategy as needed,
but no less than once every 3 years.
(1) This review must include an evaluation of the effectiveness of
the comprehensive quality strategy conducted within the previous 3
years.
(2) The State must make the results and findings of the
effectiveness evaluation of the comprehensive quality strategy
available on the State's public Medicaid Web site.
(c) Submit to CMS the following:
(1) A copy of the initial strategy for CMS comment and feedback
before adopting it in final.
(2) A copy of the revised strategy whenever significant changes are
made to the document, or whenever significant changes occur within the
State's Medicaid program. The State must include its definition of
``significant changes'' within each revised comprehensive quality
strategy.
(d) The State must make the final comprehensive quality strategy
available on the State's public Medicaid Web site.

Sec. 431.506 Applicability to Medicaid managed care programs.

Each State contracting with an MCO, PIHP, or PAHP as defined in
Sec. 438.2 of this chapter or with a PCCM entity as described in Sec.
438.3(r) of this chapter must also address, within the comprehensive
quality strategy, the requirements described in Sec. 438.340 of this
chapter.

PART 433--STATE FISCAL ADMINISTRATION

0
6. The authority citation for part 433 continues to read as follows:

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

0
7. Section 433.138 is amended by revising paragraph (e) to read as
follows:

Sec. 433.138 Identifying liable third parties.

* * * * *
(e) Diagnosis and trauma code edits. Except as specified under
paragraph (l) of this section, the agency must take action to identify
those paid claims for Medicaid beneficiaries that contain diagnosis
codes that are indicative of trauma, or injury, poisoning, and other
consequences of external causes, for the purpose of determining the
legal liability of third parties so that the agency may process claims
under the third party liability payment procedures specified in Sec.
433.139(b) through (f).
* * * * *
0
8. Part 438 is revised to read as follows:

PART 438--MANAGED CARE

Sec.
Subpart A--General Provisions
438.1 Basis and scope.
438.2 Definitions.
438.3 Standard contract requirements.
438.4 Actuarial soundness.
438.5 Rate development standards.
438.6 Special contract provisions related to payment.
438.7 Rate certification submission.
438.8 Medical loss ratio (MLR) standards.
438.9 Provisions that apply to non-emergency medical transportation
PAHPs.
438.10 Information requirements.
438.12 Provider discrimination prohibited.
438.14 Requirements that apply to MCO, PIHP, PAHP, PCCM, and PCCM
entity contracts involving Indians, Indian health care providers
(IHCPs), and Indian managed care entities (IMCEs).
Subpart B--State Responsibilities
438.50 State Plan requirements.
438.52 Choice of MCOs, PIHPs, PAHPs, PCCMs, and PCCM entities.
438.54 Managed care enrollment.
438.56 Disenrollment: Requirements and limitations.
438.58 Conflict of interest safeguards.
438.60 Prohibition of additional payments for services covered under
MCO, PIHP or PAHP contracts.
438.62 Continued services to enrollees.
438.66 State monitoring requirements.
438.68 Network adequacy standards.
438.70 Stakeholder engagement when LTSS is delivered through a
managed care program.
438.71 Beneficiary support system.
438.74 State oversight of the minimum MLR requirement.
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.
438.110 Member advisory committee.
438.114 Emergency and poststabilization services.
438.116 Solvency standards.
Subpart D--MCO, PIHP and PAHP standards
438.206 Availability of services.
438.207 Assurance of adequate capacity and services.
438.208 Coordination and continuity of care.
438.210 Coverage and authorization of services.
438.214 Provider selection.
438.224 Confidentiality.
438.228 Grievance systems.
438.230 Subcontractual relationships and delegation.
438.236 Practice guidelines.
438.242 Health information systems.
Subpart E--Quality Measurement and Improvement; External Quality Review
438.310 Basis, scope, and applicability.
438.320 Definitions.
438.330 Quality assessment and performance improvement program.
438.332 State review and approval of MCOs, PIHPs and PAHPs.
438.334 Medicaid managed care quality rating system.

[[Page 31254]]

438.340 Managed care elements of the State comprehensive quality
strategy.
438.350 External quality review.
438.352 External quality review protocols.
438.354 Qualifications of external quality review organizations.
438.356 State contract options for external quality review.
438.358 Activities related to external quality review.
438.360 Nonduplication of mandatory activities.
438.362 Exemption from external quality review.
438.364 External quality review results.
438.370 Federal financial participation (FFP).
Subpart F--Grievance System
438.400 Statutory basis and definitions.
438.402 General requirements.
438.404 Timely and adequate notice of adverse benefit determination.
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 requirements.
438.420 Continuation of benefits while the MCO, PIHP, or PAHP appeal
and the State fair hearing are pending.
438.424 Effectuation of reversed appeal resolutions.
Subpart G--[Reserved]
Subpart H--Additional Program Integrity Safeguards
438.600 Statutory basis.
438.602 State responsibilities.
438.604 Data, information, and documentation that must be submitted.
438.606 Source, content, and timing of certification.
438.608 Program integrity requirements under the contract.
438.610 Prohibited affiliations.
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, PCCM, or PCCM entity contract.
438.710 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.
Subpart J--Conditions for Federal Financial Participation (FFP)
438.802 Basic requirements.
438.806 Prior approval.
438.807 Deferral and/or disallowance of FFP for non-compliance with
Federal requirements.
438.808 Exclusion of entities.
438.810 Expenditures for enrollment broker services.
438.812 Costs under risk and nonrisk contracts.
438.816 Expenditures for independent consumer support services for
enrollees using LTSS.
438.818 Enrollee encounter data.
Subpart K--[Reserved]

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 the following statutory
sections:
(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(i)(25) prohibits payment to a State unless a State
provides enrollee encounter data required by CMS.
(3) Section 1903(m) contains requirements that apply to
comprehensive risk contracts.
(4) 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.
(5) Section 1905(t) contains requirements that apply to PCCMs.
(6) Section 1932--
(i) Provides that, with specified exceptions, a State may require
Medicaid beneficiaries 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.
(vii) Specifies rules for Indian enrollees, Indian health care
providers, and Indian managed care entities.
(viii) 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,
PAHPs, PCCMs and PCCM entities. Requirements vary depending on the type
of entity and on the authority under which the State contracts with the
entity. Provisions that apply only when the contract is under a
mandatory managed care program authorized by section 1932(a)(1)(A) of
the Act are identified as such.

Sec. 438.2 Definitions.

As used in this part--
Actuary means an individual who meets the qualification standards
established by the American Academy of Actuaries for an actuary and
follows the practice standards established by the Actuarial Standards
Board. In this part, Actuary refers to an individual who is acting on
behalf of the State when used in reference to the development and
certification of capitation rates.
Capitation payment means a payment the State makes periodically to
a contractor on behalf of each beneficiary enrolled under a contract
and based on the actuarially sound capitation rate for the provision of
services under the State plan. The State makes the payment regardless
of whether the particular beneficiary receives services during the
period covered by the payment.
Choice counseling means the provision of information and services
designed to assist beneficiaries in making enrollment decisions; it
includes answering questions and identifying factors to consider when
choosing among managed care health plans and primary care providers.
Choice counseling does not include making recommendations for or
against enrollment into a specific MCO, PIHP, or PAHP.
Comprehensive risk contract means a risk contract between the State
and an MCO 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) Federally Qualified Health Center (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.

[[Page 31255]]

(9) Home health services.
Enrollee means a Medicaid beneficiary who is currently enrolled in
an MCO, PIHP, PAHP, PCCM, or PCCM entity in a given managed care
program.
Enrollee encounter data means the information relating to the
receipt of any item(s) or service(s) by an enrollee under a contract
between a State and a MCO, PIHP, or PAHP that is subject to the
requirements of Sec. Sec. 438.242 and 438.818.
Federally qualified HMO means an HMO that CMS has determined is a
qualified HMO under section 1310(d) of the PHS Act.
Health care professional means a physician or a provider, if
coverage for the physician's or provider's services is under the
managed care contract.
Health insuring organization (HIO) means a county operated entity,
that in exchange for capitation payments, covers services for
beneficiaries--
(1) Through payments to, or arrangements with, providers;
(2) Under a comprehensive risk contract with the State; and
(3) Meets the following criteria--
(i) First became operational prior to January 1, 1986; or
(ii) Is described in section 9517(c)(3) of the Omnibus Budget
Reconciliation Act of 1985 (as amended by section 4734 of the Omnibus
Budget Reconciliation Act of 1990 and section 205 of the Medicare
Improvements for Patients and Providers Act of 2008).
Long-term services and supports (LTSS) means services and supports
provided to beneficiaries of all ages who have functional limitations
and/or chronic illnesses that have the primary purpose of supporting
the ability of the beneficiary to live or work in the setting of their
choice, which may include the individual's home, a provider-owned or
controlled residential setting, a nursing facility, or other
institutional setting.
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 by the Secretary 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 beneficiaries within the area
served by the entity.
(ii) Meets the solvency standards of Sec. 438.116.
Managed care program means a managed care delivery system operated
by a State as authorized under section 1915(a), 1915(b), 1932(a), or
1115(a) of the Act.
Material adjustment means an adjustment that, using reasonable
actuarial judgment, has a significant impact on the development of the
capitation payment such that its omission or misstatement could impact
a determination whether the development of the capitation rate is
consistent with generally accepted actuarial principles and practices.
Network provider means any health care professional, group of
health care professionals, or entity that receives Medicaid funding
directly or indirectly to order, refer or render covered services as a
result of the state's contract with an MCO, PIHP, or PAHP.
Nonrisk contract means a contract between the State and a PIHP or
PAHP 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.
Potential enrollee means a Medicaid beneficiary who is subject to
mandatory enrollment or may voluntarily elect to enroll in a given MCO,
PIHP, PAHP, PCCM or PCCM entity, but is not yet an enrollee of a
specific MCO, PIHP, PAHP, PCCM, or PCCM entity.
Prepaid ambulatory health plan (PAHP) means an entity that--
(1) Provides services to enrollees under contract with the State,
and on the basis of 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 services to enrollees under contract with the State,
and on the basis of 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,
pediatrician, or other licensed practitioner as authorized by the State
Medicaid program, 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:
(1) 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 beneficiaries; or
(2) A PCCM entity contracts with the State to provide a defined set
of functions.
Primary care case management entity (PCCM entity) means an
organization that provides any of the following functions, in addition
to primary care case management services, for the State:
(1) Provision of intensive telephonic or face-to-face case
management, including operation of a nurse triage advice line.
(2) Development of enrollee care plans.
(3) Execution of contracts with and/or oversight responsibilities
for the activities of FFS providers in the FFS program.
(4) Provision of payments to FFS providers on behalf of the State.
(5) Provision of enrollee outreach and education activities.
(6) Operation of a customer service call center.
(7) Review of provider claims, utilization and practice patterns to
conduct provider profiling and/or practice improvement.
(8) Implementation of quality improvement activities including
administering enrollee satisfaction surveys or collecting data
necessary for performance measurement of providers.
(9) Coordination with behavioral health systems/providers.
(10) Coordination with long-term services and supports systems/
providers.
Primary care case manager (PCCM) means a physician, a physician
group practice or, at State option, any of the following:
(1) A physician assistant.
(2) A nurse practitioner.
(3) A certified nurse-midwife.
Rate cells means a set of mutually exclusive categories of
enrollees that is defined by one or more characteristics for the
purpose of determining the

[[Page 31256]]

capitation rate and making a capitation payment; such characteristics
may include age, gender, and region or geographic area. Each enrollee
should be categorized in one of the rate cells and no enrollee should
be categorized in more than one rate cell.
Risk contract means a contract between the State an MCO, PIHP or
PAHP 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.
State means the Single State agency as specified in Sec. 431.10 of
this chapter.

Sec. 438.3 Standard contract requirements.

(a) CMS review. The CMS 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. Proposed final contracts must be submitted in the
form and manner established by CMS. For States seeking approval of
contracts prior to a specific effective date, proposed final contracts
must be submitted to CMS for review no later than 90 days prior to the
effective date of the contract.
(b) Entities eligible for comprehensive risk contracts. A State may
enter into a comprehensive risk contract only with 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) 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 amended by section 4734(2) of the
Omnibus Budget Reconciliation Act of 1990).
(c) Payment. The final capitation rate for each MCO, PIHP or PAHP
must be specifically identified in the applicable contract submitted
for CMS review and approval. The final capitation rates must be based
only upon services covered under the State plan and additional services
deemed by the State to be necessary to comply with the Mental Health
Parity and Addiction Equity Act, and represent a payment amount that is
adequate to allow the MCO, PIHP or PAHP to efficiently deliver covered
services to Medicaid-eligible individuals in a manner compliant with
contractual requirements.
(d) Enrollment discrimination prohibited. Contracts with MCOs,
PIHPs, PAHPs, PCCMs and PCCM entities must provide as follows:
(1) The MCO, PIHP, PAHP, PCCM or PCCM entity accepts individuals
eligible for enrollment in the order in which they apply without
restriction (unless authorized by CMS), 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, PCCM or PCCM entity 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, PCCM or PCCM entity will not discriminate
against individuals eligible to enroll on the basis of race, color,
national origin, sex, sexual orientation, gender identity, or
disability and will not use any policy or practice that has the effect
of discriminating on the basis of race, color, or national origin, sex,
sexual orientation gender identity, or disability.
(e) Services that may be covered by an MCO, PIHP, or PAHP. An MCO,
PIHP, or PAHP may cover, for enrollees, services that are in addition
to those covered under the State plan as follows:
(1) Any services that the MCO, PIHP or PAHP voluntarily agree to
provide, although the cost of these services cannot be included when
determining the payment rates under paragraph (c) of this section.
(2) [Reserved]
(f) Compliance with applicable laws and conflict of interest
safeguards. All contracts with MCOs, PIHPs, PAHPs, PCCMs and PCCM
entities 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; the Americans with Disabilities Act of 1990 as amended;
and section 1557 of the Patient Protection and Affordable Care Act.
(2) Comply with the conflict of interest safeguards described in
Sec. 438.58 and with the prohibitions described in section
1902(a)(4)(C) of the Act applicable to contracting officers, employees,
or independent contractors.
(g) Provider-preventable condition requirements. All contracts with
MCOs, PIHPs and PAHPs must comply with the requirements mandating
provider identification of provider-preventable conditions as a
condition of payment, as well as the prohibition against payment for
provider-preventable conditions as set forth in Sec. 434.6(a)(12) and
Sec. 447.26 of this chapter. MCOs, PIHPs, and PAHPs, must report all
identified provider-preventable conditions in a form and frequency as
specified by the State.
(h) Inspection and audit of records and access to facilities. All
contracts must provide that the State, CMS, and the Office of the
Inspector General may, at any time, inspect and audit any records or
documents of the MCO, PIHP, PAHP, PCCM or PCCM entity or its
subcontractors, and may, at any time, inspect the premises, physical
facilities, and equipment where Medicaid-related activities or work is
conducted.
(i) Physician incentive plans. (1) MCO, PIHP, and PAHP contracts
must provide for compliance with the requirements set forth in
Sec. Sec. 422.208 and 422.210 of this chapter.
(2) In applying the provisions of Sec. Sec. 422.208 and 422.210 of
this chapter, references to ``MA organization,'' ``CMS,'' and
``Medicare beneficiaries'' must be read as references to ``MCO, PIHP,
or PAHP,'' ``State,'' and ``Medicaid beneficiaries,'' respectively.
(j) 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) All PAHP contracts must provide for compliance with the
requirements of Sec. 422.128 of this chapter for maintaining written
policies and procedures for advance directives if the PAHP includes, in
its network, any of those providers listed in Sec. 489.102(a) of this
chapter.
(3) The MCO, PIHP, or PAHP subject to this requirement must provide
adult enrollees with written information on advance directives
policies, and include a description of applicable State law.
(4) 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.
(k) Subcontracts. All subcontracts must fulfill the requirements of
this part for the service or activity delegated under the subcontract
in accordance with Sec. 438.230.
(l) Choice of health professional. The contract must allow each
enrollee to choose his or her health professional to the extent
possible and appropriate.
(m) Audited financial reports. The contract must require MCOs,
PIHPs, and PAHPs to submit audited financial

[[Page 31257]]

reports on an annual basis. The audit must be conducted in accordance
with generally accepted accounting principles and generally accepted
auditing standards.
(n) [Reserved]
(o) LTSS contract requirements. Any contract with an MCO, PIHP or
PAHP that includes LTSS as a covered benefit must require that any
services covered under the contract that could be authorized through a
waiver under section 1915(c) of the Act or a State plan amendment
authorized through sections 1915(i) or 1915(k) of the Act be delivered
in settings consistent with Sec. 441.301(c)(4) of this chapter.
(p) Special rules for certain HIOs. Contracts with HIOs that began
operating on or after January 1, 1986, and that the statute does not
explicitly exempt from requirements in section 1903(m) of the Act, are
subject to all the requirements of this part that apply to MCOs and
contracts with MCOs. These HIOs may enter into comprehensive risk
contracts only if they meet the criteria of paragraph (a) of this
section.
(q) 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 beneficiaries who reside sufficiently
near one of the PCCM'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 beneficiary's health status or need for health
care services.
(5) Provide that enrollees have the right to disenroll in
accordance with Sec. 438.56(c).
(r) Additional rules for contracts with PCCM entities. In addition
to the requirements in paragraph (q) of this section, States must
submit PCCM entity contracts to CMS for review and approval to ensure
compliance with the provisions of this paragraph; Sec. 438.10; and if
the State's contract with the PCCM entity provides for shared savings,
incentive payments or other financial reward for improved quality
outcomes, Sec. 438.330(b)(3), (c) and (e) and Sec. 438.340, and Sec.
438.350.
(s) Requirements for MCOs, PIHPs, or PAHPs that provide covered
outpatient drugs. MCOs, PIHPs or PAHPs that are contractually obligated
to provide coverage of covered outpatient drugs must include the
following requirements:
(1) The MCO, PIHP or PAHP provides coverage of covered outpatient
drugs as defined in section 1927(k)(2) of the Act, that meets the
standards for such coverage imposed by section 1927 of the Act as if
such standards applied directly to the MCO, PIHP, or PAHP.
(2) The MCO, PIHP, or PAHP reports drug utilization data that is
necessary for States to bill manufacturers for rebates in accordance
with section 1927(b)(1)(A) of the Act no later than 45 calendar days
after the end of each quarterly rebate period. Such utilization
information must include, at a minimum, information on the total number
of units of each dosage form, strength, and package size by National
Drug Code of each covered outpatient drug dispensed or covered by the
MCO, PIHP, or PAHP.
(3) The MCO, PIHP or PAHP establishes procedures to exclude
utilization data for covered outpatient drugs that are subject to
discounts under the 340B drug pricing program from the reports required
under paragraph (s)(2) of this section.
(4) The MCO, PIHP or PAHP must operate a drug utilization review
program that complies with the requirements described in section
1927(g) of the Act, as if such requirement applied to the MCO, PIHP, or
PAHP instead of the State.
(5) The MCO, PIHP or PAHP must provide a detailed description of
its drug utilization review program activities to the State on an
annual basis.
(6) The MCO, PIHP or PAHP must conduct a prior authorization
program that complies with the requirements of section 1927(d)(5) of
the Act, as if such requirements applied to the MCO, PIHP, or PAHP
instead of the State.
(t) Requirements for MCOs, PIHPs or PAHPs responsible for
coordinating benefits for dually eligible individuals. In a State that
enters into a Coordination of Benefits Agreement with Medicare for FFS,
an MCO, PIHP or PAHP contract that includes responsibility for
coordination of benefits for individuals dually eligible for Medicaid
and Medicare must require the MCO, PIHP or PAHP to enter into a
Coordination of Benefits Agreement with Medicare and participate in the
automated claims crossover process.
(u) Payments to MCOs and PIHPs for enrollees that are a patient in
an institution for mental disease. The State may make a monthly
capitation payment to an MCO or PIHP for an enrollee receiving
inpatient treatment in an Institution for Mental Diseases, as defined
in Sec. 435.1010 of this chapter, so long as the facility is an
inpatient hospital facility or a sub-acute facility providing crisis
residential services, and length of stay in the IMD is for a short term
stay of no more than 15 days during the period of the monthly
capitation payment.
(v) Recordkeeping requirements. MCOs, PIHPs, and PAHPs must retain,
and require subcontractors to retain, as applicable, the following
information: enrollee grievance and appeal records in Sec. 438.416,
base data in Sec. 438.5(c), MLR reports in Sec. 438.8(k), and the
data, information, and documentation specified in Sec. 438.604, Sec.
438.606, Sec. 438.608, and Sec. 438.610 for a period of no less than
6 years.

Sec. 438.4 Actuarial soundness.

(a) Actuarially sound capitation rates defined. Actuarially sound
capitation rates are projected to provide for all reasonable,
appropriate, and attainable costs that are required under the terms of
the contract and for the operation of the MCO, PIHP, or PAHP for the
time period and the population covered under the terms of the contract,
and such capitation rates are developed in accordance with the
requirements in paragraph (b) of this section.
(b) CMS review and approval of actuarially sound capitation rates.
Capitation rates for MCOs, PIHPs, and PAHPs must be reviewed and
approved by CMS as actuarially sound. To be approved by CMS, capitation
rates must do all of the following:
(1) Have been developed in accordance with standards specified in
Sec. 438.5 and generally accepted actuarial principles and practices.
Any proposed differences among capitation rates according to covered
populations must not be based on the Federal financial participation
percentage associated with the covered populations.
(2) Be appropriate for the populations to be covered and the
services to be furnished under the contract.
(3) Be adequate to meet the requirements on MCOs, PIHPs, and PAHPs
in Sec. Sec. 438.206, 438.207, and 438.208.
(4) Be specific to payments for each rate cell under the contract.
Payments from any rate cell must not cross-subsidize or be cross-
subsidized by payments for any other rate cell.
(5) Be certified by an actuary as meeting the applicable
requirements of this part, including Sec. 438.3(c) and (e).

[[Page 31258]]

(6) Meet any applicable special contract provisions as specified in
Sec. 438.6.
(7) Be provided to CMS in a format and within a timeframe that
meets requirements in Sec. 438.7.
(8) Be developed in such a way that the MCO, PIHP, or PAHP would
reasonably achieve a medical loss ratio standard, as calculated under
Sec. 438.8, of at least 85 percent for the rate year. The capitation
rates may be developed in such a way that the MCO, PIHP, or PAHP would
reasonably achieve a medical loss ratio standard greater than 85
percent, as calculated under Sec. 438.8, as long as the capitation
rates are adequate for necessary and reasonable administrative costs.

Sec. 438.5 Rate development standards.

(a) Definitions. As used in this section, the following terms have
the indicated meanings:
Budget neutral means a standard for any risk sharing mechanism that
recognizes both higher and lower expected costs among contracted MCOs,
PIHPs, or PAHPs and does not create a net aggregate gain or loss across
all payments.
Prospective risk adjustment means a methodology to account for
anticipated variation in risk levels among contracted MCOs, PIHPs, or
PAHPs that is derived from historical experience of the contracted
MCOs, PIHPs, or PAHPs and applied to rates for the rating period for
which the certification is submitted.
Retrospective risk adjustment means a methodology to account for
variation in risk levels among contracted MCOs, PIHPs, or PAHPs that is
derived from experience concurrent with the rating period of the
contracted MCOs, PIHPs, or PAHPs subject to the adjustment and
calculated at the expiration of the rating period.
Risk adjustment is a methodology to account for the health status
of enrollees when predicting or explaining costs of services covered
under the contract for defined populations or for evaluating
retrospectively the experience of MCOs, PIHPs, or PAHPs contracted with
the State.
(b) Process and requirements for setting actuarially sound
capitation rates. In setting actuarially sound capitation rates, the
State must follow the steps below in accordance with this section, or
explain why they are not applicable:
(1) Consistent with paragraph (c) of this section, identify and
develop the base utilization and price data.
(2) Consistent with paragraph (d) of this section, develop and
apply trend factors, including cost and utilization, to base data that
are developed from actual experience of the Medicaid population or a
similar population in accordance with generally accepted actuarial
practices and principles.
(3) Consistent with paragraph (e) of this section, develop the non-
benefit component of the rate to account for reasonable expenses
related to MCO, PIHP, or PAHP administration; taxes; licensing and
regulatory fees; contribution to reserves; profit margin; cost of
capital; or other operational costs associated with the MCO's, PIHP's,
or PAHP's provision of State plan services to Medicaid enrollees.
(4) Consistent with paragraph (f) of this section, make appropriate
and reasonable adjustments to account for changes to the base data,
programmatic changes, non-benefit components, and any other adjustment
necessary to establish actuarially sound rates.
(5) Take into account the MCO's, PIHP's, or PAHP's past medical
loss ratio, as calculated and reported under Sec. 438.8, in the
development of the capitation rates, and consider the projected medical
loss ratio in accordance with Sec. 438.4(b)(7).
(6) Consistent with paragraph (g) of this section, select a risk
adjustment methodology that uses generally accepted models and apply it
in a budget neutral manner across all MCOs, PIHPs, or PAHPs in the
program to calculate adjustments to the payments as necessary.
(c) Base data. (1) States must provide all the validated encounter
data, FFS data (as appropriate), and audited financial reports (as
defined in Sec. 438.3(m)) that demonstrate experience for the
populations to be served by the MCO, PIHP, or PAHP to the actuary
developing the capitation rates for at least the three most recent and
complete years prior to the rating period.
(2) States and their actuaries must use the most appropriate data,
with the basis of the data being no older than from the three most
recent and complete years prior to the rating period, for setting
capitation rates. Such base data must be derived from the Medicaid
population, or, if data on the Medicaid population is not available,
derived from a similar population and adjusted to make the utilization
and price data comparable to data from the Medicaid population. Data
must be in accordance with actuarial standards for data quality and an
explanation of why that specific data is used must be provided in the
rate certification.
(3) Exception. (i) States that are unable to base their rates on
data meeting the qualifications in paragraph (c)(2) of this section
that the basis of the data be no older than from the three most recent
and complete years prior to the rating period may request approval for
an exception; the request must describe why an exception is necessary
and describe the actions the state intends to take to come into
compliance with those requirements.
(ii) States that request an exception from the base data standards
established in this section must set forth a corrective action plan to
come into compliance with the base data standards no later than 2 years
from the rating period for which the deficiency was identified.
(d) Trend. Each trend must be reasonable and developed in
accordance with generally accepted actuarial principles and practices.
Trend must be developed from actual experience of the Medicaid
population or from a similar population.
(e) Non-benefit component of the rate. The development of the non-
benefit component of the rate must include appropriate and reasonable
expenses related to MCO, PIHP, or PAHP administration, taxes, licensing
and regulatory fees, contribution to reserves, profit margin, cost of
capital, or other operational costs, consistent with Sec. 438.3(c).
(f) Adjustments. Each adjustment must reasonably support the
development of an accurate base data set for purposes of rate-setting,
address appropriate programmatic changes, the health status of the
enrolled population, or reflect non-benefit costs, and be developed in
accordance with generally accepted actuarial principles and practices.
(g) Risk adjustment. Prospective or retrospective risk adjustment
methodologies must be developed in a budget neutral manner consistent
with generally accepted actuarial principles and practices.

Sec. 438.6 Special contract provisions related to payment.

(a) Definitions. As used in this part, the following terms have the
indicated meanings:
Incentive arrangement means any payment mechanism under which a
contractor may receive additional funds over and above the capitation
rates it was paid for meeting targets specified in the contract.
Risk corridor means a risk sharing mechanism in which States and
contractors may share in profits or losses under the contract outside
of a predetermined threshold amount.
Withhold arrangement means any payment mechanism under which a
portion of a capitation rate is withheld

[[Page 31259]]

from an MCO, PIHP, or PAHP and a portion of or all of the withheld
amount will be paid to the MCO, PIHP, or PAHP for meeting targets
specified in the contract.
(b) Basic requirements. (1) If used in the payment arrangement
between the State and the MCO, PIHP, or PAHP, all applicable risk-
sharing mechanisms, such as reinsurance, risk corridors, or stop-loss
limits, must be described in the contract.
(2) Contracts with incentive arrangements may not provide for
payment in excess of 105 percent of the approved capitation payments
attributable to the enrollees or services covered by the incentive
arrangement. For all incentive arrangements, the contract must provide
that the arrangement is--
(i) For a fixed period of time.
(ii) Not to be renewed automatically.
(iii) Made available to both public and private contractors under
the same terms of performance.
(iv) Not conditioned on intergovernmental transfer agreements.
(v) Necessary for the specified activities, targets, performance
measures, and quality-based outcomes that support program initiatives.
(3) Contracts that provide for a withhold arrangement must ensure
that the capitation payment minus any portion of the withhold that is
not reasonably achievable is actuarially sound as determined by an
actuary. The total amount of the withhold, achievable or not, must be
reasonable and take into consideration the MCO's, PIHP's or PAHP's
financial operating needs accounting for the size and characteristics
of the populations covered under the contract, as well as the MCO's,
PIHP's or PAHP's capital reserves as measured by the risk-based capital
level, months of claims reserve, or other appropriate measure of
reserves. The data, assumptions, and methodologies used to determine
the portion of the withhold that is reasonably achievable must be
submitted as part of the documentation required under Sec.
438.7(b)(6). For all withhold arrangements, the contract must provide
that the arrangement is--
(i) For a fixed period of time.
(ii) Not to be renewed automatically.
(iii) Made available to both public and private contractors under
the same terms of performance.
(iv) Not conditioned on intergovernmental transfer agreements.
(v) Necessary for the specified activities, targets, performance
measures, and quality-based outcomes that support program initiatives.
(4) If a State makes payments to providers for graduate medical
education (GME) costs under an approved State plan, the State must
adjust the actuarially sound capitation rates to account for the GME
payments to be made on behalf of enrollees covered under the contract,
not to exceed the aggregate amount that would have been paid under the
approved State plan for FFS. States must first establish actuarially
sound capitation rates prior to making adjustments for GME.
(c) Delivery system and provider payment initiatives under MCO,
PIHP, or PAHP contracts--(1) General rule. Except as specified in
paragraphs (c)(1)(i) through (iii) of this section, the State may not
direct the MCO's, PIHP's or PAHP's expenditures under the contract.
(i) The State may require the MCO, PIHP or PAHP to implement value-
based purchasing models for provider reimbursement, such as pay for
performance arrangements, bundled payments, or other service payment
models intended to recognize value or outcomes over volume of services.
(ii) The State may require MCOs, PIHPs, or PAHPs to participate in
a multi-payer delivery system reform or performance improvement
initiative.
(iii) The State may require the MCO, PIHP or PAHP to:
(A) Adopt a minimum fee schedule for all providers that provide a
particular service under the contract; or
(B) Provide a uniform dollar or percentage increase for all
providers that provide a particular service under the contract.
(2) Process for approval. (i) All contract arrangements that direct
the MCO's, PIHP's or PAHP's expenditures must have written approval
prior to implementation. To obtain written approval, a state must
demonstrate, in writing, that the arrangement--
(A) Is based on the utilization and delivery of services;
(B) Directs expenditures equally, and using the same terms of
performance, for all public and private providers providing the service
under the contract;
(C) Expects to advance at least one of the goals and objectives in
the comprehensive quality strategy in Sec. 438.340;
(D) Has an evaluation plan that measures the degree to which the
arrangement advances at least one of the goals and objectives in the
comprehensive quality strategy in Sec. 438.340;
(E) Does not condition provider participation on intergovernmental
transfer agreements; and
(F) Not to be renewed automatically.
(ii) Any contract arrangements that direct the MCO's, PIHP's or
PAHP's expenditures under paragraphs (c)(1)(i) or (c)(1)(ii) must also
demonstrate, in writing, that the arrangement--
(A) Must make participation in the value-based purchasing
initiative, delivery system reform or performance improvement
initiative available, using the same terms of performance, to all
public and private providers providing services under the contract
related to the reform or improvement initiative;
(B) Must use a common set of performance measures across all of the
payers and providers;
(C) May not set the amount or frequency of the expenditures; and
(D) Does not allow the State to recoup any unspent funds allocated
for these arrangements from the MCO, PIHP, or PAHP.

Sec. 438.7 Rate certification submission.

(a) CMS review and approval of the rate certification. States must
submit to CMS for review and approval, all MCO, PIHP, and PAHP rate
certifications concurrent with the review and approval process for
contracts as specified in Sec. 438.3(a).
(b) Documentation. The rate certification must contain the
following information:
(1) Base data. A description of the base data used in the rate
setting process (including the base data requested by the actuary, the
base data that was provided by the State, and an explanation of why any
base data requested was not provided by the State) and of how the
actuary determined which base data set was appropriate to use for the
rating period.
(2) Trend. Each trend factor, including trend factors for changes
in the utilization and price of services, applied to develop the
capitation rates must be adequately described with enough detail so CMS
or an actuary applying generally accepted actuarial principles and
practices can understand and evaluate the following:
(i) The calculation of each trend used for the rating period and
the reasonableness of the trend for the enrolled population.
(ii) Any meaningful difference in how a trend differs between the
rate cells, service categories, or eligibility categories.
(3) Non-benefit component of the rate. The development of the non-
benefit component of the rate must be adequately described with enough
detail

[[Page 31260]]

so CMS or an actuary applying generally accepted actuarial principles
and practices can identify each type of non-benefit expense that is
included in the rate and evaluate the reasonableness of the cost
assumptions underlying each expense.
(4) Adjustments. All adjustments used to develop the capitation
rates must be adequately described with enough detail so that CMS, or
an actuary applying generally accepted actuarial principles and
practices, can understand and evaluate all of the following:
(i) How each material adjustment was developed and the
reasonableness of the material adjustment for the enrolled population.
(ii) The cost impact of each material adjustment and the aggregate
cost impact of non-material adjustments.
(iii) Where in the rate setting process the adjustment was applied.
(iv) A list of all non-material adjustments used in the rate
development process.
(5) Risk adjustment. (i) All prospective risk adjustment
methodologies must be adequately described with sufficient detail so
that CMS or an actuary applying generally accepted actuarial principles
and practices can understand and evaluate the following:
(A) The data, and any adjustments to that data, to be used to
calculate the adjustment.
(B) The model, and any adjustments to that model, to be used to
calculate the adjustment.
(C) The method for calculating the relative risk factors and the
reasonableness and appropriateness of the method in measuring the risk
factors of the respective populations.
(D) The magnitude of the adjustment on the capitation rate per MCO,
PIHP, or PAHP.
(E) An assessment of the predictive value of the methodology
compared to prior rating periods.
(F) Any concerns the actuary has with the risk adjustment process.
(ii) All retrospective risk adjustment methodologies must be
adequately described with sufficient detail so that CMS or an actuary
applying generally accepted actuarial principles and practices can
understand and evaluate the following:
(A) The party calculating the risk adjustment.
(B) The data, and any adjustments to that data, to be used to
calculate the adjustment.
(C) The model, and any adjustments to that model, to be used to
calculate the adjustment.
(D) The timing and frequency of the application of the risk
adjustment.
(E) Any concerns the actuary has with the risk adjustment process.
(6) Special contract provisions. A description of any of the
special contract provisions related to payment in Sec. 438.6 that are
applied in the contract.
(c) Rates paid under risk contracts. The State, through its
actuary, must certify the final rate paid under each risk contract and
document the underlying data, assumptions and methodologies supporting
that specific rate.
(1) The State may pay each MCO, PIHP or PAHP a capitation rate
under the contract that is different than the capitation rate paid to
another MCO, PIHP or PAHP, so long as the rate that is paid is
independently developed and set in accordance with this part.
(2) If the State determines that a retroactive adjustment to the
capitation rate is necessary, the retroactive adjustment must be
supported by a rationale for the adjustment and the data, assumptions
and methodologies used to develop the magnitude of the adjustment must
be described in sufficient detail to allow CMS or an actuary to
determine the reasonableness of the adjustment. These retroactive
adjustments must be certified by an actuary in a revised rate
certification and submitted as a contract amendment to be approved by
CMS. All such adjustments are also subject to Federal timely filing
requirements.
(d) Provision of additional information. The State must, upon CMS'
request, provide additional information, whether part of the rate
certification or additional supplemental materials, if CMS determines
that information is pertinent to the approval of the certification
under this part. The State must identify whether the information
provided in addition to the rate certification is proffered by the
State, the actuary, or another party.

Sec. 438.8 Medical loss ratio (MLR) standards.

(a) Basic rule. The State must ensure, through its contracts
starting on or after January 1, 2017, that each MCO, PIHP, and PAHP
calculate and report a MLR in accordance with this section. For multi-
year contracts that do not start in 2017, the State must require the
MCO, PIHP, or PAHP to calculate and report a MLR for the rating period
that begins in 2017.
(b) Definitions. As used in this section, the following terms have
the indicated meanings:
Credibility adjustment means an adjustment to the medical loss
ratio for a partially credible MCO, PIHP, or PAHP to account for a
difference between the actual and target medical loss ratios that may
be due to random statistical variation.
Full credibility means a standard for which the experience of an
MCO, PIHP, or PAHP is determined to be sufficient for the calculation
of a medical loss ratio with a minimal chance that the difference
between the actual and target medical loss ratio is not statistically
significant. An MCO, PIHP, or PAHP that is assigned full credibility
(or is fully credible) will not receive a credibility adjustment to its
medical loss ratio.
Member months mean the number of months an enrollee or a group of
enrollees is covered by an MCO, PIHP, or PAHP over a specified time
period, such as a year.
MLR reporting year means a period of 12 months selected by the
State, for which a MCO's, PIHP's, or PAHP's MLR experience is reported.
This could be the contract year, calendar year, State fiscal year or
Federal fiscal year, but must be consistent with the rating period used
to develop the capitation rates paid to the MCO, PIHP, or PAHP.
No credibility means a standard for which the experience of an MCO,
PIHP, or PAHP is determined to be insufficient for the calculation of a
medical loss ratio. An MCO, PIHP, or PAHP that is assigned no
credibility (or is non-credible) will not be measured against any
medical loss ratio requirements.
Non-claims cost means those expenses for administrative services
that are not: Incurred claims (as defined in paragraph (e)(1) of this
section); expenditures on quality improving activities (as defined in
paragraph (e)(2) of this section); or licensing and regulatory fees, or
Federal and State taxes (as defined in paragraph (f)(2) of this
section).
Partial credibility means a standard for which the experience of an
MCO, PIHP, or PAHP is determined to be sufficient for the calculation
of a medical loss ratio but with a non-negligible chance that the
difference between the actual and target medical loss ratios is
statistically significant. An MCO, PIHP, or PAHP that is assigned
partial credibility (or is partially credible) will receive a
credibility adjustment to its medical loss ratio.
(c) MLR requirement. If a State elects to mandate a minimum MLR for
its MCOs, PIHPs, or PAHPs, that minimum MLR must be equal to or higher
than 85 percent (the standard used for projecting actuarial soundness
under Sec. 438.4(b)) and the MLR must be calculated and reported for
each MLR reporting year by

[[Page 31261]]

the MCO, PIHP, or PAHP consistent with this section.
(d) Calculation of the MLR. (1) The MLR experienced for each MCO,
PIHP, or PAHP in a MLR reporting year is the ratio of the numerator (as
defined in paragraph (e) of this section) to the denominator (as
defined in paragraph (f) of this section). A MLR may be increased by a
credibility adjustment, in accordance with paragraph (h) of this
section.
(2) [Reserved]
(e) Numerator. (1) The numerator of an MCO's, PIHP's, or PAHP's MLR
for a MLR reporting year is the sum of the MCO's, PIHP's, or PAHP's
incurred claims (as defined in (e)(2) of this section); the MCO's,
PIHP's, or PAHP's expenditures for activities that improve health care
quality (as defined in paragraph (e)(3) of this section); and
activities compliant with Sec. 438.608(a)(1) through (5), (7), (8) and
(b) (subject to paragraph (e)(4) of this section).
(2) Incurred claims. (i) Incurred claims must include the
following:
(A) Direct claims that the MCO, PIHP, or PAHP paid to providers
(including under capitated contracts with network providers) for
services or supplies covered under the contract and medical services
meeting the requirements of Sec. 438.3(e) provided to enrollees.
(B) Unpaid claims reserves for the MLR reporting year, including
claims reported in the process of adjustment.
(C) Withholds from payments made to network providers.
(D) Claims that are recoverable for anticipated coordination of
benefits.
(E) Claims payments recoveries received as a result of subrogation.
(F) Incurred but not reported claims based on past experience, and
modified to reflect current conditions such as changes in exposure,
claim frequency or severity.
(G) Changes in other claims-related reserves.
(H) Reserves for contingent benefits and the medical claim portion
of lawsuits.
(ii) Amounts that must be deducted from incurred claims include the
following:
(A) Overpayment recoveries received from health care professionals.
(B) Prescription drug rebates received by the MCO, PIHP, or PAHP.
(C) State subsidies based on a stop-loss payment methodology.
(iii) Expenditures that must be included in incurred claims include
the following:
(A) Payments made by an MCO, PIHP, or PAHP to mandated solvency
funds.
(B) The amount of incentive and bonus payments made to network
providers.
(C) The amount of claims payments recovered through fraud reduction
efforts, not to exceed the amount of fraud reduction expenses. The
amount of fraud reduction expenses shall not include activities
specified in Sec. 438.8(e)(4).
(iv) Amounts that must either be included in or deducted from
incurred claims include the following:
(A) Respectively, net payments or receipts related to risk
adjustment and risk corridor programs developed in accordance with
Sec. 438.5 or Sec. 438.6.
(B) [Reserved]
(v) Amounts that must be excluded from incurred claims:
(A) Non-claims costs, as defined in paragraph (b) of this section,
which include the following:
(1) Amounts paid to third party vendors for secondary network
savings.
(2) Amounts paid to third party vendors for network development,
administrative fees, claims processing, and utilization management.
(3) Amounts paid, including amounts paid to a health care
professional, for professional or administrative services that do not
represent compensation or reimbursement for State plan services or
services meeting the definition in Sec. 438.3(e) and provided to an
enrollee.
(4) Fines and penalties assessed by regulatory authorities.
(B) Amounts paid to the State as remittance under paragraph (j) of
this section.
(vi) Incurred claims paid by one MCO, PIHP, or PAHP that is later
assumed by another entity must be reported by the assuming MCO, PIHP,
or PAHP for the entire MLR reporting year and no incurred claims for
that MLR reporting year may be reported by the ceding MCO, PIHP, or
PAHP.
(3) Activities that improve health care quality. Activities that
improve health care quality must be in one of the following categories:
(i) An MCO, PIHP, or PAHP activity that meets the requirements of
45 CFR 158.150(b) and is not excluded under 45 CFR 158.150(c).
(ii) An MCO, PIHP, or PAHP activity related to any EQRO activity as
described in Sec. 438.358(b) and (c).
(iii) Any MCO, PIHP, or PAHP expenditure that is related to Health
Information Technology and meaningful use, meets the requirements
placed on issuers found in 45 CFR 158.151, and is not considered
incurred claims, as defined in paragraph (e)(2) of this section.
(4) Activities compliant with Sec. 438.608. MCO, PIHP, or PAHP
expenditures on activities related to the program integrity
requirements in Sec. 438.608(a)(1) through (5), (7), (8) and (b),
limited to 0.5 percent of premium revenue. Expenditures under this
paragraph shall not include expenses for fraud reduction efforts in
Sec. 438.8(e)(2)(iii)(C).
(f) Denominator. (1) For a MLR reporting year the denominator of
the MLR must equal the adjusted premium revenue. The adjusted premium
revenue is the MCO's, PIHP's, or PAHP's premium revenue (as defined in
paragraph (f)(2) of this section) minus the MCO's, PIHP's, or PAHP's
Federal and State taxes and licensing and regulatory fees (as defined
in paragraph (f)(3) of this section) and is aggregated in accordance
with paragraph (i) of this section.
(2) Premium revenue. Premium revenue includes the following for the
MLR reporting year:
(i) State capitation payments, developed in accordance with Sec.
438.4, to the MCO, PIHP, or PAHP for all enrollees under a risk
contract approved under Sec. 438.3(a).
(ii) State-developed one time payments, for specific life events of
enrollees.
(iii) Other payments to the MCO, PIHP, or PAHP under the contract
approved under Sec. 438.6, such as incentive arrangement payments or
withhold payments.
(iv) Unpaid cost-sharing amounts that the MCO, PIHP, or PAHP could
have collected from enrollees under the contract, except those amounts
the MCO, PIHP, or PAHP can show it made a reasonable, but unsuccessful,
effort to collect.
(v) All changes to unearned premium reserves.
(3) Federal and State taxes and licensing and regulatory fees.
Taxes, licensing and regulatory fees for the MLR reporting year
include:
(i) Statutory assessments to defray the operating expenses of any
State or Federal department.
(ii) Examination fees in lieu of premium taxes as specified by
State law.
(iii) Federal taxes and assessments allocated to MCOs, PIHPs, and
PAHPs, excluding Federal income taxes on investment income and capital
gains and Federal employment taxes.
(iv) State taxes and assessments including:
(A) Any industry-wide (or subset) assessments (other than
surcharges on specific claims) paid to the State directly.
(B) Guaranty fund assessments.
(C) Assessments of State industrial boards or other boards for
operating expenses or for benefits to sick employed persons in
connection with

[[Page 31262]]

disability benefit laws or similar taxes levied by States.
(D) State income, excise, and business taxes other than premium
taxes and State employment and similar taxes and assessments.
(E) State premium taxes plus State taxes based on reserves, if in
lieu of premium taxes.
(v) Payments made by an MCO, PIHP, or PAHP, which is otherwise
exempt from Federal income taxes, for community benefit expenditures as
defined in 45 CFR 158.162(c), limited to the highest of either:
(A) Three percent of earned premium; or
(B) The highest premium tax rate in the State for which the report
is being submitted, multiplied by the MCO's, PIHP's, or PAHP's earned
premium in the State.
(4) The total amount of the denominator for a MCO, PIHP, or PAHP
which is later assumed by another entity must be reported by the
assuming MCO, PIHP, or PAHP for the entire MLR reporting year and no
amount under this paragraph for that year may be reported by the ceding
MCO, PIHP, or PAHP.
(g) Allocation of expense--(1) General requirements. (i) Each
expense must be included under only one type of expense, unless a
portion of the expense fits under the definition of, or criteria for,
one type of expense and the remainder fits into a different type of
expense, in which case the expense must be pro-rated between types of
expenses.
(ii) Expenditures that benefit multiple contracts or populations,
or contracts other than those being reported, must be reported on a pro
rata basis.
(2) Methods used to allocate expenses. (i) Allocation to each
category must be based on a generally accepted accounting method that
is expected to yield the most accurate results.
(ii) Shared expenses, including expenses under the terms of a
management contract, must be apportioned pro rata to the contract
incurring the expense.
(iii) Expenses that relate solely to the operation of a reporting
entity, such as personnel costs associated with the adjusting and
paying of claims, must be borne solely by the reporting entity and are
not to be apportioned to the other entities.
(h) Credibility adjustment. (1) A MCO, PIHP, or PAHP may add a
credibility adjustment to a calculated MLR if the MLR reporting year
experience is partially credible. The credibility adjustment is added
to the reported MLR calculation before calculating any remittances, if
required by the State as described in paragraph (j) of this section.
(2) A MCO, PIHP, or PAHP may not add a credibility adjustment to a
calculated MLR if the MLR reporting year experience is fully credible.
(3) If a MCO's, PIHP's, or PAHP's experience is non-credible, it is
presumed to meet or exceed the MLR calculation standards in this
section.
(4) On an annual basis, CMS will publish base credibility factors
for MCOs, PIHPs, and PAHPs that are developed according to the
following methodology:
(i) CMS will use the most recently available and complete managed
care encounter data or FFS claims data, and enrollment data, reported
by the states to CMS. This data may cover more than 1 year of
experience.
(ii) CMS will calculate the credibility adjustment so that a MCO,
PIHP, or PAHP receiving a capitation payment that is estimated to have
a medical loss ratio of 85 percent would be expected to experience a
loss ratio less than 85 percent 1 out of every 4 years, or 25 percent
of the time.
(iii) The minimum number of member months necessary for a MCO's,
PIHP's, or PAHP's medical loss ratio to be determined at least
partially credible will be set so that the credibility adjustment would
not exceed 10 percent for any partially credible MCO, PIHP, or PAHP.
Any MCO, PIHP, or PAHP with enrollment less than this number of member
months will be determined non-credible.
(iv) The minimum number of member months necessary for an MCO's,
PIHP's, or PAHP's medical loss ratio to be determined fully credible
will be set so that the minimum credibility adjustment for any
partially credible MCO, PIHP, or PAHP would be greater than 1 percent.
Any MCO, PIHP, or PAHP with enrollment greater than this number of
member months will be determined fully credible.
(v) A MCO, PIHP, or PAHP with a number of enrollee member months
between the levels established for non-credible and fully credible
plans will be deemed partially credible, and CMS will develop
adjustments, using linear interpolation, based on the number of
enrollee member months.
(vi) CMS may adjust the number of enrollee member months necessary
for a MCO's, PIHP's, or PAHP's experience to be non-credible, partially
credible, or fully credible so that the standards are rounded for the
purposes of administrative simplification. The number of member months
will be rounded to 1,000 or a different degree of rounding as
appropriate to ensure that the credibility thresholds are consistent
with the objectives of this regulation.
(i) Aggregation of data--(1) Aggregation by covered population.
MCOs, PIHPs, or PAHPs will aggregate data for all Medicaid eligibility
groups covered under the contract with the State unless the State
requires separate reporting and a separate MLR calculation for specific
populations.
(2) [Reserved]
(j) Remittance to the State if Specific MLR is not met. If required
by the State, a MCO, PIHP, or PAHP must provide a remittance for an MLR
reporting year if the MLR for that MLR reporting year does not meet the
minimum MLR standard of 85 percent or higher if set by the State as
described in paragraph (c) of this section.
(k) Reporting requirements. (1) The State, through its contracts,
must require each MCO, PIHP, or PAHP to submit a report to the State
that includes at least the following information for each MLR reporting
year:
(i) Total incurred claims.
(ii) Expenditures on quality improving activities.
(iii) Expenditures related to activities compliant with Sec.
438.608(a)(1) through (5), (7), (8) and (b).
(iv) Non-claims costs.
(v) Premium revenue.
(vi) Taxes, licensing and regulatory fees.
(vii) Methodology for allocation of expenditures.
(viii) Any credibility adjustment applied.
(ix) The calculated MLR.
(x) Any remittance owed to the State, if applicable.
(xi) A reconciliation of the information reported in this paragraph
with the audited financial report required under Sec. 438.3(m).
(xii) A description of the aggregation method used under paragraph
(i) of this section.
(xiii) The number of member months.
(2) A MCO, PIHP, or PAHP must submit the report required in
paragraph (k)(1) of this section in a timeframe and manner determined
by the State, which must be within 12 months of the end of the MLR
reporting year.
(3) MCOs, PIHPs, or PAHPs must require any third party vendor
supplying Medicaid services to its enrollees to provide all underlying
data associated with MLR reporting to that MCO, PIHP, or PAHP within
180 days of the end of the MLR reporting year or within 30 days of
being requested by the MCO, PIHP, or PAHP, whichever comes sooner,
regardless of current contractual limitations, to calculate and
validate the accuracy of MLR reporting.

[[Page 31263]]

(l) Newer experience. A State, in its discretion, may exclude a
MCO, PIHP, or PAHP that is newly contracted with the State from the
requirements in this section for the first year of the MCO's, PIHP's,
or PAHP's operation. Such MCOs, PIHPs, or PAHPs must be required to
comply with the requirements in this section during the next MLR
reporting year in which the MCO, PIHP, or PAHP is in business with the
State, even if the first year was not a full 12 months.
(m) Recalculation of MLR. In any instance where a State makes a
retroactive change to the capitation payments for a MLR reporting year
where the report has already been submitted to the State, the MCO,
PIHP, or PAHP must re-calculate the MLR for all MLR reporting years
affected by the change and submit a new report meeting the requirements
in paragraph (k) of this section.
(n) Attestation. MCOs, PIHPs, and PAHPs must attest to the accuracy
of the calculation of the MLR in accordance with requirements of this
section when submitting the report required under paragraph (k) of this
section.

Sec. 438.9 Provisions that apply to non-emergency medical
transportation PAHPs.

(a) For purposes of this section, Non-Emergency Medical
Transportation (NEMT) PAHP means an entity that provides only NEMT
services to enrollees under contract with the State, and on the basis
of prepaid capitation payments, or other payment arrangements that do
not use State plan payment rates.
(b) Unless listed in this paragraph, a requirement of this part
does not apply to NEMT PAHPs, NEMT PAHP contracts, or States in
connection with a NEMT PAHP. The following requirements and options
apply to NEMT PAHPs, NEMT PAHP contracts, and States in connection with
NEMT PAHPs, to the same extent that they apply to PAHPs, PAHP
contracts, and States in connection with PAHPs.
(1) All contract provisions in Sec. 438.3 except requirements for:
(i) Physician Incentive plans.
(ii) Advance directives.
(iii) LTSS requirements.
(iv) MHPAEA.
(2) The actuarial soundness requirements in Sec. 438.4.
(3) The information requirements in Sec. 438.10.
(4) The provision against provider discrimination in Sec. 438.12.
(5) The State responsibility provisions in Sec. Sec. 438.56,
438.58, 438.60, and 438.62(a).
(6) The provisions on enrollee rights and protections in subpart C
of this part except for Sec. Sec. 438.110 and 438.114.
(7) The PAHP standards in Sec. Sec. 438.206(b)(1), 438.210,
438.214, 438.224, 438.230, and 438.242.
(8) An enrollee's right to a State fair hearing under subpart E of
part 431 of this chapter.
(9) Prohibitions against affiliations with individuals debarred or
excluded by Federal agencies in Sec. 438.610.

Sec. 438.10 Information requirements.

(a) Definitions. As used in this section, the following terms have
the indicated meanings:
Prevalent means a non-English language determined to be spoken by a
significant number or percentage of potential enrollees and enrollees
that are limited English proficient and consistent with standards used
by the Office for Civil Rights in enforcing anti-discrimination
provisions.
Readily accessible means electronic information and services which
comply with modern accessibility standards such as Section 508
guidelines or guidelines that provide greater accessibility to
individuals with disabilities.
(b) Applicability. The provisions of this section apply to all
managed care programs which operate under any authority in the Act.
(c) Basic rules. (1) Each State, enrollment broker, MCO, PIHP,
PAHP, PCCM, and PCCM entity must provide all required information in
this section to enrollees and potential enrollees in a manner and
format that may be easily understood and readily accessible by such
enrollees and potential enrollees.
(2) The State must utilize its beneficiary support system required
in Sec. 438.71.
(3) The State must operate a Web site that provides the content
specified in paragraphs (g) and (h) of this section, Sec. 438.68(e),
Sec. 438.364(b)(2), and Sec. 438.602(g), either directly or by
linking to individual MCO, PIHP, PAHP or PCCM entity Web sites.
(4) For consistency in the information provided to enrollees, the
State must develop and require each MCO, PIHP, PAHP and PCCM entity to
use:
(i) Definitions for managed care terminology, including appeal, co-
payment, durable medical equipment, emergency medical condition,
emergency medical transportation, emergency room care, emergency
services, excluded services, grievance, habilitation services, health
insurance, home health care, hospice services, hospitalization,
hospital outpatient care, medically necessary, network, non-
participating provider, physician services, plan, preauthorization,
participating provider, premium, prescription drug coverage,
prescription drugs, primary care physician, primary care provider,
provider, rehabilitation services, skilled nursing care, specialist,
and urgent care; and
(ii) Model member handbooks and member notices.
(5) The State must ensure, through its contracts, that each MCO,
PIHP, PAHP and PCCM entity provides the required information in this
section to each enrollee.
(6) Enrollee information required in this section may not be
provided electronically by the State, MCO, PIHP, PAHP, PCCM or PCCM
entity unless all of the following are met:
(i) The format is readily accessible.
(ii) The information is placed in a location on the State, MCO,
PIHP, PAHP, or PCCM entity Web site that is prominent and readily
accessible.
(iii) The information is provided in an electronic form which can
be electronically retained and printed.
(iv) The information is consistent with the content and language
requirements of this section.
(v) The State, MCO, PIHP, PAHP, and PCCM entity informs the
enrollee that the information is available in paper form without charge
upon request and provides it upon request within 5 calendar days.
(7) Each MCO, PIHP, PAHP, and PCCM entity must have in place a
mechanism to help enrollees and potential enrollees understand the
requirements and benefits of the plan.
(d) Language and format. The State must:
(1) Establish a methodology for identifying the prevalent non-
English languages spoken by enrollees and potential enrollees
throughout the State, and in each MCO, PIHP, PAHP, or PCCM entity
service area.
(2) Make available oral and written information in each prevalent
non-English language. All written materials for potential enrollees
must include taglines in each prevalent non-English language as well as
large print explaining the availability of written translations or oral
interpretation to understand the information provided and the toll-free
telephone number of the entity providing choice counseling services as
required by Sec. 438.71(a). Large print means printed in a font size
no smaller than 18 pt.
(3) Require each MCO, PIHP, PAHP, and PCCM entity to make its
written materials, including, at a minimum, provider directories,
member handbooks, appeal and grievance

[[Page 31264]]

notices and other notices that are critical to obtaining services,
available in the prevalent non-English languages in its particular
service area. Written materials must also be made available in
alternative formats and auxiliary aids and services should be made
available upon request of the potential enrollee or enrollee at no
cost.
(i) All written materials for enrollees, including provider
directories, member handbooks, appeal and grievance notices and other
notices that are critical to obtaining services, must include taglines
in each prevalent non-English language as well as large print
explaining the availability of written translations or oral
interpretation to understand the information provided and the toll-free
and TTY/TDY telephone number of the MCO's, PIHP's, PAHP's or PCCM
entity's member/customer service unit. Large print means printed in a
font size no smaller than 18 pt.
(ii) [Reserved]
(4) Make interpretation services available to each potential
enrollee and require each MCO, PIHP, PAHP, and PCCM entity to make
those services available free of charge to each enrollee. This includes
oral interpretation and the use of auxiliary aids such as TTY/TDY and
American sign language. Oral interpretation requirements apply to all
non-English languages, not just those that the State identifies as
prevalent.
(5) Notify potential enrollees, and require each MCO, PIHP, PAHP,
and PCCM entity to notify its enrollees--
(i) That oral interpretation is available for any language and
written information is available in prevalent languages;
(ii) That auxiliary aids and services are available upon request
and at no cost for enrollees with disabilities; and
(iii) How to access those services.
(6) Provide, and require MCOs, PIHPs, PAHPs, PCCMs or PCCM entities
to provide, all written materials for potential enrollees and enrollees
consistent with the following:
(i) Use easily understood language and format.
(ii) Use a font size no smaller than 12 point.
(iii) Be available in alternative formats and through the provision
of auxiliary aids and services in an appropriate manner that takes into
consideration the special needs of enrollees or potential enrollees
with disabilities or limited English proficiency.
(iv) Include a large print tagline and information on how to
request auxiliary aids and services, including the provision of the
materials in alternative formats. Large print means printed in a font
size no smaller than 18 pt.
(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, either in
paper or electronic form 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.
(ii) Within a timeframe that enables the potential enrollee to use
the information in choosing among available MCOs, PIHPs, PAHPs, PCCMs,
or PCCM entities.
(2) The information for potential enrollees must include at a
minimum the following:
(i) Information about the potential enrollee's right to disenroll
consistent with the requirements of Sec. 438.56 and which explains
clearly the process for exercising this disenrollment right, as well as
the alternatives available to the potential enrollee based on their
specific circumstance.
(ii) The basic features of managed care.
(iii) Which populations are excluded from enrollment, subject to
mandatory enrollment, or free to enroll voluntarily in the program.
(iv) The service area covered by each MCO, PIHP, PAHP, PCCM, or
PCCM entity.
(v) Covered benefits including
(A) Which benefits are provided by the MCO, PIHP, or PAHP; and
(B) Which, if any, benefits are provided directly by the State.
(C) For a counseling or referral service that the MCO, PIHP, or
PAHP does not cover because of moral or religious objections, the State
must provide information about where and how to obtain the service.
(vi) The provider directory information required in paragraph (h)
of this section.
(vii) Any cost-sharing that will be imposed by the MCO, PIHP, PAHP,
PCCM or PCCM entity consistent with those set forth in the State plan.
(viii) The requirements for each MCO, PIHP or PAHP to provide
adequate access to covered services, including the network adequacy
standards established in Sec. 438.68.
(ix) MCO, PIHP, PAHP, PCCM and PCCM entity's responsibilities for
coordination of enrollee care.
(x) To the extent available, quality and performance indicators for
each MCO, PIHP, PAHP and PCCM entity, including enrollee satisfaction.
(f) Information for all enrollees of MCOs, PIHPs, PAHPs, and PCCM
entities: General requirements. (1) The MCO, PIHP, PAHP and, when
appropriate, the PCCM entity, must make a good faith effort to give
written notice of termination of a contracted provider, within 15
calendar 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.
(2) The State must notify all enrollees of their right to disenroll
consistent with the requirements of Sec. 438.56 at least annually.
Such notification must clearly explain the process for exercising this
disenrollment right, as well as the alternatives available to the
enrollee based on their specific circumstance. For States that choose
to restrict disenrollment for periods of 90 days or more, States must
send the notice no less than 60 calendar days before the start of each
enrollment period.
(3) The MCO, PIHP, PAHP and, when appropriate, the PCCM entity must
make available, upon request, any physician incentive plans in place as
set forth in Sec. 438.3(i).
(g) Information for enrollees of MCOs, PIHPs, PAHPs and PCCM
entities--Enrollee handbook. (1) Each MCO, PIHP, PAHP and PCCM entity
must provide each enrollee an enrollee handbook, within a reasonable
time after receiving notice of the beneficiary's enrollment, which
serves a similar function as the summary of benefits and coverage
described in 45 CFR 147.200(a).
(2) The content of the member handbook must include information
that enables the enrollee to understand how to effectively use the
managed care program. This information must include at a minimum:
(i) Benefits provided by the MCO, PIHP, PAHP or PCCM entity.
(ii) How and where to access any benefits provided by the State,
including any cost sharing, and how transportation is provided.
(A) In the case of a counseling or referral service that the MCO,
PIHP, PAHP, or PCCM entity does not cover because of moral or religious
objections, the MCO, PIHP, PAHP, or PCCM entity must inform enrollees
that the service is not covered.
(B) The MCO, PIHP, PAHP, or PCCM entity must inform enrollees how
they can to obtain information from the State about how to access those
services.
(iii) The amount, duration, and scope of benefits available under
the contract in sufficient detail to ensure that

[[Page 31265]]

enrollees understand the benefits to which they are entitled.
(iv) Procedures for obtaining benefits, including any requirements
for service authorizations and/or referrals for specialty care and for
other benefits not furnished by the enrollee's primary care provider.
(v) The extent to which, and how, after-hours and emergency
coverage are provided, including:
(A) What constitutes an emergency medical condition and emergency
services.
(B) The fact that prior authorization is not required for emergency
services.
(C) 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.
(vi) Any restrictions on the enrollee's freedom of choice among
network providers.
(vii) The extent to which, and how, enrollees may obtain benefits,
including family planning services and supplies, from out-of-network
providers.
(viii) Cost sharing, if any is imposed under the State plan.
(ix) Enrollee rights and responsibilities, including the elements
specified in Sec. 438.100.
(x) The process of selecting and changing the enrollee's primary
care provider.
(xi) Grievance, appeal, and fair hearing procedures and timeframes,
consistent with subpart F of this part, in a State-developed or State-
approved description. Such information must include:
(A) The right to file grievances and appeals.
(B) The requirements and timeframes for filing a grievance or
appeal.
(C) The availability of assistance in the filing process.
(D) The right to request a State fair hearing after the MCO, PIHP
or PAHP has made a determination on an enrollee's appeal which is
adverse to the enrollee.
(E) The fact that, when requested by the enrollee benefits that the
MCO, PIHP, or PAHP seeks to reduce or terminate will continue if the
enrollee files an appeal or a request for State fair hearing within the
timeframes specified for filing, the enrollee may, consistent with
state policy, be required to pay the cost of services furnished while
the appeal or State Fair Hearing is pending if the final decision is
adverse to the enrollee.
(xii) How to exercise an advance directive, as set forth in Sec.
438.3(j). For PAHPs, information must be provided only to the extent
that the PAHP includes any of the providers described in Sec.
489.102(a) of this chapter.
(xiii) How to access auxiliary aids and services, including
additional information in in alternative formats or languages.
(xiv) The toll-free telephone number for member services medical
management and any other unit providing services directly to enrollees.
(xv) Information on how to report suspected fraud or abuse;
(xvi) Any other content required by the State.
(3) Information required by this paragraph to be provided by a MCO,
PIHP, PAHP or PCCM entity will be considered to be provided if the MCO,
PIHP, PAHP or PCCM entity:
(i) Mails a printed copy of the information to the enrollee's
mailing address;
(ii) Provides the information by email after obtaining the
enrollee's agreement to receive the information by email;
(iii) Posts the information on the Web site of the MCO, PIHP, PAHP
or PCCM entity and advises the enrollee in paper or electronic form
that the information is available on the Internet and includes the
applicable Internet address provided that enrollees with disabilities
who cannot access this information online are provided auxiliary aids
and services upon request at no cost; or
(iv) Provides the information by any other method that can
reasonably be expected to result in the enrollee receiving that
information.
(4) The MCO, PIHP, PAHP, or PCCM entity must give each enrollee
notice of any change that the State defines as significant in the
information specified in this paragraph (g), at least 30 days before
the intended effective date of the change.
(h) Information for all enrollees of MCOs, PIHPs, PAHPs, and PCCM
entities--Provider Directory. (1) Each MCO, PIHP, PAHP, and when
appropriate, the PCCM entity, must make available in electronic or
paper form, the following information about its network providers:
(i) The provider's name as well as any group affiliation.
(ii) Street address(es).
(iii) Telephone number(s).
(iv) Web site URL as appropriate.
(v) Specialty, if appropriate.
(vi) Whether the provider will accept new enrollees.
(vii) The provider's cultural and linguistic capabilities,
including languages spoken by the provider or by skilled medical
interpreter at the provider's office.
(viii) Whether the provider's office/facility is accessible for
people with physical disabilities, including offices, exam room(s) and
equipment.
(2) The provider directory must include the information in
paragraph (h)(1) of this section for each of the following provider
types covered under the contract:
(i) Physicians including specialists.
(ii) Hospitals.
(iii) Pharmacies.
(iv) Behavioral health providers.
(v) LTSS providers.
(3) Information included in a paper provider directory must be
updated at least monthly and electronic provider directories must be
updated no later than 3 business days after the MCO, PIHP, PAHP or PCCM
entity receives updated provider information.
(4) Provider directories must be made available on the MCO's,
PIHP's, PAHP's, or, if applicable, PCCM entity's Web site in a machine
readable file and format as specified by the Secretary.
(i) Information for all enrollees of MCOs, PIHPs, PAHPs, and PCCM
entities: Formulary. Each MCO, PIHP, PAHP, and when appropriate, PCCM
entity, must make available in electronic or paper form, the following
information about its formulary:
(1) Which medications are covered (both generic and name brand).
(2) What tier each medication is on.
(3) Formulary drug lists must be made available on the MCO's,
PIHP's, PAHP's, or, if applicable, PCCM entity's Web site in a machine
readable file and format as specified by the Secretary.

Sec. 438.12 Provider discrimination prohibited.

(a) General rules. (1) An MCO, PIHP, or PAHP may not discriminate
in 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 provider 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

[[Page 31266]]

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

Sec. 438.14 Requirements that apply to MCO, PIHP, PAHP, PCCM, and
PCCM entity contracts involving Indians, Indian health care providers
(IHCPs), and Indian managed care entities (IMCEs).

(a) Definitions. As used in this section, the following terms have
the indicated meanings:
Indian means any individual defined at 25 U.S.C. 1603(13),1603(28),
or 1679(a), or who has been determined eligible as an Indian, under 42
CFR 136.12. This means the individual:
(i) Is a member of a Federally recognized Indian tribe.
(ii) Resides in an urban center and meets one or more of the four
criteria:
(A) Is a member of a tribe, band, or other organized group of
Indians, including those tribes, bands, or groups terminated since 1940
and those recognized now or in the future by the State in which they
reside, or who is a descendant, in the first or second degree, of any
such member;
(B) Is an Eskimo or Aleut or other Alaska Native;
(C) Is considered by the Secretary of the Interior to be an Indian
for any purpose; or
(D) Is determined to be an Indian under regulations promulgated by
the Secretary;
(iii) Is considered by the Secretary of the Interior to be an
Indian for any purpose;
(iv) Is considered by the Secretary of Health and Human Services to
be an Indian for purposes of eligibility for Indian health care
services, including as a California Indian, Eskimo, Aleut, or other
Alaska Native.
Indian health care provider (IHCP) under 42 CFR 447.51 means a
health care program operated by the Indian Health Service (IHS) or by
an Indian Tribe, Tribal Organization, or Urban Indian Organization
(otherwise known as an I/T/U) as those terms are defined in section 4
of the Indian Health Care Improvement Act (25 U.S.C. 1603).
Indian managed care entity (IMCE) under section 1932(h)(4)(B) of
the Act means a MCO, PIHP, PAHP, PCCM, or PCCM entity that is
controlled (within the meaning of the last sentence of section
1903(m)(1)(C) of the Act) by the Indian Health Service, a Tribe, Tribal
Organization, or Urban Indian Organization, or a consortium, which may
be composed of one or more Tribes, Tribal Organizations, or Urban
Indian Organizations, and which also may include the Service.
(b) Network requirements. All contracts between a State and a MCO,
PIHP, PAHP, PCCM, and PCCM entity, to the extent that the PCCM or PCCM
entity has a provider network, which enroll Indians must:
(1) Require the MCO, PIHP, PAHP, PCCM entity to demonstrate that
there are sufficient IHCPs participating in the provider network of the
MCO, PIHP, PAHP, or PCCM entity to ensure timely access to services
available under the contract from such providers for Indian enrollees
who are eligible to receive services.
(2) Require that IHCPs, whether participating or not, be paid for
covered services provided to Indian enrollees who are eligible to
receive services from such providers as follows:
(i) At a rate negotiated between the MCO, PIHP, PAHP, PCCM, or PCCM
entity, and the IHCP, or
(ii) In the absence of a negotiated rate, at a rate not less than
the level and amount of payment that the MCO, PIHP, PAHP, or PCCM
entity would make for the services to a participating provider which is
not an IHCP; and
(iii) Make payment to all IHCPs in its network in a timely manner
as required for payments to practitioners in individual or group
practices under Sec. Sec. 447.45 and 447.46 of this chapter.
(3) Permit any Indian who is enrolled in a MCO, PIHP, PAHP, PCCM or
PCCM entity that is not an IMCE and eligible to receive services from a
IHCP primary care provider participating as a network provider, to
choose that IHCP as his or her primary care provider, as long as that
provider has capacity to provide the services.
(4) Permit Indian enrollees to obtain services covered under the
contract between the State and the MCO, PIHP, PAHP, PCCM, or PCCM
entity from out-of-network IHCPs from whom the enrollee is otherwise
eligible to receive such services.
(5) In a State where timely access to covered services cannot be
ensured due to few or no IHCPs, an MCO, PIHP, PAHP and PCCM will be
considered to have met the requirement in paragraph (b)(1) of this
section if--
(i) Indian enrollees are permitted by the MCO, PIHP, PAHP, or PCCM
entity to access out-of-State IHCPs; or
(ii) If this circumstance is deemed to be good cause for
disenrollment from both the MCO, PIHP, PAHP, or PCCM entity and the
State's managed care program in accordance with Sec. 438.56(c).
(c) Payment requirements. (1) When an IHCP is enrolled in Medicaid
as a FQHC but not a participating provider of the MCO, PIHP, PAHP and
PCCM entity, it must be paid an amount equal to the amount the MCO,
PIHP, PAHP, or PCCM entity would pay a FQHC that is a network provider
but is not an IHCP, including any supplemental payment from the State
to make up the difference between the amount the MCO, PIHP, PAHP or
PCCM entity pays and what the IHCP FQHC would have received under FFS.
(2) When an IHCP is not enrolled in Medicaid as a FQHC, regardless
of whether it participates in the network of an MCO, PIHP, PAHP and
PCCM entity or not, it has the right to receive the same amount it
would be paid if the services provided to the Indian enrollee were
provided under the State plan in a FFS payment methodology or the
applicable encounter rate published annually in the Federal Register by
the Indian Health Service.
(3) Where the amount a IHCP receives from a MCO, PIHP, PAHP, or
PCCM entity is less than the amount required by paragraph (c)(2) of
this section, the State must make a supplemental payment to the IHCP to
make up the difference between the amount the MCO, PIHP, PAHP, PCCM, or
PCCM entity pays and the amount the IHCP would have received under FFS
or the applicable encounter rate.
(d) Enrollment in IMCEs. An IMCE may restrict its enrollment to
Indians in the same manner as Indian Health Programs may restrict the
delivery of services to Indians, without being in violation of the
requirements in Sec. 438.3(d).

Subpart B--State Responsibilities

Sec. 438.50 State Plan requirements.

(a) General rule. A State plan that requires Medicaid beneficiaries
to enroll in MCOs, PCCMs, or PCCM 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 FFS or
capitation).
(3) Whether it contracts on a comprehensive risk basis.
(4) The process the State uses to involve the public in both design
and initial implementation of the managed care 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:

[[Page 31267]]

(1) Section 1903(m) of the Act, for MCOs and MCO contracts.
(2) Section 1905(t) of the Act, for PCCMs and PCCM or PCCM entity
contracts.
(3) Section 1932(a)(1)(A) of the Act, for the State's option to
limit freedom of choice by requiring beneficiaries to receive their
benefits through managed care entities.
(4) This part, for MCOs, PCCMs, and PCCM entities.
(5) Part 434 of this chapter, for all contracts.
(6) Section 438.4, 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, PCCM or PCCM entity:
(1) Beneficiaries who are also eligible for Medicare.
(2) Indians as defined in Sec. 438.14(a), except as permitted
under Sec. 438.14(d).
(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.

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

(a) General rule. Except as specified in paragraphs (b) and (c) of
this section, a State that requires Medicaid beneficiaries to:
(1) Enroll in an MCO, PIHP, or PAHP must give those beneficiaries a
choice of at least two MCOs, PIHPs, or PAHPs.
(2) Enroll in a primary care case management system must give those
beneficiaries a choice from at least two primary care case managers
employed or contracted with the State.
(3) Enroll in a PCCM entity may limit a beneficiary to a single
PCCM entity. Beneficiaries must be permitted to choose from at least
two primary care case managers employed by or contracted with the PCCM
entity.
(b) Exception for rural area residents. (1) Under any managed care
program authorized by any of the following, 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, or PAHP:
(i) A State 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) To comply with this paragraph, a State, must permit the
beneficiary--
(i) To choose from at least two primary care providers; 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,
or PAHP network.
(B) The provider is not part of the network, but is the main source
of a service to the beneficiary, provided that--
(1) The provider is given the opportunity to become a participating
provider under the same requirements for participation in the MCO,
PIHP, or PAHP 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 calendar
days (after being given an opportunity to select a provider who
participates).
(C) The only plan or provider available to the beneficiary does
not, because of moral or religious objections, provide the service the
enrollee seeks.
(D) The beneficiary's primary care provider or other provider
determines that the beneficiary needs related services that would
subject the beneficiary 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 (b), ``rural area'' is any county
designated as ``micro,'' ``rural,'' or ``County with Extreme Access
Criteria (CEAC)'' in the Medicare Advantage Health Services Delivery
(HSD) Reference file for the applicable calendar year.
(c) Exception for certain health insuring organizations (HIOs). The
State may limit beneficiaries to a single HIO if--
(1) The HIO is one of those described in section 1932(a)(3)(C) of
the Act; and
(2) The beneficiary 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) or (c)
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. 438.54 Managed care enrollment.

(a) Applicability. The provisions of this section apply to all
Medicaid managed care programs which operate under any authority in the
Act.
(b) General rule. The State must have an enrollment system for both
voluntary and mandatory managed care programs.
(1) Voluntary managed care programs are those where one or more
groups of beneficiaries as enumerated in section of 1905(a) of the Act
have the option to either enroll in a MCO, PIHP, PAHP, PCCM or PCCM
entity, or remain enrolled in FFS to receive Medicaid covered benefits.
(2) Mandatory managed care programs are those where one or more
groups of beneficiaries as enumerated in section 1905(a) of the Act
must enroll in a MCO, PIHP, PAHP, PCCM or PCCM entity to receive
covered Medicaid benefits.
(c) Voluntary managed care programs. (1) States must have an
enrollment system for a voluntary managed care program. That system may
provide an enrollment choice period with the ability to make an active
choice for managed care programs or may employ a passive enrollment
process in which the State selects a MCO, PIHP, PAHP, PCCM or PCCM
entity for a potential enrollee in a MCO, PIHP, PAHP, PCCM or PCCM
entity but provides a period of time for the potential enrollee to
decline the MCO, PIHP, PAHP, PCCM or PCCM entity selected for them
before being enrolled in the MCO, PIHP, PAHP, PCCM or PCCM entity.
(2) A State must provide potential enrollees at least 14 calendar
days of FFS coverage to provide the potential enrollee the opportunity
to actively elect to receive covered services through the managed care
or FFS delivery system. If the potential enrollee elects to receive
covered services through the managed care delivery system, the
potential enrollee must then also select a MCO, PIHP, PAHP, PCCM, or
PCCM entity.
(i) If the State does not use a passive enrollment process and the
potential enrollee does not make an active choice during the choice
period, the potential enrollee will be enrolled in a MCO, PIHP, PAHP,
PCCM, or PCCM entity by the State using its default process. The
enrollment into the MCO, PIHP, PAHP,

[[Page 31268]]

PCCM, or PCCM entity will become effective after the end of the choice
period.
(ii) If the State used a passive enrollment process, the potential
enrollee must select either to accept the MCO, PIHP, PAHP, PCCM, or
PCCM entity selected for them by the State's passive enrollment process
or select a different MCO, PIHP, PAHP, PCCM, or PCCM entity. If the
potential enrollee does not make an active choice during the choice
period, the MCO, PIHP, PAHP, PCCM, or PCCM entity selected for them by
the passive enrollment process will become effective. The enrollment
into the MCO, PIHP, PAHP, PCCM, or PCCM entity will become effective
after the end of the choice period.
(3) The State must develop informational notices that clearly
explain the implications to the potential enrollee of not making an
active choice between managed care and FFS and declining the MCO, PIHP,
PAHP, PCCM, or PCCM entity selected by the State, if relevant to the
State's managed care program. These notices must:
(i) Comply with the information requirements in Sec. 438.10.
(ii) Have a postmark or electronic date stamp that is at least 3
calendar days prior to the first day of the election period identified
in paragraph (c)(2) of this section.
(4) Priority for enrollment. The State's enrollment system must
provide that beneficiaries already enrolled in an MCO, PIHP, PAHP, PCCM
or PCCM entity are given priority to continue that enrollment if the
MCO, PIHP, PAHP, PCCM or PCCM entity does not have the capacity to
accept all those seeking enrollment under the program.
(5) If a State elects to use a passive enrollment process, the
process must assign beneficiaries to a qualified MCO, PIHP, PAHP, PCCM
or PCCM entity. To be a qualified MCO, PIHP, PAHP, PCCM or PCCM entity,
it must:
(i) Not be subject to the intermediate sanction described in Sec.
438.702(a)(4).
(ii) Have capacity to enroll beneficiaries.
(6) A passive enrollment process must seek to preserve existing
provider-beneficiary relationships and relationships with providers
that have traditionally served Medicaid beneficiaries.
(i) An ``existing provider-beneficiary relationship'' is one in
which the provider was the main source of Medicaid services for the
beneficiary during the previous year. This may be established through
State records of previous managed care enrollment or FFS experience,
encounter data, or through contact with the beneficiary.
(ii) A provider is considered to have ``traditionally served''
Medicaid beneficiaries if it has experience in serving the Medicaid
population.
(7) If the approach in paragraph (c)(6) of this section is not
possible, the State must distribute the beneficiaries equitably among
the MCOs, PIHPs, PAHPs, PCCMs and PCCM entities.
(i) The State may not arbitrarily exclude any MCO, PIHP, PAHP, PCCM
or PCCM entity from being considered.
(ii) The State may consider additional criteria to conduct the
passive enrollment process, including the enrollment preferences of
family members, previous plan assignment of the beneficiary, quality
assurance and improvement performance, procurement evaluation elements,
accessibility of provider offices for people with disabilities (when
appropriate), and other reasonable criteria that support the objectives
of the managed care program.
(8) If a passive selection process is used, the State must send a
confirmation of the enrollee's managed care enrollment to the enrollee
within 5 calendar days of the MCO, PIHP, PAHP, PCCM or PCCM entity
enrollment being processed by the State. The confirmation must clearly
explain the enrollee's right to disenroll within 90 days from the
effective date of the enrollment.
(d) Mandatory managed care programs. (1) States must have an
enrollment system for a mandatory managed care program that includes
the elements specified in paragraphs (d)(2) through (7) of this
section.
(2) A State must provide potential enrollees at least 14 calendar
days of FFS coverage to provide the potential enrollee the opportunity
to actively select their MCO, PIHP, PAHP, PCCM, or PCCM entity.
(3) A State must provide informational notices to each potential
enrollee that explain the process for enrolling in a MCO, PIHP, PAHP,
PCCM or PCCM entity including the choice of MCOs, PIHPs, PAHPs, PCCMs
or PCCM entities available, how to make the enrollee's selection of a
MCO, PIHP, PAHP or PCCM known to the State, and enrollee's right to
disenroll within 90 days from the effective date of the enrollment.
These notices must:
(i) Comply with the information requirements in Sec. 438.10.
(ii) Have a postmark or electronic date stamp that is at least 3
calendar days prior to the first day of the election period identified
in paragraph (d)(2) of this section.
(4) Priority for enrollment. The State's enrollment system must
provide that beneficiaries already enrolled in an MCO, PIHP, PAHP, PCCM
or PCCM entity are given priority to continue that enrollment if the
MCO, PIHP, PAHP, PCCM or PCCM entity does not have the capacity to
accept all those seeking enrollment under the program.
(5) Enrollment by default. For potential enrollees that do not
select an MCO, PIHP, PAHP, PCCM or PCCM entities during the enrollment
period specified in paragraph (d)(2) of this section, the State must
have a default enrollment process for assigning those beneficiaries to
qualified MCOs, PIHPs, PAHPs, PCCMs and PCCM entities. To be a
qualified MCO, PIHP, PAHP, PCCM or PCCM entity, it must:
(i) Not be subject to the intermediate sanction described in Sec.
438.702(a)(4).
(ii) Have capacity to enroll beneficiaries.
(6) The process must seek to preserve existing provider-beneficiary
relationships and relationships with providers that have traditionally
served Medicaid beneficiaries.
(i) An ``existing provider-beneficiary relationship'' is one in
which the provider was the main source of Medicaid services for the
beneficiary during the previous year. This may be established through
State records of previous managed care enrollment or FFS experience,
encounter data, or through contact with the beneficiary.
(ii) A provider is considered to have ``traditionally served''
Medicaid beneficiaries if it has experience in serving the Medicaid
population.
(7) If the approach in paragraph (d)(6) of this section is not
possible, the State must distribute the beneficiaries equitably among
the MCOs, PIHPs, PAHPs, PCCMs and PCCM entities available to enroll
them.
(i) The State may not arbitrarily exclude any MCO, PIHP, PAHP, PCCM
or PCCM entity from being considered; and
(ii) The State may consider additional criteria to conduct the
default enrollment process, including the enrollment preferences of
family members, previous plan assignment of the beneficiary, quality
assurance and improvement performance, procurement evaluation elements,
and other reasonable criteria related to a beneficiary's experience
with the Medicaid program.

Sec. 438.56 Disenrollment: Requirements and limitations.

(a) Applicability. The provisions of this section apply to all
managed care programs whether enrollment is

[[Page 31269]]

mandatory or voluntary and whether the contract is with an MCO, PIHP,
PAHP, PCCM or PCCM entity.
(b) Disenrollment requested by the MCO, PIHP, PAHP, PCCM or PCCM
entity. All MCO, PIHP, PAHP, PCCM and PCCM entity contracts must:
(1) Specify the reasons for which the MCO, PIHP, PAHP, PCCM or PCCM
entity may request disenrollment of an enrollee.
(2) Provide that the MCO, PIHP, PAHP, PCCM or PCCM entity may not
request disenrollment because of an adverse 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 when his or
her continued enrollment in the MCO, PIHP, PAHP, PCCM or PCCM entity
seriously impairs the entity's ability to furnish services to either
this particular enrollee or other enrollees).
(3) Specify the methods by which the MCO, PIHP, PAHP, PCCM or PCCM
entity 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, PCCM and PCCM entity
contracts must provide that a beneficiary 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 beneficiary's
initial enrollment into a MCO, PIHP, PAHP, PCCM or PCCM entity, or the
date the State sends the beneficiary 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
beneficiary to miss the annual disenrollment opportunity.
(iv) When the State imposes the intermediate sanction specified in
Sec. 438.702(a)(4).
(d) Procedures for disenrollment--(1) Request for disenrollment.
The beneficiary (or his or her representative) must submit an oral or
written request, as required by the State--
(i) To the State (or its agent); or
(ii) To the MCO, PIHP, PAHP, PCCM or PCCM entity, if the State
permits MCOs, PIHP, PAHPs, PCCMs and PCCM entities 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, PCCM's or
PCCM entity'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 provider 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) For enrollees that use MLTSS services, the enrollee would have
to change their residential, institutional, or employment supports
provider based on that provider's change in status from an in-network
to an out-of-network provider with the MCO, PIHP or PAHP.
(v) Other reasons, including 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, PCCM, or PCCM entity action on request. (i)
When the MCO's, PIHP's, PAHP's, PCCM's or PCCMs entity's contract with
the State permits the MCO, PIHP, PAHP, PCCM or PCCM entity to process
disenrollment requests, the MCO, PIHP, PAHP, PCCM or PCCM entity may
either approve a request for disenrollment by or on behalf of an
enrollee or the MCO, PIHP, PAHP, PCCM or PCCM entity must refer the
request to the State.
(ii) If the MCO, PIHP, PAHP, PCCM, PCCM entity, or State agency
(whichever is responsible) fails to make a disenrollment determination
so that the beneficiary 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 beneficiary, or one referred by the MCO, PIHP, PAHP, PCCM, or
PCCM entity, 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, PCCM, or PCCM
entity at the agency's request.
(iii) Any of the reasons specified in paragraph (d)(2) of this
section.
(5) Use of the MCO's, PIHP's, PAHP's, PCCM's or PCCMs entity's
grievance procedures. (i) The State agency may require that the
enrollee seek redress through the MCO's, PIHP's, PAHP's, PCCM's or PCCM
entity'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 paragraph (e)(1) of this section.
(iii) If, as a result of the grievance process, the MCO, PIHP,
PAHP, PCCM or PCCM entity approves the disenrollment, the State agency
is not required to make a determination in accordance with paragraph
(d)(4) of this section.
(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 requests disenrollment or the
MCO, PIHP, PAHP, PCCM or PCCM entity refers the request to the State.
(2) If the MCO, PIHP, PAHP, PCCM, PCCM entity, or the State agency
(whichever is responsible) fails to make the determination within the
timeframes specified in paragraph (e)(1) of this section, the
disenrollment is considered approved for the effective date that would
have been established had the State or MCO, PIHP, PAHP, PCCM, PCCM
entity complied with paragraph (e)(1) of this section.
(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 before the
start of each enrollment period.
(2) Ensure timely 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
beneficiary 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.

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 enrollment processes specified in Sec. 438.54(b). These safeguards
must be at least as effective as the safeguards specified in section 27
of the Office of

[[Page 31270]]

Federal Procurement Policy Act (41 U.S.C. 423).

Sec. 438.60 Prohibition of additional payments for services covered
under MCO, PIHP or PAHP contracts.

The State agency must ensure that no payment is made to a network
provider other than by the MCO, PIHP, or PAHP for services covered
under the contract between the State and the MCO, PIHP, or PAHP, except
when these payments are specifically required to be made by the State
in Title XIX of the Act, in 42 CFR, or when the State agency has
adjusted the capitation rates paid under the contract to account for
payments for graduate medical education, in accordance with Sec.
438.6(b)(4).

Sec. 438.62 Continued services to enrollees.

(a) The State agency must arrange for Medicaid services to be
provided without delay to any Medicaid enrollee of an MCO, PIHP, PAHP,
PCCM or PCCM entity the contract of which is terminated and for any
Medicaid enrollee who is disenrolled from an MCO, PIHP, PAHP, PCCM or
PCCM entity for any reason other than ineligibility for Medicaid.
(b) The State must have in effect a transition of care policy to
ensure continued access to services during a transition from FFS to a
MCO, PIHP, PAHP, PCCM or PCCM entity or transition from one MCO, PIHP,
PAHP, PCCM or PCCM entity to another when an enrollee, in the absence
of continued services, would suffer serious detriment to their health
or be at risk of hospitalization or institutionalization.
(1) The transition of care policy must include the following:
(i) The enrollee has access to services consistent with the access
they previously had, and is permitted to retain their current provider
for a period of time if that provider is not in the MCO, PIHP or PAHP
network.
(ii) The enrollee is referred to appropriate providers of services
that are in the network.
(iii) The State, in the case of FFS, PCCM, or PCCM entity, or the
MCO, PIHP or PAHP that was previously serving the enrollee, fully and
timely complies with requests for historical utilization data from the
new MCO, PIHP, PAHP, PCCM, or PCCM entity in compliance with Federal
and State law.
(iv) Consistent with Federal and State law, the enrollee's new
provider(s) are able to obtain copies of the enrollee's medical
records, as appropriate.
(v) Any other necessary procedures as specified by the Secretary to
ensure continued access to services to prevent serious detriment to the
enrollee's health or reduce the risk of hospitalization or
institutionalization.
(2) The State must require by contract that MCOs, PIHPs, and PAHPs
implement a transition of care policy consistent with the requirements
in paragraph (b)(1) of this section and at least meets the State
defined transition of care policy.
(3) The State must make its transition of care policy publicly
available and provide instructions to enrollees and potential enrollees
on how to access continued services upon transition. At a minimum the
transition of care policy must be described in the comprehensive
quality strategy, as required by Sec. 438.340, and explained to
individuals in the materials to enrollees and potential enrollees, in
accordance with Sec. 438.10.

Sec. 438.66 State monitoring requirements.

(a) General requirement. The State agency must have in effect a
monitoring system for all managed care programs.
(b) The State's system must address all aspects of the managed care
program, including the performance of each MCO, PIHP, PAHP and PCCM
entity (if applicable) in at least the following areas:
(1) Administration and management.
(2) Appeal and grievance systems.
(3) Claims management.
(4) Enrollee materials and customer services.
(5) Finance, including medical loss ratio reporting.
(6) Information systems, including encounter data reporting.
(7) Marketing.
(8) Medical management, including utilization management and case
management.
(9) Program integrity.
(10) Provider network management.
(11) Availability and accessibility of services.
(12) Quality improvement.
(13) Areas related to the delivery of LTSS not otherwise included
in paragraphs (b)(1) through (12) of this section as applicable to the
managed care program.
(14) All other provisions of the contract, as appropriate.
(c) The State must use data collected from its monitoring
activities to improve the performance of its managed care program,
including at a minimum:
(1) Enrollment and disenrollment trends in each MCO, PIHP, or PAHP.
(2) Member grievance and appeal logs.
(3) Provider complaint and appeal logs.
(4) Findings from the State's External Quality Review process.
(5) Results from any enrollee satisfaction survey conducted by the
State or MCO, PIHP or PAHP.
(6) Performance on required quality measures.
(7) Medical management committee reports and minutes.
(8) The annual quality improvement plan for each MCO, PIHP, PAHP,
or PCCM entity.
(9) Audited financial and encounter data submitted by each MCO,
PIHP or PAHP.
(10) The medical loss ratio summary reports required by Sec.
438.8.
(11) Customer service performance data submitted by each MCO, PIHP
or PAHP.
(12) Any other data related to the provision of LTSS not otherwise
included in paragraphs (c)(1) through (11) of this section as
applicable to the managed care program.
(d)(1) The State must assess the readiness of each MCO, PIHP, PAHP
or PCCM entity with which it contracts as follows:
(i) Prior to the State implementing a managed care program, whether
the program is voluntary or mandatory.
(ii) When the specific MCO, PIHP, PAHP or PCCM entity has not
previously contracted with the State.
(iii) When any MCO, PIHP, PAHP or PCCM entity currently contracting
with the State will provide or arrange for the provisions of covered
benefits to new eligibility groups.
(iv) When any MCO, PIHP, PAHP or PCCM entity currently contracting
with the State will provide a new set of benefits to current or new
eligibility groups; or
(v) When any MCO, PIHP, PAHP or PCCM entity currently contacting
with the State will expand coverage to new geographic areas.
(2) The State must conduct a readiness review of each MCO, PIHP,
PAHP, or PCCM entity with which it contracts as follows:
(i) Started at least 3 months prior to the effective date of the
events described in paragraph (d)(1) of this section.
(ii) Completed in sufficient time to ensure smooth implementation
of an event described in paragraph (d)(1) of this section.
(iii) Submitted to CMS in order for CMS to make a determination
that the contract or contract amendment associated with an event
described in paragraph (d)(1) of this section is approved under Sec.
438.3.
(3) Readiness reviews must include both a desk review of documents
and on-site reviews of each MCO, PIHP, PAHP or PCCM entity. On-site
reviews must include interviews with MCO,

[[Page 31271]]

PIHP, PAHP or PCCM entity staff and leadership that manage key
operational areas.
(4) A State's readiness review must assess the ability and capacity
of the MCO, PIHP, PAHP and PCCM entity (if applicable) to perform
satisfactorily for the following areas:
(i) Operations/Administration, including--
(A) Administrative staffing and resources.
(B) Delegation and oversight of MCO, PIHP, PAHP or PCCM entity
responsibilities.
(C) Enrollee and provider communications.
(D) Grievance and appeals.
(E) Member services and outreach.
(F) Provider Network Management.
(G) Program Integrity/Compliance.
(ii) Service delivery, including--
(A) Case management/care coordination/Service planning.
(B) Quality improvement.
(C) Utilization review.
(iii) Financial management, including--
(A) Financial reporting and monitoring.
(B) Financial solvency.
(iv) Systems management, including--
(A) Claims management.
(B) Encounter data and enrollment information management.
(e)(1) The State must submit to CMS no later than 150 days after
each contract year, a report on each managed care program administered
by the State, regardless of the authority under which the program
operates. For States that operate their managed care program under
section 1115 of the Act authority, submission of an annual report that
may be required by the Special Terms and Conditions of the
demonstration program will be deemed to satisfy the requirement of this
paragraph provided that the report includes the information specified
in paragraph (e)(2) of this section.
(2) The program report must provide information on and an
assessment of the operation of the managed care program and include, at
a minimum, the following:
(i) Financial performance of each MCO, PIHP and PAHP.
(ii) Encounter data reporting by each MCO, PIHP or PAHP.
(iii) Enrollment and service area expansion (if applicable) of each
MCO, PIHP, PAHP and PCCM entity.
(iv) Modifications to, and implementation of, MCO, PIHP, or PAHP
benefits covered under the contract with the State.
(v) Grievance, appeals and State fair hearings for the managed care
program.
(vi) Availability and accessibility of covered services within the
MCO, PIHP, or PAHP contracts.
(vii) Evaluation of MCO, PIHP, or PAHP performance on quality
measures, including as applicable, consumer report card, surveys, or
other reasonable measures of performance.
(viii) Results of any sanctions or corrective action plans imposed
by the State or other formal or informal intervention with a contracted
MCO, PIHP, PAHP or PCCM entity to improve performance.
(ix) Any other factors in the delivery of LTSS not otherwise
addressed in (e)(2)(i)-(viii) of this section as applicable.
(3) The program report required in this section must be:
(i) Posted on the Web site required under Sec. 438.10.
(ii) Provided to the Medical Care Advisory Committee, required
under Sec. 431.12 of this chapter.
(iii) Provided to the stakeholder consultation group specified in
Sec. 438.70, to the extent that the managed care program includes
LTSS.

Sec. 438.68 Network adequacy standards.

(a) General rule. A State that contracts with an MCO, PIHP or PAHP
to deliver Medicaid services must develop and enforce network adequacy
standards consistent with this section.
(b) Provider-specific network adequacy standards. (1) At a minimum,
a State must develop time and distance standards for the following
provider types, if covered under the contract:
(i) Primary care, adult and pediatric.
(ii) OB/GYN.
(iii) Behavioral health.
(iv) Specialist, adult and pediatric.
(v) Hospital.
(vi) Pharmacy.
(vii) Pediatric dental.
(viii) Additional provider types when it promotes the objectives of
the Medicaid program, as determined by CMS, for the provider type to be
subject to time and distance access standards.
(2) LTSS. States with MCO, PIHP or PAHP contracts which cover LTSS
must develop:
(i) Time and distance standards for LTSS provider types in which an
enrollee must travel to the provider to receive services; and
(ii) Network adequacy standards other than time and distance
standards for LTSS provider types that travel to the enrollee to
deliver services.
(3) Scope of network adequacy standards. Network standards
established in accordance with paragraphs (b)(1) and (b)(2) of this
section must include all geographic areas covered by the managed care
program or, if applicable, the contract between the State and the MCO,
PIHP or PAHP. States are permitted to have varying standards for the
same provider type based on geographic areas.
(c) Development of network adequacy standards. (1) States
developing network adequacy standards consistent with paragraph (b)(1)
of this section must consider, at a minimum, the following elements:
(i) The anticipated Medicaid enrollment.
(ii) The expected utilization of services.
(iii) The characteristics and health care needs of specific
Medicaid populations covered in the MCO, PIHP, and PAHP contract.
(iv) The numbers and types (in terms of training, experience, and
specialization) of network health care professionals required to
furnish the contracted Medicaid services.
(v) The numbers of network health care professionals who are not
accepting new Medicaid patients.
(vi) The geographic location of health care professionals and
Medicaid enrollees, considering distance, travel time, the means of
transportation ordinarily used by Medicaid enrollees.
(vii) The ability of health care professionals to communicate with
limited English proficient enrollees in their preferred language.
(viii) The ability of healthcare professionals to ensure physical
access, reasonable accommodations, culturally competent communications,
and accessible equipment for Medicaid enrollees with physical or mental
disabilities.
(2) States developing standards consistent with paragraph (b)(2) of
this section must consider the following:
(i) All elements in paragraphs (c)(1)(i) through (viii) of this
section.
(ii) Elements that would support an enrollee's choice of provider.
(iii) Strategies that would ensure the health and welfare of the
enrollee and support community integration of the enrollee.
(iv) Other considerations that are in the best interest of the
enrollees that need LTSS.
(d) Exceptions process. (1) To the extent the State permits an
exception to any of the provider-specific network standards developed
under this section, the standard by which the exception will be
evaluated and approved must be:
(i) Specified in the MCO, PIHP or PAHP contract.
(ii) Based, at a minimum, on the number of health care
professionals in that specialty practicing in the MCO, PIHP, or PAHP
service area.

[[Page 31272]]

(2) States that grant an exception in accordance with paragraph
(d)(1) of this section to a MCO, PIHP or PAHP must monitor enrollee
access to that provider type on an ongoing basis and include the
findings to CMS in the managed care program assessment report required
under Sec. 438.66.
(e) Publication of network adequacy standards. States must publish
the standards developed in accordance with paragraphs (b)(1) and (b)(2)
of this section on the Web site required by Sec. 438.10. Upon request,
network adequacy standards must also be made available at no cost to
enrollees with disabilities in alternate formats or through the
provision of auxiliary aids and services.

Sec. 438.70 Stakeholder engagement when LTSS is delivered through a
managed care program.

The State must ensure the views of beneficiaries, providers, and
other stakeholders are solicited and addressed during the design,
implementation, and oversight of a State's managed LTSS program. The
composition of the stakeholder group and frequency of meetings must be
sufficient to ensure meaningful stakeholder engagement.

Sec. 438.71 Beneficiary support system.

(a) General requirement. The State must develop and implement a
beneficiary support system that provides support to beneficiaries both
prior to and after enrollment in a MCO, PIHP, PAHP, PCCM or PCCM
entity.
(b) Elements of the support system. (1) A State beneficiary support
system must include at a minimum:
(i) Choice counseling for all beneficiaries.
(ii) Training for network providers as specified in paragraph (d)
of this section.
(iii) Assistance for enrollees in understanding managed care.
(iv) Assistance for enrollees who use, or express a desire to
receive, LTSS as specified in paragraph (e) of this section.
(2) The beneficiary support system must perform outreach to
beneficiaries and/or authorized representatives and be accessible in
multiple ways including phone, Internet, in-person, and via auxiliary
aids and services when requested.
(c) Choice counseling. (1) Choice counseling, as defined in Sec.
438.2, must be provided to all potential enrollees and enrollees who
disenroll from a MCO, PIHP, PAHP, PCCM or PCCM entity for reasons
specified in Sec. 438.56(b) and (c).
(2) If an individual or entity provides choice counseling on the
State's behalf under a memorandum of agreement or contract, it is
considered an enrollment broker as defined in Sec. 438.810(a) and must
meet the independence and freedom from conflict of interest standards
in Sec. 438.810(b)(1) and (2).
(d) Training. The beneficiary support system must provide training
to MCOs, PIHPs, PAHPs, PCCMs, PCCM entities and network providers on
community-based resources and supports that can be linked with covered
benefits.
(e) Functions specific to LTSS activities. At a minimum, the
beneficiary support system must provide the following support to
enrollees who use, or express a desire to receive, LTSS:
(1) An access point for complaints and concerns about MCO, PIHP,
PAHP, PCCM, and PCCM entity enrollment, access to covered services, and
other related matters.
(2) Education on enrollees' grievance and appeal rights within the
MCO, PIHP or PAHP; the State fair hearing process; enrollee rights and
responsibilities; and additional resources outside of the MCO, PIHP or
PAHP.
(3) Assistance, upon request, in navigating the grievance and
appeal process within the MCO, PIHP or PAHP, as well as appealing
adverse benefit determinations by the MCO, PIHP, or PAHP to a State
fair hearing. The system may not provide representation to the enrollee
at a State fair hearing but may refer enrollees to sources of legal
representation.
(i) An entity that receives non-Medicaid funding to represent
beneficiaries at hearings, may, subject to approval by CMS, establish
firewalls to provide choice counseling as an independent function.
(ii) [Reserved].
(4) Review and oversight of LTSS program data to provide guidance
to the State Medicaid Agency on identification, remediation and
resolution of systemic issues.

Sec. 438.74 State oversight of the minimum MLR requirement.

(a) State reporting requirement. (1) The State must annually submit
to CMS a summary description of the report(s) received from the MCO(s),
PIHP(s), and PAHP(s) under contract with the State under Sec. 438.8(k)
with the actuarial certification described in Sec. 438.7.
(2) The summary description must include, at a minimum, the amount
of the numerator, denominator, MLR experienced, the number of member
months, and any remittances owed by each MCO, PIHP, or PAHP for that
MLR reporting year.
(b) Repayment of Federal share of remittances. (1) If a State
requires a MCO, PIHP, or PAHP to pay remittances through the contract
for not meeting the minimum MLR required by the State, the State must
reimburse CMS for an amount equal to the Federal share of the
remittance, taking into account applicable differences in Federal
matching rate.
(2) If a remittance is owed according to paragraph (b)(1) of this
section, the State must submit a report describing the methodology used
to determine the State and Federal share of the remittance with the
report required in paragraph (a) of this section.

Subpart C--Enrollee Rights and Protections

Sec. 438.100 Enrollee rights.

(a) General rule. The State must ensure that:
(1) Each MCO, PIHP, PAHP, PCCM and PCCM entity has written policies
regarding the enrollee rights specified in this section; and
(2) Each MCO, PIHP, PAHP, PCCM and PCCM entity complies with any
applicable Federal and State laws that pertain to enrollee rights, and
ensures that its employees and contracted providers observe and protect
those rights.
(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, PCCM or PCCM entity 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(g)(2)(ii)(A) and
(B).
(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.
(vi) If the privacy rule, as set forth in 45 CFR parts 160 and 164
subparts A

[[Page 31273]]

and E, applies, request and receive a copy of his or her medical
records, and request that they be amended or corrected, as specified in
45 CFR 164.524 and 164.526.
(3) An enrollee of an MCO, PIHP, or PAHP has the right to be
furnished health care services in accordance with Sec. Sec. 438.206
through 438.210.
(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,
PCCM or PCCM entity and its network 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, PCCM and PCCM entity complies with
any other applicable Federal and State laws (including: 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).

Sec. 438.102 Provider-enrollee communications.

(a) 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 to decide among all
relevant treatment options.
(iii) The risks, benefits, and consequences of treatment or
nontreatment.
(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 (b) 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 (a)(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.
(b) Information requirements: MCO, PIHP, and PAHP responsibility.
(1) An MCO, PIHP, or PAHP that elects the option provided in paragraph
(a)(2) of this section must furnish information about the services it
does not cover as follows:
(i) To the State--
(A) With its application for a Medicaid contract.
(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.
(B) To enrollees, within 90 days after adopting the policy for any
particular service.

(Although this timeframe would be sufficient to entitle the MCO, PIHP,
or PAHP to the option provided in paragraph (a)(2) of this section, the
overriding rule in Sec. 438.10(g)(4) requires the State, its
contracted representative, or 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(g)(2)(ii)(A) and (B), 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 (a)(2) of this section.
(c) Information requirements: State responsibility. For each
service excluded by an MCO, PIHP, or PAHP under paragraph (a)(2) of
this section, the State must provide information on how and where to
obtain the service, as specified in Sec. 438.10.
(d) Sanction. An MCO that violates the prohibition of paragraph
(a)(1) of this section is subject to intermediate sanctions under
subpart I of this part.

Sec. 438.104 Marketing activities.

(a) Definitions. 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, PCCM or PCCM entity with a potential enrollee for the
purpose of marketing as defined in this paragraph (a).
Marketing means any communication, from an MCO, PIHP, PAHP, PCCM or
PCCM entity to a Medicaid beneficiary who is not enrolled in that
entity, that can reasonably be interpreted as intended to influence the
beneficiary to enroll in that particular MCO's, PIHP's, PAHP's, PCCM's
or PCCM entity's Medicaid product, or either to not enroll in, or to
disenroll from, another MCO's, PIHP's, PAHP's, PCCM's or PCCM entity's
Medicaid product. Marketing does not include communication to a
Medicaid beneficiary from the issuer of a qualified health plan, as
defined in 45 CFR 155.20, about the qualified health plan.
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 the MCO,
PIHP, PAHP, PCCM or PCCM entity to potential enrollees.
MCO, PIHP, PAHP, PCCM or PCCM entity include any of the entity's
employees, network providers, agents, or contractors.
Private insurance does not include a qualified health plan, as
defined in 45 CFR 155.20.
(b) Contract requirements. Each contract with an MCO, PIHP, PAHP,
PCCM or PCCM entity 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 beneficiary 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 private insurance.
(v) Does not, directly or indirectly, engage in door-to-door,
telephone, email, texting, or other cold-call marketing activities.
(2) Specify the methods by which the entity ensures the State
agency that marketing, including plans and materials, is accurate and
does not mislead, confuse, or defraud the beneficiaries 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 beneficiary must enroll in the MCO, PIHP, PAHP, PCCM or
PCCM entity to obtain benefits or to not lose benefits; or
(ii) The MCO, PIHP, PAHP, PCCM or PCCM entity 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.

[[Page 31274]]

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 furnished 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 covered the services directly.

Sec. 438.108 Cost sharing.

The contract must provide that any cost sharing imposed on Medicaid
enrollees is in accordance with Sec. Sec. 447.50 through 447.82 of
this chapter.

Sec. 438.110 Member advisory committee.

(a) General rule. When LTSS are covered under a risk contract
between a State and an MCO, PIHP, or PAHP, the contract must provide
that each MCO, PIHP or PAHP establish and maintain a member advisory
committee.
(b) Committee composition. The committee required in paragraph (a)
of this section must include at least a reasonably representative
sample of the LTSS populations covered under the contract with the MCO,
PIHP, or PAHP.

Sec. 438.114 Emergency and poststabilization services.

(a) Definitions. As used in this section--
Emergency medical condition means a medical condition manifesting
itself by acute symptoms of sufficient severity (including severe pain)
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 the following:
(i) Placing the health of the individual (or, for a pregnant woman,
the health of the woman or her unborn child) in serious jeopardy.
(ii) Serious impairment to bodily functions.
(iii) Serious dysfunction of any bodily organ or part.
Emergency services means covered inpatient and outpatient services
that are as follows:
(i) Furnished by a provider that is qualified to furnish these
services under this title.
(ii) Needed to evaluate or stabilize an emergency medical
condition.
Poststabilization care services means covered services, related to
an emergency medical condition that are provided after an enrollee is
stabilized to maintain the stabilized condition, or, under the
circumstances described in paragraph (e) of this section, to improve or
resolve the enrollee's condition.
(b) Coverage and payment: General rule. The following entities are
responsible for coverage and payment of emergency services and
poststabilization care services.
(1) The MCO, PIHP, or PAHP.
(2) The State, for managed care programs that contract with PCCMs
or PCCM entities
(c) Coverage and payment: Emergency services--(1) The entities
identified in paragraph (b) of this section--
(i) Must cover and pay for emergency services regardless of whether
the provider that furnishes the services has a contract with the MCO,
PIHP, PAHP, PCCM or PCCM entity; 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 (1), (2), and (3) of the
definition of emergency medical condition in paragraph (a) of this
section.
(B) A representative of the MCO, PIHP, PAHP, PCCM or PCCM entity
instructs the enrollee to seek emergency services.
(2) A PCCM or PCCM entity must 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.
(d) Additional rules for emergency services. (1) The entities
specified in paragraph (b) 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 cover emergency services based on the emergency room
provider, hospital, or fiscal agent not notifying the enrollee's
primary care provider, MCO, PIHP, PAHP or applicable State entity of
the enrollee's screening and treatment within 10 calendar days of
presentation for emergency services.
(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 (b) of
this section as responsible for coverage and payment.
(e) Coverage and payment: Poststabilization care services.
Poststabilization 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 ``MA organization'' and
``financially responsible'' must be read as reference to the entities
responsible for Medicaid payment, as specified in paragraph (b) of this
section, and payment rules governed by Title XIX of the Act and the
States.
(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 or PIHP, 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 or PIHP 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

[[Page 31275]]

and meets the solvency standards established by the State for those
centers.
(iv) Has its solvency guaranteed by the State.

Subpart D--MCO, PIHP and PAHP Standards

Sec. 438.206 Availability of services.

(a) Basic rule. Each State must ensure that all services covered
under the State plan are available and accessible to enrollees of MCOs,
PIHPs, and PAHPs in a timely manner. The State must also ensure that
MCO, PIHP and PAHP provider networks for services covered under the
contract meet the standards developed by the State in accordance with
Sec. 438.68.
(b) Delivery network. The State must ensure, through its contracts,
that each MCO, PIHP and PAHP, consistent with the scope of its
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 for all
enrollees, including those with limited English proficiency or physical
or mental disabilities.
(2) Provides female enrollees with direct access to a women's
health specialist within the provider 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 provider network, or arranges for the enrollee
to obtain one outside the network, at no cost to the enrollee.
(4) If the provider network is unable to provide necessary
services, covered under the contract, to a particular enrollee, the
MCO, PIHP, or PAHP must adequately and timely cover these services out
of network for the enrollee, for as long as the MCO, PIHP, or PAHP's
provider network is unable to provide them.
(5) Requires out-of-network providers to coordinate with the MCO,
PIHP, or PAHP for payment and ensures the cost to the enrollee is no
greater than it would be if the services were furnished within the
network.
(6) Demonstrates that its network providers are credentialed as
required by Sec. 438.214.
(c) Furnishing of services. The State must ensure that each
contract with a MCO, PIHP, and PAHP complies with the following
requirements.
(1) Timely access. Each MCO, PIHP, and PAHP must do the following:
(i) Meet and require its network providers to meet State standards
for timely access to care and services, taking into account the urgency
of the 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 FFS, if the provider serves only
Medicaid enrollees.
(iii) Make services included in the contract available 24 hours a
day, 7 days a week, when medically necessary.
(iv) Establish mechanisms to ensure compliance by network
providers.
(v) Monitor network providers regularly to determine compliance.
(vi) Take corrective action if there is a failure to comply by a
network provider.
(2) Access and cultural considerations. Each MCO, PIHP, and PAHP
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, disabilities, and regardless of gender, sexual orientation
or gender identity.
(3) Accessibility considerations. Each MCO, PIHP, and PAHP must
ensure that network providers provide physical access, accommodations,
and accessible equipment for Medicaid enrollees with physical or mental
disabilities.

Sec. 438.207 Assurances of adequate capacity and services.

(a) Basic rule. The State must ensure, through its contracts, that
each MCO, PIHP, and PAHP gives assurances to the State and provides
supporting documentation that demonstrates 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 supporting documentation. Each MCO, PIHP, and PAHP
must submit documentation to the State, in a format specified by the
State to demonstrate that it complies with the following requirements:
(1) Offers an appropriate range of preventive, primary care,
specialty services, and LTSS 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, PIHP, and PAHP must submit
the documentation described in paragraph (b) of this section as
specified by the State, but no less frequently than the following:
(1) At the time it enters into a contract with the State.
(2) On an annual basis.
(3) At any time there has been a significant change (as defined by
the State) in the MCO's, PIHP's, or PAHP's operations that would affect
the adequacy of capacity and services, including--
(i) Changes in MCO, PIHP, or PAHP services, benefits, geographic
service area, composition of or payments to its provider network; or
(ii) Enrollment of a new population in the MCO, PIHP, or PAHP.
(d) State review and certification to CMS. After the State reviews
the documentation submitted by the MCO, PIHP, or PAHP, the State must
submit an assurance of compliance to CMS that the MCO, PIHP, or PAHP
meets the State's requirements for availability of services, as set
forth in Sec. 438.206. The submission to CMS must include
documentation of an analysis that supports the assurance of the
adequacy of the network for each contracted MCO, PIHP or PAHP related
to its provider network.
(e) CMS' right to inspect documentation. The State must make
available to CMS, upon request, all documentation collected by the
State from the MCO, PIHP, or PAHP.

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, PIHP, and PAHP complies with the
requirements of this section.
(2) PIHP and PAHP exception. For PIHPs and PAHPs, 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 or PAHP is required to implement mechanisms for
identifying, assessing, and producing a treatment plan for an
individual with special health care needs, as specified in paragraph
(c) of this section.
(3) Exception for MCOs that serve dually eligible enrollees. (i)
For each MCO that serves enrollees who are also enrolled in and receive
Medicare benefits from a Medicare Advantage Organization, the State
determines to what extent the MCO must meet the identification,
assessment, and treatment planning provisions of

[[Page 31276]]

paragraph (c) of this section for dually eligible individuals.
(ii) The State bases its determination on the needs of the
population it requires the MCO to serve.
(b) Care and coordination of services for all MCO, PIHP, and PAHP
enrollees. Each MCO, PIHP, and PAHP must implement procedures to
deliver care to and coordinate services for all MCO, PIHP, and PAHP
enrollees. These procedures must meet State requirements and must do
the following:
(1) Ensure that each enrollee has an ongoing source of care
appropriate to his or her needs and a person or entity formally
designated as primarily responsible for coordinating the services
accessed by the enrollee.
(2) Coordinate the services the MCO, PIHP, or PAHP furnishes to the
enrollee:
(i) Between settings of care including appropriate discharge
planning for short term and long-term hospital and institutional stays;
(ii) With the services the enrollee receives from any other MCO,
PIHP, or PAHP; and
(iii) With the services the enrollee receives in FFS Medicaid.
(3) Provide that the MCO, PIHP or PAHP, within 90 days of the
effective date of enrollment for all new enrollees, makes a best effort
to conduct an initial assessment of each enrollee's needs, including
subsequent attempts if the initial attempt to contact the enrollee is
unsuccessful.
(4) Share with the State or other MCOs, PIHPs, and PAHP serving the
enrollee the results of any identification and assessment of that
enrollee's needs to prevent duplication of those activities.
(5) Ensure that each provider furnishing services to enrollees
maintains and shares, as appropriate, an enrollee health record in
accordance with professional standards.
(6) Ensure that in the process of coordinating care, each
enrollee's privacy is protected in accordance with the privacy
requirements in 45 CFR parts 160 and 164 subparts A and E, to the
extent that they are applicable.
(c) Additional services for enrollees with special health care
needs or who need LTSS. (1) Identification. The State must implement
mechanisms to identify persons who need LTSS or persons with special
health care needs to MCOs, PIHPs and PAHPs, as those persons are
defined by the State. These identification mechanisms--
(i) Must be specified in the State's comprehensive quality strategy
in Sec. 438.340.
(ii) May use State staff, the State's enrollment broker, or the
State's MCOs, PIHPs and PAHPs.
(2) Assessment. Each MCO, PIHP, and PAHP must implement mechanisms
to comprehensively assess each Medicaid enrollee identified by the
State (through the mechanism specified in paragraph (c)(1) of this
section) and identified to the MCO, PIHP, and PAHP by the State as
needing LTSS or having special health care needs to identify any
ongoing special conditions of the enrollee that require a course of
treatment or regular care monitoring. The assessment mechanisms must
use appropriate health care professionals or individuals meeting LTSS
service coordination requirements of the State or the MCO, PIHP, or
PAHP as appropriate.
(3) Treatment/service plans. If the State requires MCOs, PIHPs, or
PAHPs to produce a treatment or service plan for enrollees who require
LTSS or with special health care needs that are determined through
assessment to need a course of treatment or regular care monitoring,
the treatment or service plan must be--
(i) Developed by the enrollee's provider or individual meeting LTSS
service coordination requirements with enrollee participation, and in
consultation with any other health care professionals caring for the
enrollee.
(ii) Developed by a person trained in person centered planning
using a person-centered process and plan as defined in Sec.
441.301(c)(1) and (2) of this chapter for LTSS treatment or service
plans.
(iii) Approved by the MCO, PIHP, or PAHP in a timely manner, if
this approval is required by the MCO, PIHP, or PAHP.
(iv) In accord with any applicable State quality assurance and
utilization review standards.
(v) Reviewed and revised upon reassessment of functional need, at
least every 12 months, or when the enrollee's circumstances or needs
change significantly, or at the request of the enrollee per section
Sec. 441.301(c)(3) of this chapter.
(4) Direct access to specialists. For enrollees with special health
care needs determined through an assessment by appropriate health care
professionals (consistent with paragraph (c)(2) of this section) to
need a course of treatment or regular care monitoring, each MCO, PIHP,
and PAHP must have a mechanism in place to allow enrollees to directly
access a specialist (for example, through a standing referral or an
approved number of visits) as appropriate for the enrollee's condition
and identified needs.

Sec. 438.210 Coverage and authorization of services.

(a) Coverage. Each contract between a State and an MCO, PIHP, or
PAHP must do the following:
(1) Identify, define, and specify the amount, duration, and scope
of each service that the MCO, PIHP, or PAHP is required to offer.
(2) Require that the services identified in paragraph (a)(1) of
this section be furnished in an amount, duration, and scope that is no
less than the amount, duration, and scope for the same services
furnished to beneficiaries under FFS Medicaid, as set forth in Sec.
440.230 of this chapter.
(3) Provide that the MCO, PIHP, or PAHP--
(i) Must ensure that the services are sufficient in amount,
duration, or scope to reasonably achieve the purpose for which the
services are furnished.
(ii) May not arbitrarily deny or reduce the amount, duration, or
scope of a required service solely because of diagnosis, type of
illness, or condition of the beneficiary.
(4) Permit an MCO, PIHP, or PAHP to place appropriate limits on a
service--
(i) On the basis of criteria applied under the State plan, such as
medical necessity; or
(ii) For the purpose of utilization control, provided that
(A) The services furnished can reasonably achieve their purpose, as
required in paragraph (a)(3)(i) of this section;
(B) The services supporting individuals with ongoing or chronic
conditions or who require long-term services and supports are
authorized in a manner that reflects the enrollee's ongoing need for
such services and supports; and
(C) Family planning services are provided in a manner that protects
and enables the enrollee's freedom to choose the method of family
planning to be used consistent with Sec. 441.20.
(5) Specify what constitutes ``medically necessary services'' in a
manner that--
(i) Is no more restrictive than that used in the State Medicaid
program as indicated in State statutes and regulations, the State Plan,
and other State policy and procedures;
(ii) Meets the requirements for providing early and periodic
screening and diagnosis of beneficiaries under age 21 to ascertain
physical and mental defects, and treatment to correct or ameliorate
defects and chronic conditions found (EPSDT); and

[[Page 31277]]

(iii) Addresses the extent to which the MCO, PIHP, or PAHP is
responsible for covering services that address:
(A) The prevention, diagnosis, and treatment of an enrollee's
disease, condition, and/or disorder that results in health impairments
and/or disability.
(B) The ability for an enrollee to achieve age-appropriate growth
and development.
(C) The ability for an enrollee to attain, maintain, or regain
functional capacity.
(D) The opportunity for an enrollee receiving long-term services
and supports to have access to the benefits of community living.
(b) Authorization of services. For the processing of requests for
initial and continuing authorizations of services, each contract must
require--
(1) That the MCO, PIHP, or PAHP and its subcontractors have in
place, and follow, written policies and procedures.
(2) That the MCO, PIHP, or PAHP--
(i) Have in effect mechanisms to ensure consistent application of
review criteria for authorization decisions.
(ii) Consult with the requesting provider for medical services when
appropriate.
(iii) Authorize LTSS based on an enrollee's current needs
assessment and consistent with the person-centered service plan.
(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
expertise in addressing the enrollee's medical, behavioral health, or
long-term services and supports needs.
(c) Notice of adverse benefit determination. Each contract must
provide for the MCO, PIHP, or PAHP to notify the requesting provider,
and give the enrollee written notice of any decision by the MCO, PIHP,
or PAHP to deny a service authorization request, or to authorize a
service in an amount, duration, or scope that is less than requested.
For MCOs, PIHPs, and PAHPs the notice must meet the requirements of
Sec. 438.404.
(d) Timeframe for decisions. Each MCO, PIHP, or PAHP 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 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, PIHP, or PAHP 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, PIHP, or PAHP 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, PIHP, or PAHP must make an expedited
authorization decision and provide notice as expeditiously as the
enrollee's health condition requires and no later than 72 hours after
receipt of the request for service.
(ii) The MCO, PIHP, or PAHP may extend the 72 hour time period by
up to 14 calendar days if the enrollee requests an extension, or if the
MCO, PIHP, or PAHP 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 between a State and MCO, PIHP, or PAHP must provide that,
consistent with Sec. 438.3(i), 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.

Sec. 438.214 Provider selection.

(a) General rules. The State must ensure, through its contracts,
that each MCO, PIHP, or PAHP implements written policies and procedures
for selection and retention of providers and that those policies and
procedures, at a minimum, meet the requirements of this section.
(b) Credentialing and recredentialing requirements. (1) Each State
must establish a uniform credentialing and recredentialing policy that
addresses acute, primary, behavioral, substance use disorders, and LTSS
providers, as appropriate, and require each MCO, PIHP and PAHP to
follow those policies.
(2) Each MCO, PIHP, and PAHP must follow a documented process for
credentialing and recredentialing of providers who have signed
contracts or participation agreements with the MCO, PIHP, or PAHP.
(c) Nondiscrimination. MCO, PIHP, and PAHP provider selection
policies and procedures, consistent with Sec. 438.12, must not
discriminate against particular providers that serve high-risk
populations or specialize in conditions that require costly treatment.
(d) Excluded providers. (1) MCOs, PIHPs, and PAHPs 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, PIHP, and PAHP must comply with
any additional requirements established by the State.

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, PIHP, and PAHP uses and discloses such individually
identifiable health information in accordance with the privacy
requirements in 45 CFR parts 160 and 164, subparts A and E, to the
extent that these requirements are applicable.

Sec. 438.228 Grievance systems.

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

Sec. 438.230 Subcontractual relationships and delegation.

(a) Applicability. The requirements of this section apply to any
contract or written arrangement that an MCO, PIHP, or PAHP has with any
individual or entity that relates directly or indirectly to the
performance of the MCO's PIHP's or PAHP's obligations under its
contract with the State.
(b) General rule. The State must ensure, through its contracts with
MCOs, PIHPs, and PAHPs, that--
(1) Notwithstanding any relationship(s) that the MCO, PIHP, or PAHP
may have with any other individual or entity, the MCO, PIHP, or PAHP
maintains ultimate responsibility for adhering to and otherwise fully
complying with all terms and conditions of its contract with the State;
and
(2) All contracts or written arrangements between the MCO, PIHP, or
PAHP and any individual or entity

[[Page 31278]]

that relates directly or indirectly to the performance of the MCO's
PIHP's or PAHP's activities or obligations under its contract with the
State must meet the requirements of paragraph (c) of this section.
(c) Each contract or written arrangement described in paragraph
(b)(2) of this section must specify that:
(1) If any of the MCO's, PIHP's, or PAHP's activities or
obligations under its contract with the State are delegated to another
individual or entity--
(i) The delegated activities or obligations, and related reporting
responsibilities, are specified in the contract or written agreement.
(ii) The individual or entity agrees to perform the delegated
activities and reporting responsibilities specified in compliance with
the MCO's, PIHP's or PAHP's contract obligations.
(iii) The contract or written arrangement must either provide for
revocation of the delegation of activities or obligations, or specify
other remedies in instances where the State or the MCO, PIHP, or PAHP
determine that the individual or entity has not performed
satisfactorily.
(2) The individual or entity agrees to comply with all applicable
Medicaid laws, regulations, subregulatory guidance, and contract
provisions;
(3) The individual or entity agrees that--
(i) The State, CMS, the HHS Inspector General, the Comptroller
General, or their designees have the right to audit, evaluate, and
inspect any books, contracts, computer or other electronic systems of
the individual or entity, or of the individual's or entity's contractor
or subcontractor, that pertain to any aspect of services and activities
performed, or determination of amounts payable under the contract with
the State, if the reasonable possibility of fraud is determined to
exist by any of these entities.
(ii) The individual or entity will make available, for purposes of
an audit, evaluation, or inspection under paragraph (c)(3)(i) of this
section, its premises, physical facilities, equipment, and records
relating to its Medicaid enrollees.
(iii) The right to audit under paragraph (c)(3)(i) of this section
will exist through 10 years from the final date of the contract period
or from the date of completion of any audit, whichever is later.
(iv) If the State, CMS, or the HHS Inspector General determines
that there is a reasonable possibility of fraud or similar risk, the
State, CMS, or the HHS Inspector General may inspect, evaluate, and
audit the individual or entity at any time.

Sec. 438.236 Practice guidelines.

(a) Basic rule. The State must ensure, through its contracts, that
each MCO, PIHP, and PAHP meets the requirements of this section.
(b) Adoption of practice guidelines. Each MCO and, when applicable,
each PIHP and PAHP 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, PIHP's, or PAHP's enrollees.
(3) Are adopted in consultation with contracting health care
professionals.
(4) Are reviewed and updated periodically as appropriate.
(c) Dissemination of guidelines. Each MCO, PIHP, and PAHP
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. 438.242 Health information systems.

(a) General rule. The State must ensure, through its contracts that
each MCO, PIHP, and PAHP maintains a health information system that
collects, analyzes, integrates, and reports data and can achieve the
objectives of this part. The systems must provide information on areas
including, but not limited to, utilization, claims, grievances and
appeals, 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, PIHP, and PAHP comply with the
following:
(1) Section 6504(a) of the Affordable Care Act, which requires that
State claims processing and retrieval systems are able to collect data
elements necessary to enable the mechanized claims processing and
information retrieval systems in operation by the State to meet the
requirements of section 1903(r)(1)(F) of the Act.
(2) Collect data on enrollee and provider characteristics as
specified by the State, and on all services furnished to enrollees
through an encounter data system or other methods as may be specified
by the State.
(3) Ensure that data received from providers is accurate and
complete by--
(i) Verifying the accuracy and timeliness of reported data,
including data from network providers the MCO, PIHP, or PAHP is
compensating on the basis of capitation payments.
(ii) Screening the data for completeness, logic, and consistency.
(iii) Collecting data from providers in standardized formats to the
extent feasible and appropriate, including secure information exchanges
and technologies utilized for State Medicaid quality improvement and
care coordination efforts.
(4) Make all collected data available to the State and upon request
to CMS, as required in this part.
(c) Enrollee encounter data. Contracts between a State and a MCO,
PIHP, or PAHP must provide for:
(1) Collection and maintenance of sufficient enrollee encounter
data to identify the provider who delivers any item(s) or service(s) to
enrollees.
(2) Submission of enrollee encounter data to the State at a
frequency and level of detail to be specified by CMS.
(3) Submission of all enrollee encounter data that the State is
required to report to CMS under Sec. 438.818.
(4) Specifications for submitting encounter data to the State in
standardized ASC X12N 837 and NCPDP formats, and the ASC X12N 835
format as appropriate.

Subpart E--Quality Measurement and Improvement; External Quality
Review

Sec. 438.310 Basis, scope, and applicability.

(a) Statutory basis. This subpart is based on sections 1932(c)(1),
1932(c)(2), 1903(a)(3)(C)(ii), 1902(a)(4), and 1902(a)(19) of the Act.
(b) Scope. This subpart sets forth:
(1) Specifications for a quality assessment and performance
improvement program that States must require each contracting managed
care organization (MCO), prepaid inpatient health plan (PIHP), and
prepaid ambulatory health plan (PAHP) to implement and maintain.
(2) Requirements for the state review and approval of all
contracting MCOs, PIHPs, and PAHPs.
(3) Specifications for a Medicaid managed care quality rating
system for all States contracting with MCOs, PIHPs, and PAHPs.
(4) Specifications for managed care elements of the comprehensive
quality strategy that States must implement to ensure the delivery of
quality health care.
(5) Requirements for annual external quality reviews of each
contracting MCO, PIHP, and PAHP including--
(i) Criteria that States must use in selecting entities to perform
the reviews.

[[Page 31279]]

(ii) Specifications for the activities related to external quality
review.
(iii) Circumstances under which external quality review may use the
results of Medicare quality reviews or private accreditation reviews.
(iv) Requirements for making the results of the reviews publicly
available.
(c) Applicability. (1) The provisions of this subpart apply to
MCOs, PIHPs, and PAHPs. For purposes of this subpart, HIOs that are not
expressly exempt by statute are required to comply with this subpart as
an MCO.
(2) PCCM entities. Notwithstanding paragraphs (b) and (c)(1) of
this section, the State must assess the performance of each PCCM entity
consistent with the requirements of Sec. 438.3(r). That assessment
must, at a minimum, include the elements described in Sec.
438.330(b)(3), (c), and (e).

Sec. 438.320 Definitions.

As used in this subpart--
Access, as it pertains to external quality review, means the timely
use of services to achieve the best outcomes possible, as evidenced by
successfully demonstrating and reporting on outcome information for the
availability and timeliness elements defined under Sec. 438.68
(Network adequacy standards) and Sec. 438.206 (Availability of
services).
EQR stands for external quality review.
EQRO stands for external quality review organization.
External quality review means the analysis and evaluation by an
EQRO, of aggregated information on quality, timeliness, and access to
the health care services that an MCO, PIHP, or PAHP, or their
contractors furnish to Medicaid beneficiaries.
External quality review organization means an organization that
meets the competence and independence requirements set forth in Sec.
438.354, and holds a contract with a State to perform external quality
review, other EQR-related activities as set forth in Sec. 438.358, or
both.
Financial relationship means--
(1) A direct or indirect ownership or investment interest
(including an option or nonvested interest) in any entity. This direct
or indirect interest may be in the form of equity, debt, or other
means, and includes any indirect ownership or investment interest no
matter how many levels removed from a direct interest; or
(2) A compensation arrangement with an entity.
Quality, as it pertains to external quality review, means the
degree to which an MCO, PIHP, or PAHP increases the likelihood of
desired health outcomes of its enrollees through:
(1) Its structural and operational characteristics.
(2) The provision of services that are consistent with current
professional, evidenced-based knowledge.
(3) Positive trends in performance measures and clinically
significant results from interventions for performance improvement.
Validation means the review of information, data, and procedures to
determine the extent to which they are accurate, reliable, free from
bias, and in accord with standards for data collection and analysis.

Sec. 438.330 Quality assessment and performance improvement program.

(a) General rules. (1) The State must require, through its
contracts, that each MCO, PIHP, and PAHP establish and implement an
ongoing comprehensive quality assessment and performance improvement
program for the services it furnishes to its enrollees.
(2) CMS, through a public notice and comment process in
consultation with States and other stakeholders, may specify
performance measures for collection in accordance with paragraph (c) of
this section, a methodology for calculating quality ratings, and topics
with performance indicators for performance improvement projects in
accordance with paragraph (d) of this section to be required by States
in their contracts with MCOs, PIHPs, and PAHPs.
(i) In addition to those required by CMS under paragraph (a)(2) of
this section, States may select their own performance improvement
projects topics and performance measures to satisfy the requirements of
paragraphs (b)(1) and (b)(2) of this section.
(ii) A State may apply for an exemption from collecting and
reporting on the performance measures or performance improvement
projects established under (a)(2) of this section, by submitting a
request, in writing, to CMS which details the reason for such an
exemption.
(b) Basic elements of quality assessment and performance
improvement programs. At a minimum, the State must ensure that each
MCO, PIHP, and PAHP comply with the following requirements:
(1) Conduct performance improvement projects in accordance with
paragraph (d) of this section.
(2) Collect and submit performance measurement data in accordance
with paragraph (c) of this section.
(3) Have in effect mechanisms to detect both underutilization and
overutilization of services.
(4) Have in effect mechanisms to assess the quality and
appropriateness of care furnished to enrollees with special health care
needs, as defined by the State.
(5) Have in effect mechanisms to assess the quality and
appropriateness of care furnished to enrollees using LTSS, including
assessment of care between care settings and a comparison of services
received with those set forth in the enrollee's treatment plan.
(6) Participate in efforts by the State to prevent, detect, and
remediate critical incidents that are based, at a minimum, on the
requirements on the State for home and community-based waiver programs.
(c) Performance measurement. Annually each MCO, PIHP, and PAHP
must--
(1) Measure and report to the State its performance, using standard
measures required by the State, including those performance measures
specified by CMS under paragraph (a)(2) of this section.
(2) Submit to the State data, as specified by the State, that
enables the State to measure the MCO's, PIHP's, or PAHP's performance;
or
(3) Perform a combination of the activities described in paragraphs
(c)(1) and (c)(2) of this section.
(4) LTSS performance measurement. The State must require, through
its contracts, each MCO, PIHP, and PAHP that provides LTSS services to
include, as a part of its performance measurement activities under this
paragraph and in addition to other measures required of all MCOs,
PIHPs, and PAHPs, measures that assess the quality of life of
beneficiaries and the outcomes of the MCO, PIHP, or PAHP's rebalancing
and community integration activities for beneficiaries receiving LTSS.
(d) Performance improvement projects. (1) MCOs, PIHPs, and PAHPs
must have an ongoing program of performance improvement projects that
focuses on both clinical and nonclinical areas. These projects must be
designed to achieve, through ongoing measurements and intervention,
significant improvement, sustained over time, in clinical care and
nonclinical care areas that are expected to have a favorable effect on
health outcomes and enrollee satisfaction. Each project must include
the following elements:
(i) Measurement of performance using objective quality indicators.
(ii) Implementation of interventions to achieve improvement in the
access to and quality of care.
(iii) Evaluation of the effectiveness of the interventions.

[[Page 31280]]

(iv) Planning and initiation of activities for increasing or
sustaining improvement.
(2) Each MCO, PIHP, and PAHP must report the status and results of
each project to the State as requested, including those topics
specified by CMS under paragraph (a)(3) of this section. 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.
(3) Option for MCOs, PIHPs, or PAHPs serving only dual eligibles.
At State option, MCOs, PIHPs, or PAHPs exclusively serving dual
eligibles may substitute a MA Organization quality improvement project
conducted under Sec. 422.152(d) of this chapter for a performance
improvement project required under this paragraph (d)(1) of this
section.
(e) Program review by the State. (1) The State must review, at
least annually, the impact and effectiveness of each MCO's, PIHP's, and
PAHP's quality assessment and performance improvement program. The
review must include--
(i) The MCO's, PIHP's, and PAHP's performance on the measures on
which it is required to report.
(ii) The outcomes and trended results of each MCO's, PIHP's, and
PAHP's performance improvement projects.
(iii) The results of any efforts by the MCO, PIHP, or PAHP to
support community integration for enrollees using LTSS.
(2) The State may require that an MCO, PIHP, or PAHP have in effect
a process for its own evaluation of the impact and effectiveness of its
quality assessment and performance improvement program.

Sec. 438.332 State review and approval of MCOs, PIHPs, and PAHPs.

(a) General requirement. (1) To enter into a contract with the
State under this part, MCOs, PIHPs, and PAHPs must be reviewed and
approved by the State on the basis of performance in accordance with
standards that are at least as stringent as the standards used by a
private accreditation entity recognized by CMS under 45 CFR 156.275(c)
or approved under Sec. 422.157 of this chapter.
(2) Following initial approval, the State must review and reapprove
each MCO, PIHP, and PAHP in accordance with paragraph (a)(1) of this
section at least once every 3 years.
(3) Upon obtaining initial State approval in accordance with
paragraph (a)(1) of this section, MCOs, PIHPs, and PAHPs must perform
consistent with the level required for approval so long as they
participate in the State's Medicaid managed care program.
(b) Compliance deemed on the basis of accreditation by a private
independent entity. (1) The State may elect to use proof of MCO, PIHP,
or PAHP accreditation by a private independent entity recognized by CMS
under 45 CFR 156.275(c) or approved under Sec. 422.157 of this chapter
to satisfy the requirement described in paragraph (a) of this section.
(2) If the State chooses to exercise this option, the MCO, PIHP, or
PAHP must authorize the private accreditation entity to release to the
State a copy of its most recent accreditation survey, including:
(i) Accreditation status, survey type, or level (if applicable).
(ii) Accreditation results, including recommended actions or
improvements, corrective action plans, and summaries of findings.
(iii) Expiration date of accreditation.
(c) The State must make the final approval status, whether based on
State review or private accreditation, for all MCOs, PIHPs, and PAHPs
available on the State's Medicaid Web site required under Sec.
438.10(c)(3).

Sec. 438.334 Medicaid managed care quality rating system.

(a)(1) Each State contracting with an MCO, PIHP, or PAHP must
establish a quality rating system for Medicaid managed care plans that
meets the requirements of this section.
(2) The quality rating system must be based on the following three
components:
(i) Clinical quality management.
(ii) Member experience.
(iii) Plan efficiency, affordability, and management.
(3) The quality rating system must measure and report on the
performance of each MCO, PIHP, or PAHP on measures identified by CMS,
under Sec. 438.330(a)(2). Such measures will be categorized within
each of the components listed in paragraph (a)(1) of this section. The
quality rating system may also measure and report on additional
measures identified by the State.
(b) Each State must collect data from each MCO, PIHP, and PAHP with
which it contracts, which includes, at a minimum, data evidencing the
MCO's, PIHP's, or PAHP's performance on the measures described in
paragraph (a)(2) of this section. The State must apply the methodology
established by CMS, under Sec. 438.330(a)(2), to these performance
measures to determine a quality rating or ratings for each MCO, PIHP,
or PAHP.
(c) Alternative quality rating system. Upon CMS approval, a State
may opt to use an alternative quality rating system that utilizes
different components than those described in paragraph (a)(2) of this
section, incorporates the use of different performance measures than
those described in paragraph (a)(3) of this section, or applies a
different methodology from that described in paragraph (b) of this
section.
(d) Option for MCOs, PIHPs, or PAHPs serving only dual eligibles.
The State may opt to utilize the MA five-star rating for MCOs, PIHPs,
or PAHPs exclusively serving dual eligible in place of the quality
rating system established under this section.
(e) The State must prominently display on its Web site the quality
rating of each MCO, PIHP, or PAHP in a manner that complies with the
standards in Sec. 438.10(d).

Sec. 438.340 Managed care elements of the State comprehensive quality
strategy.

In addition to the requirements set forth in part 431, subpart I of
this chapter, any State contracting with an MCO, PIHP, or PAHP must
also address the following elements in the State's comprehensive
quality strategy:
(a) The State-defined MCO, PIHP, and PAHP network adequacy and
availability of services standards required by Sec. Sec. 438.68 and
438.206 and examples of evidence-based clinical practice guidelines the
State requires its MCOs, PIHPs, and PAHPs to adopt in accordance with
Sec. 438.236.
(b) The State's goals and objectives for continuous quality
improvement must be developed in accordance with Sec. 431.502(b)(1) of
this chapter and must incorporate a description of:
(1) Quality metrics and performance targets for measuring
improvement and performance regarding MCOs, PIHPs, and PAHPs, and
include, at a minimum, performance measures to be reported in
accordance with Sec. 438.330(c); and
(2) Performance improvement projects to be implemented in
accordance with Sec. 438.330(d), including a description of any
interventions the State proposes to achieve improvement in access,
quality, or timeliness of care for enrollees in MCOs, PIHPs, and PAHPs.
(c) Arrangements for annual, external independent reviews of the
quality outcomes and timeliness of, and access to, the services covered
under each MCO, PIHP, and PAHP contract.
(d) For MCOs, appropriate use of intermediate sanctions that, at a

[[Page 31281]]

minimum, meet the requirements of subpart I of this part.
(e) A description of how the State will assess the performance and
quality outcomes achieved by each PCCM entity, consistent with the
requirements in Sec. 438.3(r).

Sec. 438.350 External quality review.

(a) Each State that contracts with MCOs, PIHPs, or PAHPs must
ensure that--
(1) Except as provided in Sec. 438.362, a qualified EQRO performs
an annual EQR for each contracting MCO, PIHP, and PAHP.
(2) The EQRO has sufficient information to use in performing the
review.
(3) The information used to carry out the review must be obtained
from the EQR-related activities described in Sec. 438.358 or from a
Medicare or private accreditation review as described in Sec. 438.360.
(4) For each EQR-related activity, the information gathered for use
in the EQR must include the elements described in Sec.
438.364(a)(1)(i) through (iv).
(5) The information provided to the EQRO in accordance with
paragraph (a)(2) of this section is obtained through methods consistent
with the protocols established under Sec. 438.352.
(6) The results of the reviews are made available as specified in
Sec. 438.364.
(b) A State may require that a qualified EQRO performs an annual
EQR for each PCCM entity consistent with the requirements of Sec.
438.3(r). If an EQR is performed, the requirements in paragraphs (a)(2)
through (6) of this section apply.

Sec. 438.352 External quality review protocols.

Each protocol must specify--
(a) The data to be gathered;
(b) The sources of the data;
(c) The activities and steps to be followed in collecting the data
to promote its accuracy, validity, and reliability;
(d) The proposed method or methods for validly analyzing and
interpreting the data once obtained; and
(e) Instructions, guidelines, worksheets, and other documents or
tools necessary for implementing the protocol.

Sec. 438.354 Qualifications of external quality review organizations.

(a) General rule. The State must ensure that an EQRO meets the
requirements of this section.
(b) Competence. The EQRO must have at a minimum the following:
(1) Staff with demonstrated experience and knowledge of--
(i) Medicaid beneficiaries, policies, data systems, and processes;
(ii) Managed care delivery systems, organizations, and financing;
(iii) Quality assessment and improvement methods; and
(iv) Research design and methodology, including statistical
analysis.
(2) Sufficient physical, technological, and financial resources to
conduct EQR or EQR-related activities.
(3) Other clinical and nonclinical skills necessary to carry out
EQR or EQR-related activities and to oversee the work of any
subcontractors.
(c) Independence. The EQRO and its subcontractors are independent
from the State Medicaid agency and from the MCOs, PIHPs, or PAHPs that
they review. To qualify as ``independent''--
(1) A State agency, department, university, or other State entity
may not have Medicaid purchasing or managed care licensing authority;
and
(2) A State agency, department, university, or other State entity
must be governed by a Board or similar body the majority of whose
members are not government employees.
(3) An EQRO may not--
(i) Review a particular MCO, PIHP, or PAHP if either the EQRO or
the MCO, PIHP, or PAHP exerts control over the other (as used in this
paragraph, ``control'' has the meaning given the term in 48 CFR 19.101)
through--
(A) Stock ownership;
(B) Stock options and convertible debentures;
(C) Voting trusts;
(D) Common management, including interlocking management; and
(E) Contractual relationships.
(ii) Deliver any health care services to Medicaid beneficiaries;
(iii) Conduct, on the State's behalf, ongoing Medicaid managed care
program operations related to oversight of the quality of MCO, PIHP, or
PAHP services, except for the related activities specified in Sec.
438.358;
(iv) Conduct or have conducted within the previous 3 years, an
accreditation review on any contracting MCO, PIHP, or PAHP; or
(v) Have a present, or known future, direct or indirect financial
relationship with an MCO, PIHP, or PAHP that it will review as an EQRO.

Sec. 438.356 State contract options for external quality review.

(a) The State--
(1) Must contract with one EQRO to conduct either EQR alone or EQR
and other EQR-related activities.
(2) May contract with additional EQROs or other entities to conduct
EQR-related activities as set forth in Sec. 438.358.
(b) Each EQRO must meet the competence requirements as specified in
Sec. 438.354(b).
(c) Each EQRO is permitted to use subcontractors. The EQRO is
accountable for, and must oversee, all subcontractor functions.
(d) Each EQRO and its subcontractors performing EQR or EQR-related
activities must meet the requirements for independence, as specified in
Sec. 438.354(c).
(e) For each contract with an EQRO described in paragraph (a) of
this section, the State must follow an open, competitive procurement
process that is in accordance with State law and regulations. In
addition, the State must comply with 45 CFR part 75 as it applies to
State procurement of Medicaid services.

Sec. 438.358 Activities related to external quality review.

(a) General rule. (1) The State, its agent that is not an MCO,
PIHP, or PAHP, or an EQRO may perform the mandatory and optional EQR-
related activities in this section.
(2) The data obtained from the mandatory and optional EQR-related
activities in this section must be used as described in Sec.
438.350(a)(3).
(b) Mandatory activities. For each MCO, PIHP, and PAHP, the
following EQR-related activities must be performed:
(1) Validation of performance improvement projects, required by the
State and CMS to comply with requirements set forth in Sec.
438.330(b)(1), that were underway during the preceding 12 months.
(2) Validation of MCO, PIHP, or PAHP performance measures reported
(as required by the State and CMS) or MCO, PIHP, or PAHP performance
measures calculated by the State during the preceding 12 months to
comply with requirements set forth in Sec. 438.330(b)(2).
(3) A review, conducted within the previous 3-year period, to
determine the MCO's, PIHP's, or PAHP's compliance with the standards
set forth in subpart D and the quality assessment and performance
improvement requirements described in Sec. 438.330.
(4) Validation of MCO, PIHP, and PAHP network adequacy during the
preceding 12 months to comply with requirements set forth in Sec.
438.68.
(c) Optional activities. For each MCO, PIHP, and PAHP, the
following activities may be performed by using information derived
during the preceding 12 months:
(1) Validation of encounter data reported by an MCO, PIHP, or PAHP.

[[Page 31282]]

(2) Administration or validation of consumer or provider surveys of
quality of care.
(3) Calculation of performance measures in addition to those
reported by an MCO, PIHP, or PAHP and validated by an EQRO.
(4) Conduct of performance improvement projects in addition to
those conducted by an MCO, PIHP, or PAHP and validated by an EQRO.
(5) Conduct of studies on quality that focus on a particular aspect
of clinical or nonclinical services at a point in time.
(d) Technical assistance. The EQRO may, at the State's direction,
provide technical guidance to groups of MCOs, PIHPs, or PAHPs to assist
them in conducting activities related to the mandatory and optional
activities described in this section that provide information for the
EQR and the resulting EQR technical report.

Sec. 438.360 Nonduplication of mandatory activities.

(a) General rule. To avoid duplication, the State may use
information about an MCO, PIHP, or PAHP obtained from a Medicare or
private accreditation review to provide information otherwise obtained
from the mandatory activities specified in Sec. 438.358 if the
conditions of paragraph (b) of this section are met.
(b) MCOs, PIHPs, or PAHPs reviewed by Medicare or private
accrediting organizations. For information about an MCO's, PIHP's, or
PAHP's performance for the validation of performance improvement
projects (as required by Sec. 438.358(b)(1)) or performance measures
(as required by Sec. 438.358(b)(2)) or compliance with the standards
in subpart D of this part (as required by Sec. 438.358(b)(3)), the
State may use information from a Medicare or private accreditation
review if the following conditions are met:
(1) The MCO, PIHP, or PAHP is in compliance with the standards
established by CMS for Medicare or has obtained accreditation from a
private accrediting organization recognized by CMS. The Medicare or
private accreditation review standards must be substantially comparable
to the mandatory activities set forth in Sec. Sec. 438.358(b)(1)
through (b)(3).
(2) The MCO, PIHP, or PAHP provides to the State all the reports,
findings, and other results of the Medicare or private accreditation
review related to the mandatory activities set forth in Sec.
438.358(b)(1), (b)(2), and (b)(3) and the State provides the
information to the EQRO. The EQRO must include an analysis and
aggregation of this information in the final EQR technical report as
described in Sec. 438.364.
(c) In its comprehensive quality strategy, the State must identify
the mandatory activities for which it has exercised this option and
explain its rationale for why these activities are duplicative.

Sec. 438.362 Exemption from external quality review.

(a) Basis for exemption. The State may exempt an MCO from EQR if
the following conditions are met:
(1) The MCO has a current Medicare contract under part C of Title
XVIII or under section 1876 of the Act, and a current Medicaid contract
under section 1903(m) of the Act.
(2) The two contracts cover all or part of the same geographic area
within the State.
(3) The Medicaid contract has been in effect for at least 2
consecutive years before the effective date of the exemption and during
those 2 years the MCO has been subject to EQR under this part, and
found to be performing acceptably for the quality, timeliness, and
access to health care services it provides to Medicaid beneficiaries.
(b) Information on exempted MCOs. When the State exercises this
option, the State must obtain either of the following:
(1) Information on Medicare review findings. Each year, the State
must obtain from each MCO that it exempts from EQR the most recent
Medicare review findings reported on the MCO including--
(i) All data, correspondence, information, and findings pertaining
to the MCO's compliance with Medicare standards for access, quality
assessment and performance improvement, health services, or delegation
of these activities.
(ii) All measures of the MCO's performance.
(iii) The findings and results of all performance improvement
projects pertaining to Medicare enrollees.
(2) Medicare information from a private, national accrediting
organization that CMS approves and recognizes for MA Organization
deeming. (i) If an exempted MCO has been reviewed by a private
accrediting organization, the State must require the MCO to provide the
State with a copy of all findings pertaining to its most recent
accreditation review if that review has been used for either of the
following purposes:
(A) To fulfill certain requirements for Medicare external review
under subpart D of part 422 of this chapter.
(B) To deem compliance with Medicare requirements, as provided in
Sec. 422.156 of this chapter.
(ii) These findings must include, but need not be limited to,
accreditation review results of evaluation of compliance with
individual accreditation standards, noted deficiencies, corrective
action plans, and summaries of unmet accreditation requirements.

Sec. 438.364 External quality review results.

(a) Information that must be produced. The State must ensure that
the EQR results in an annual detailed technical report that summarizes
findings on access and quality of care, including:
(1) A description of the manner in which the data from all
activities conducted in accordance with Sec. 438.358 were aggregated
and analyzed, and conclusions were drawn as to the quality, timeliness,
and access to the care furnished by the MCO, PIHP, or PAHP. The report
must also include the following for each EQR-related activity conducted
in accordance with Sec. 438.358:
(i) Objectives.
(ii) Technical methods of data collection and analysis.
(iii) Description of data obtained, including performance
measurement data for each activity conducted in accordance with Sec.
438.358(b)(1) and (2).
(iv) Conclusions drawn from the data.
(2) An assessment of each MCO's, PIHP's, or PAHP's strengths and
weaknesses for the quality, timeliness, and access to health care
services furnished to Medicaid beneficiaries.
(3) Recommendations for improving the quality of health care
services furnished by each MCO, PIHP, or PAHP, including how the State
can target goals and objectives in the comprehensive quality strategy
to better support improvement in the quality, timeliness, and access to
health care services furnished to Medicaid beneficiaries.
(4) Methodologically appropriate, comparative information about all
MCOs, PIHPs, and PAHPs.
(5) An assessment of the degree to which each MCO, PIHP, or PAHP
has addressed effectively the recommendations for quality improvement
made by the EQRO during the previous year's EQR.
(b) Availability of information. (1) The State must contract with a
qualified EQRO to produce and submit to the State an annual EQR
technical report in accordance with paragraph (a) of this section. The
annual technical report must be finalized no later than April 30th of
each year. States may not

[[Page 31283]]

substantively revise the content of the final EQR technical report
without evidence of error or omission.
(2) The State must provide copies of the information specified in
paragraph (a) of this section, upon request, through print or
electronic media, to interested parties such as participating health
care providers, enrollees and potential enrollees of the MCO, PIHP, or
PAHP, beneficiary advocacy groups, and members of the general public.
The State must make the most recent copy of the annual EQR technical
report publicly available on the State's Web site required under Sec.
438.10(c)(3).
(3) The State must make the information specified in paragraph (a)
of this section available in alternative formats for persons with
disabilities, when requested.
(c) Safeguarding patient identity. The information released under
paragraph (b) of this section may not disclose the identity of any
patient.

Sec. 438.370 Federal financial participation (FFP).

(a) FFP at the 75 percent rate is available in expenditures for EQR
(including the production of EQR results) and the EQR-related
activities set forth in Sec. 438.358 performed on MCOs and conducted
by EQROs and their subcontractors.
(b) FFP at the 50 percent rate is available in expenditures for
EQR-related activities conducted by any entity that does not qualify as
an EQRO, and for EQR (including the production of EQR results) and EQR-
related activities performed by an EQRO on entities other than MCOs.
(c) Prior to claiming FFP at the 75 percent rate in accordance with
paragraph (a) of this section, the State must submit each EQRO contract
to CMS for review and approval.

Subpart F--Grievance System

Sec. 438.400 Statutory basis and definitions.

(a) Statutory basis. This subpart is based on the following
statutory sections:
(1) Section 1902(a)(3) of the Act 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) of the Act 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) of the Act 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:
Adverse benefit determination means, in the case of an MCO, PIHP,
or PAHP, any of the following:
(1) The denial or limited authorization of a requested service,
including determinations based on the type or level of service,
requirements for medical necessity, appropriateness, health care
setting, or effectiveness of a covered benefit.
(2) The reduction, suspension, or termination of a previously
authorized service.
(3) The denial, in whole or in part, of payment for a service.
(4) The failure to provide services in a timely manner, as defined
by the State.
(5) The failure of an MCO, PIHP, or PAHP to act within the
timeframes provided in Sec. 438.408(b)(1) and (b)(2) regarding the
standard disposition of grievances and standard disposition and
resolution of appeals; or
(6) For a resident of a rural area with only one MCO, the denial of
an enrollee's request to exercise his or her right, under Sec.
438.52(b)(2)(ii), to obtain services outside the network.
Appeal means a review by a MCO, PIHP, or PAHP of an adverse benefit
determination.
Grievance means an expression of dissatisfaction about any matter
other than an adverse benefit determination. Grievances may 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 regardless of
whether remedial action is requested. Grievance includes an enrollee's
right to dispute an extension of time proposed by the MCO, PIHP or PAHP
to make an authorization decision.
Grievance system means the processes the MCO, PIHP, or PAHP
implements to handle appeals of an adverse benefit determination and
grievances, as well as the processes to collect and track information
about them.

Sec. 438.402 General requirements.

(a) The grievance system. Each MCO, PIHP, and PAHP must have a
grievance system in place for enrollees. Non-emergency medical
transportation PAHPs, as defined in Sec. 438.9, are not subject to
subpart F.
(b) Level of appeals. Each MCO, PIHP and PAHP may have only one
level of appeal for enrollees.
(c) Filing requirements. (1) Authority to file. (i) An enrollee may
file a grievance and an appeal with the MCO, PIHP, or PAHP. An enrollee
may request a State fair hearing after receiving notice under Sec.
438.408 that the adverse benefit determination is upheld.
(ii) A provider, acting on behalf of the enrollee, may file an
appeal. A provider may file a grievance or request a State fair hearing
on behalf of an enrollee, if the State permits the provider to act as
the enrollee's authorized representative in doing so.
(2) Timing--(i) Grievance. An enrollee may file a grievance with
the MCO, PIHP, or PAHP at any time.
(ii) Appeal. Following receipt of a notification of an adverse
benefit determination by an MCO, PIHP, or PAHP, an enrollee or the
provider has 60 calendar days in which to file an appeal.
(3) Procedures--(i) Grievance. 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, PIHP, or PAHP.
(ii) Appeal. The enrollee or a provider may file an appeal either
orally or in writing. Further, unless the enrollee requests an
expedited resolution, an oral appeal must be followed by a written,
signed appeal.

Sec. 438.404 Timely and adequate notice of adverse benefit
determination.

(a) Notice. The MCO, PIHP, or PAHP must give enrollees timely and
adequate notice of adverse benefit determination in writing consistent
with the requirements below and in Sec. 438.10.
(b) Content of notice. The notice must explain the following:
(1) The adverse benefit determination the MCO, PIHP, or PAHP has
made or intends to make.
(2) The reasons for the adverse benefit determination, including
the right of the enrollee to be provided upon request and free of
charge, reasonable access to and copies of all documents, records, and
other information relevant to the enrollee's claim for benefits. Such
information includes medical necessity criteria, and any processes,
strategies, or evidentiary standards used in setting coverage limits.
(3) The enrollee's and the provider's right to file an appeal of
the MCO's, PIHP's, or PAHP's adverse benefit determination.
(4) The procedures for exercising the rights specified in this
paragraph (b).
(5) The circumstances under which an appeal process can be
expedited and how to request it.
(6) The enrollee's right to have benefits continues pending
resolution of

[[Page 31284]]

the appeal, how to request that benefits be continued, and the
circumstances, consistent with state policy, under which the enrollee
may be required to pay the costs of these services.
(c) Timing of notice. The MCO, PIHP, or PAHP 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 Sec. Sec. 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)(1).
(4) If the MCO, PIHP, or PAHP meets the criteria set forth for
extending the timeframe for standard service authorization decisions
consistent with Sec. 438.210(d)(1)(ii), 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 benefit determination), on the date that the
timeframes expire.
(6) For expedited service authorization decisions, within the
timeframes specified in Sec. 438.210(d)(2).

Sec. 438.406 Handling of grievances and appeals.

(a) General requirements. In handling grievances and appeals, each
MCO, PIHP, and PAHP must give enrollees any reasonable assistance in
completing forms and taking other procedural steps. This includes, but
is not limited to, auxiliary aids and services upon request, such as
providing interpreter services and toll-free numbers that have adequate
TTY/TTD and interpreter capability.
(b) Special requirements. An MCO's, PIHP's or PAHP's process for
handling enrollee grievances and appeals of adverse benefit
determinations must:
(1) Acknowledge receipt of each grievance and appeal.
(2) Ensure that the individuals who make decisions on grievances
and appeals are individuals--
(i) Who were neither involved in any previous level of review or
decision-making nor a subordinate of any such individual.
(ii) Who, if deciding any of the following, are health care
professionals who have the appropriate clinical expertise, as
determined by the State, in treating the enrollee's condition or
disease.
(A) An appeal of a denial that is based on lack of medical
necessity.
(B) A grievance regarding denial of expedited resolution of an
appeal.
(C) A grievance or appeal that involves clinical issues.
(iii) That takes into account all comments, documents, records, and
other information submitted by the enrollee or their representative
without regard to whether such information was submitted or considered
in the initial adverse benefit determination.
(3) Provide that oral inquiries seeking to appeal an adverse
benefit determination 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.
(4) Provide the enrollee a reasonable opportunity, in person and in
writing, to present evidence and testimony and make legal and factual
arguments. The MCO, PIHP, or PAHP must inform the enrollee of the
limited time available for this sufficiently in advance of the
resolution timeframe for appeals as specified in Sec. 438.408(b) and
(c) in the case of expedited resolution.
(5) Provide the enrollee and his or her representative (free of
charge and sufficiently in advance of the resolution timeframe for
appeals as specified in Sec. 438.408(b) and (c)) the enrollee's case
file, including medical records, other documents and records, and any
new or additional evidence considered, relied upon, or generated by the
MCO, PIHP or PAHP (or at the direction of the MCO, PIHP or PAHP) in
connection with the appeal of the adverse benefit determination.
(6) 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. Each MCO, PIHP, or PAHP 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 calendar days from the day the MCO, PIHP, or PAHP 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 30 calendar days from the day the MCO,
PIHP, or PAHP receives the appeal. This timeframe may be extended under
paragraph (c) 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 72 hours after the MCO, PIHP, or PAHP
receives the appeal. This timeframe may be extended under paragraph (c)
of this section.
(c) Extension of timeframes. (1) The MCO, PIHP, or PAHP 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, PIHP, or PAHP 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, PIHP, or PAHP
extends the timeframes not at the request of the enrollee, it must
complete all of the following:
(i) Make reasonable efforts to give the enrollee prompt oral notice
of the delay.
(ii) Within 2 calendar days 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.
(iii) Resolve the appeal as expeditiously as the enrollee's health
condition requires and no later than the date the extension expires.
(d) Format of notice. (1) Grievances. The State must establish the
method that an MCO, PIHP, and PAHP will use to notify an enrollee of
the disposition of a grievance and ensure that such methods meet, at a
minimum, the standards described at Sec. 438.10.
(2) Appeals. (i) For all appeals, the MCO, PIHP, or PAHP must
provide written notice of disposition in a format and language that, at
a minimum, meet the standards described at Sec. 438.10.
(ii) For notice of an expedited resolution, the MCO, PIHP, or PAHP
must also make reasonable efforts to provide oral notice.
(e) Content of notice of appeal resolution. The written notice of
the resolution must include the following:

[[Page 31285]]

(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 and receive benefits while the hearing is
pending, and how to make the request.
(iii) That the enrollee may, consistent with state policy, be held
liable for the cost of those benefits if the hearing decision upholds
the MCO's, PIHP's, or PAHP's adverse benefit determination.
(f) Requirements for State fair hearings. (1) Availability. An
enrollee may request a State fair hearing only after receiving notice
that the MCO, PIHP or PAHP is upholding the adverse benefit
determination.
(2) The enrollee must request a State fair hearing no later than
120 calendar days from the date of the MCO's, PIHP's, or PAHP's notice
of resolution.
(3) Parties. The parties to the State fair hearing include the MCO,
PIHP, or PAHP 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, PIHP, and PAHP must establish and
maintain an expedited review process for appeals, when the MCO, PIHP,
or PAHP 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, PIHP, or PAHP must ensure that
punitive action is not 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, PIHP, or PAHP 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) Follow the requirements in Sec. 438.408(c)(2).

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

The MCO, PIHP, or PAHP must provide information specified in Sec.
438.10(g)(2)(xi) about the grievance system to all providers and
subcontractors at the time they enter into a contract.

Sec. 438.416 Recordkeeping requirements.

(a) The State must require MCOs, PIHPs, and PAHPs to maintain
records of grievances and appeals and must review the information as
part of its ongoing monitoring procedures, as well as for updates and
revisions to the State quality strategy.
(b) The record of each grievance or appeal must contain, at a
minimum, all of the following information:
(1) A general description of the reason for the appeal or
grievance.
(2) The date received.
(3) The date of each review or, if applicable, review meeting.
(4) Resolution at each level of the appeal or grievance, if
applicable.
(5) Date of resolution at each level, if applicable.
(6) Name of the covered person for whom the appeal or grievance was
filed.
(c) The record must be accurately maintained in a manner accessible
to the state and available upon request to CMS.

Sec. 438.420 Continuation of benefits while the MCO, PIHP, or PAHP
appeal and the State fair hearing are pending.

(a) Definitions. As used in this section--
Timely filing means filing on or before the later of the following:
(i) Within 10 calendar days of the MCO, PIHP, or PAHP mailing the
notice of adverse benefit determination.
(ii) The intended effective date of the MCO's, PIHP's, or PAHP's
proposed adverse benefit determination.
(b) Continuation of benefits. The MCO, PIHP, or PAHP must continue
the enrollee's benefits if all of the following occur:
(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 original period covered by the original authorization has
not expired.
(5) The enrollee requests extension of benefits.
(c) Duration of continued or reinstated benefits. If, at the
enrollee's request, the MCO, PIHP, or PAHP 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) Ten days pass after the MCO, PIHP, or PAHP mails the notice,
providing the resolution of the appeal against the enrollee, unless the
enrollee, within the 10-day timeframe, 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
and state fair hearing is pending. If the final resolution of the
appeal is adverse to the enrollee, that is, upholds the MCO's, PIHP's,
or PAHP's adverse benefit determination, the MCO, PIHP, or PAHP may
recover the cost of the services furnished to the enrollee while the
appeal and state fair hearing was 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. The ability of the MCO, PIHP or PAHP to recoup the costs of
services from the enrollee must be specified in the contract. Such
practices must be consistently applied within the State under managed
care and FFS delivery systems.

Sec. 438.424 Effectuation of reversed appeal resolutions.

(a) Services not furnished while the appeal is pending. If the MCO,
PIHP, or PAHP, 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, PIHP, or PAHP must authorize or provide the
disputed services promptly, and as expeditiously as the enrollee's
health condition requires but no later than 72 hours from the date it
receives notice reversing the determination.
(b) Services furnished while the appeal is pending. If the MCO,
PIHP, or PAHP, 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 PAHP, or the
State must pay for those services, in accordance with State policy and
regulations.

Subpart G--[Reserved]

Subpart H--Additional Program Integrity Safeguards

Sec. 438.600 Statutory basis.

This subpart is based on the following statutory sections:
(a) Section 1128 of the Act provides for the exclusion of certain
individuals and entities from participation in the Medicaid program.
(b) Section 1128J(d) of the Act requires that persons who have
received an overpayment under Medicaid report and return the
overpayment within 60

[[Page 31286]]

days after the date on which the overpayment was identified.
(c) Section 1902(a)(4) of the Act requires that the State plan
provide for methods of administration that the Secretary finds
necessary for the proper and efficient operation of the plan.
(d) Section 1902(a)(19) of the Act 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
beneficiaries.
(e) Section 1902(a)(27) of the Act requires States to enroll
persons or institutions that provide services under the State plan.
(f) Section 1902(a)(68) of the Act requires that any entity
receiving annual payments under the State plan of at least $5,000,000
must establish certain minimum written policies relating to the Federal
False Claims Act.
(g) Section 1902(a)(77) of the Act requires that States comply with
provider and supplier screening, oversight, and reporting requirements
described in section 1902(kk)(1) of the Act.
(h) Section 1902(a)(80) of the Act prohibits payments for items or
services provided under the State plan or under a waiver to any
financial institution or entity located outside of the United States.
(i) Section 1902(kk)(7) of the Act requires States to enroll
physicians or other professionals that order or refer services under
the State plan.
(j) Section 1903(i) of the Act prohibits FFP for amounts expended
by MCOs or PCCMs for providers excluded by Medicare, Medicaid, or CHIP,
except for emergency services.
(k) Section 1903(m) of the Act establishes conditions for payments
to the State for contracts with MCOs.
(l) Section 1932(d)(1) of the Act prohibits MCOs and PCCMs from
knowingly having certain types of relationships with individuals and
entities debarred under Federal regulations from participating in
specified activities, or with affiliates of those individuals.

Sec. 438.602 State responsibilities.

(a) Monitoring contractor compliance. Consistent with Sec. 438.66,
the State must monitor the MCO's, PIHP's, PAHP's, PCCM's or PCCM
entity's compliance, as applicable, with Sec. 438.604, Sec. 438.606,
Sec. 438.608, Sec. 438.610, Sec. 438.230, and Sec. 438.808.
(b) Screening and enrollment and revalidation of providers. The
State must screen and enroll, and periodically revalidate, all network
providers of MCOs, PIHPs, and PAHPs, in accordance with the
requirements of part 455, subparts B and E of this chapter. This
requirement extends to PCCMs and PCCM entities to the extent the
primary care case manager is not otherwise enrolled with the State to
provide services to FFS beneficiaries. This provision does not require
the network provider to render services to FFS beneficiaries.
(c) Ownership and control information. The State must review the
ownership and control disclosures submitted by the MCO, PIHP, PAHP,
PCCM or PCCM entity, and any subcontractors, subject to the
requirements in Sec. 438.230, in accordance with subpart B of part 455
of this chapter.
(d) Federal database checks. Consistent with the requirements at
Sec. 455.436 of this chapter, the State must confirm the identity and
determine the exclusion status of the MCO, PIHP, PAHP, PCCM or PCCM
entity, any subcontractor, as well as any person with an ownership or
control interest, or who is an agent or managing employee of the MCO,
PIHP, PAHP, PCCM or PCCM entity through routine checks of Federal
databases. This includes the Social Security Administration's Death
Master File, the List of Excluded Individuals/Entities (LEIE), the
System for Award Management (SAM), and any other databases as the State
or Secretary may prescribe. These databases must be consulted upon
contracting and no less frequently than monthly thereafter. If the
state determines a match, it must promptly notify the MCO, PIHP, PAHP,
PCCM, or PCCM entity and take action consistent with Sec. 438.610(c).
(e) Periodic audits. The State must periodically, but no less
frequently than once every 3 years, conduct, or contract for the
conduct of, an independent audit of the accuracy, truthfulness, and
completeness of the encounter and financial data submitted by, or on
behalf of, each MCO, PIHP or PAHP.
(f) Whistleblowers. The State must receive and investigate
information from whistleblowers relating to the integrity of the MCO,
PIHP, PAHP, PCCM, or PCCM entity, subcontractors, or network providers
receiving Federal funds under this part.
(g) Transparency. The State must post on its Web site or make
available upon request the following documents and reports:
(1) The MCO, PIHP, PAHP, or PCCM entity contract.
(2) The data submitted under Sec. 438.604.
(3) The results of any audits under paragraph (e) of this section.
(h) Contracting integrity. The State must have in place conflict of
interest safeguards described in Sec. 438.58 and must comply with the
requirement described in section 1902(a)(4)(C) of the Act applicable to
contracting officers, employees, or independent contractors.
(i) Entities located outside of the U.S. The State must ensure that
the MCO, PIHP, PAHP, PCCM, or PCCM entity with which the State
contracts under this part is not located outside of the United States
and that no claims paid by an MCO, PIHP, or PAHP to a network provider,
out-of-network provider, subcontractor or financial institution located
outside of the U.S. are considered in the development of actuarially
sound capitation rates.

Sec. 438.604 Data, information, and documentation that must be
submitted.

(a) Specified data, information, and documentation. The State must
require any MCO, PIHP, PAHP, PCCM or PCCM entity to submit to the State
the following data:
(1) Encounter data in the form and manner described in Sec.
438.818.
(2) Data on the basis of which the State certifies the actuarial
soundness of capitation rates to an MCO, PIHP or PAHP under Sec.
438.3, including base data described in Sec. 438.5(c) that is
generated by the MCO, PIHP or PAHP.
(3) Data on the basis of which the State determines the compliance
of the MCO, PIHP, or PAHP with the medical loss ratio requirement
described in Sec. 438.8.
(4) Data on the basis of which the State determines that the MCO,
PIHP or PAHP has made adequate provision against the risk of insolvency
as required under Sec. 438.116.
(5) Documentation described in Sec. 438.207(b) on which the State
bases its certification that the MCO, PIHP or PAHP has complied with
the State's requirements for availability and accessibility of
services, including the adequacy of the provider network, as set forth
in Sec. 438.206.
(6) Information on ownership and control described in Sec. 455.104
of this chapter from MCOs, PIHPs, PAHPs, PCCMs, PCCM entities, and
subcontractors as governed by Sec. 438.230.
(7) The annual report of overpayment recoveries as required in
Sec. 438.608(d)(3).
(b) Additional data, documentation, or information. In addition to
the data, documentation, or information specified in paragraph (a) of
this section, an MCO, PIHP, PAHP, PCCM or PCCM entity must submit any
other data, documentation, or information relating to the performance
of the entity's

[[Page 31287]]

obligations under this part required by the State or the Secretary.

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

(a) Source of certification. For the data, documentation, or
information specified in Sec. 438.604, the State must require that the
data, documentation or information the MCO, PIHP, PAHP, PCCM or PCCM
entity submits to the State be certified by either the MCO's, PIHP's,
PAHP's, PCCM's, or PCCM entity's Chief Executive Officer or Chief
Financial Officer.
(b) Content of certification. The certification provided by the
individual in paragraph (a) of this section must attest that the MCO,
PIHP, PAHP, PCCM, or PCCM entity has conducted a reasonably diligent
review of the data, documentation, and information specified in Sec.
438.604(a) and (b), and that the data documentation, and information is
accurate, complete, and truthful.
(c) Timing of certification. The State must require the MCO, PIHP,
PAHP, PCCM. or PCCM entity to submit the certification concurrently
with the submission of the data, documentation, or information required
in Sec. 438.604(a) and (b).

Sec. 438.608 Program integrity requirements under the contract.

(a) Administrative and management arrangements or procedures to
detect and prevent fraud, waste and abuse. The State, through its
contract with the MCO, PIHP or PAHP, must require that the MCO, PIHP,
or PAHP, or subcontractor to the extent that the subcontractor is
delegated responsibility by the MCO, PIHP, or PAHP for coverage of
services and payment of claims under the contract between the State and
the MCO, PIHP, or PAHP, implement and maintain arrangements or
procedures that are designed to detect and prevent fraud, waste, and
abuse. The arrangements or procedures must include the following:
(1) A compliance program that includes, at a minimum, all of the
following elements:
(i) Written policies, procedures, and standards of conduct that
articulate the organization's commitment to comply with all applicable
requirements and standards under the contract, and all applicable
Federal and State requirements.
(ii) The designation of a Compliance Officer who is responsible for
developing and implementing policies, procedures, and practices
designed to ensure compliance with the requirements of the contract and
who reports directly to the Chief Executive Officer and the board of
directors.
(iii) The establishment of a Regulatory Compliance Committee on the
Board of Directors and at the senior management level charged with
overseeing the organization's compliance program and its compliance
with the requirements under the contract.
(iv) A system for training and education for the Compliance
Officer, the organization's senior management, and the organization's
employees for the Federal and State standards and requirements under
the contract.
(v) Effective lines of communication between the compliance officer
and the organization's employees.
(vi) Enforcement of standards through well-publicized disciplinary
guidelines.
(vii) Establishment and implementation of procedures and a system
with dedicated staff for routine internal monitoring and auditing of
compliance risks, prompt response to compliance issues as they are
raised, investigation of potential compliance problems as identified in
the course of self-evaluation and audits, correction of such problems
promptly and thoroughly (or coordination of suspected criminal acts
with law enforcement agencies) to reduce the potential for recurrence,
and ongoing compliance with the requirements under the contract.
(2) Provision for prompt reporting of all improper payments
identified or recovered, specifying the improper payments due to
potential fraud, to the State or law enforcement.
(3) Provision for prompt notification to the State when it receives
information about changes in an enrollee's circumstances that may
affect the enrollee's eligibility including all of the following:
(i) Changes in the enrollee's residence or notification of an
enrollee's mail that is returned as undeliverable.
(ii) Changes in the enrollee's income.
(iii) The death of an enrollee.
(4) Provision for notification to the State when it receives
information about a change in a provider's circumstances that may
affect the provider's eligibility to participate in the managed care
program, including the termination of the provider agreement with the
MCO, PIHP or PAHP.
(5) Provision for a method to verify, by sampling or other methods,
whether services that have been represented to have been delivered by
network providers were received by enrollees and the application of
such verification processes on a regular basis.
(6) In the case of MCOs, PIHPs, or PAHPs that receive annual
payments under the contract of at least $5,000,000, written policies
for all employees of the entity, and of any contractor or agent,
providing detailed information about the False Claims Act and other
Federal and State laws described in section 1902(a)(68) of the Act,
including information about rights of employees to be protected as
whistleblowers are in place.
(7) Provision for the prompt referral of any potential fraud,
waste, or abuse that the MCO, PIHP, or PAHP identifies to the State
Medicaid program integrity unit or any potential fraud directly to the
State Medicaid Fraud Control Unit.
(8) Provision for the MCO's, PIHP's, or PAHP's suspension of
payments to a network provider for which the State determines there is
a credible allegation of fraud in accordance with Sec. 455.23 of this
chapter.
(b) Provider screening and enrollment requirements. The State,
through its contracts with a MCO, PIHP, PAHP, PCCM, or PCCM entity must
ensure that all network providers are enrolled with the State as
Medicaid providers consistent with the provider disclosure, screening
and enrollment requirements of part 455, subparts B and E of this
chapter. This provision does not require the network provider to render
services to FFS beneficiaries.
(c) Disclosures. The State must ensure, through its contracts, that
each MCO, PIHP, PAHP, PCCM, PCCM entity, and any subcontractors:
(1) Provides written disclosure of any prohibited affiliation under
Sec. 438.610.
(2) Provides written disclosures of information on ownership and
control required under Sec. 455.104.
(3) Reports to the State within 60 calendar days when it has
identified the capitation payments or other payments in excess of
amounts specified in the contract.
(d) Treatment of recoveries made by the MCO, PIHP or PAHP of
overpayments to providers. (1) Contracts with a MCO, PIHP, or PAHP must
specify that the MCO, PIHP or PAHP retains the following:
(i) Payments made to a network provider that was otherwise excluded
from participation in the Medicaid program, and subsequently recovered
from that network provider, by an MCO, PIHP or PAHP.
(ii) Payments made to a network provider due to fraud, waste or
abuse, and subsequently recovered from that network provider, by an
MCO, PIHP or PAHP.
(2) Each MCO, PIHP, or PAHP requires and has a mechanism for a
network provider to report to the MCO, PIHP or PAHP when it has
received an overpayment, to return the overpayment

[[Page 31288]]

to the MCO, PIHP or PAHP within 60 calendar days after the date on
which the overpayment was identified, and to notify the MCO, PIHP or
PAHP in writing of the reason for the overpayment.
(3) Each MCO, PIHP, or PAHP must report annually to the State on
their recoveries of overpayments.
(4) The State must use the results of the report in paragraph
(d)(3) of this section for setting actuarially sound capitation rates
for each MCO, PIHP, or PAHP consistent with the requirements in Sec.
438.4.
(5) For purposes of paragraph (d) of this section, an overpayment
is any payment made to a network provider by a MCO, PIHP, or PAHP to
which the network provider is not entitled to under title XIX of the
Act.

Sec. 438.610 Prohibited affiliations.

(a) An MCO, PIHP, PAHP, PCCM, or PCCM entity may not knowingly have
a relationship of the type described in paragraph (c) of this section
with the following:
(1) An individual or entity that is debarred, suspended, or
otherwise excluded from participating in procurement activities under
the Federal Acquisition Regulation or from participating in
nonprocurement activities under regulations issued under Executive
Order No. 12549 or under guidelines implementing Executive Order No.
12549.
(2) An individual or entity who is an affiliate, as defined in the
Federal Acquisition Regulation, of a person described in paragraph
(a)(1) of this section.
(b) An MCO, PIHP, PAHP, PCCM, or PCCM entity may not have a
relationship with an individual or entity that is excluded from
participation in any Federal health care program under section 1128 or
1128A of the Act.
(c) The relationships described in paragraph (a) of this section,
are as follows:
(1) A director, officer, or partner of the MCO, PIHP, PAHP, PCCM.
or PCCM entity.
(2) A subcontractor of the MCO, PIHP, PAHP, PCCM, or PCCM entity,
as governed by Sec. 438.230.
(3) A person with beneficial ownership of 5 percent or more of the
MCO's, PIHP's, PAHP's, PCCM's, or PCCM entity's equity.
(4) A network provider or persons with an employment, consulting or
other arrangement with the MCO, PIHP, PAHP, PCCM, or PCCM entity for
the provision of items and services that are significant and material
to the MCO's, PIHP's, PAHP's, PCCM's, or PCCM entity's obligations
under its contract with the State.
(d) Effect of noncompliance. If a State finds that an MCO, PIHP,
PAHP, PCCM, or PCCM entity is not in compliance with paragraphs (a) and
(b) of this section, the State:
(1) Must notify the Secretary of the noncompliance.
(2) May continue an existing agreement with the MCO, PIHP, PAHP,
PCCM, or PCCM entity unless the Secretary directs otherwise.
(3) May not renew or otherwise extend the duration of an existing
agreement with the MCO, PIHP, PAHP, PCCM, or PCCM entity unless the
Secretary provides to the State and to Congress a written statement
describing compelling reasons that exist for renewing or extending the
agreement despite the prohibited affiliations.
(4) Nothing in this section must be construed to limit or otherwise
affect any remedies available to the U.S. under sections 1128, 1128A or
1128B of the Act.
(e) Consultation with the Inspector General. Any action by the
Secretary described in paragraphs (d)(2) or (d)(3) of this section is
taken in consultation with the Inspector General.

Subpart I--Sanctions

Sec. 438.700 Basis for imposition of sanctions.

(a) Each State that contracts with an MCO must, and each State that
contracts with a PCCM or PCCM entity may, establish intermediate
sanctions (which may include those 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 may base its
determinations on findings from onsite surveys, enrollee or other
complaints, financial status, or any other source.
(b) A State determines whether an MCO acts or fails to act as
follows:
(1) Fails substantially to provide medically necessary services
that the MCO is required to provide, under law or under its contract
with the State, to an enrollee covered under the contract.
(2) Imposes on enrollees premiums or charges that are in excess of
the premiums or charges permitted under the Medicaid program.
(3) Acts to discriminate among enrollees on the basis of their
health status or need for health care services. This includes
termination of enrollment or refusal to reenroll a beneficiary, except
as permitted under the Medicaid program, or any practice that would
reasonably be expected to discourage enrollment by beneficiaries whose
medical condition or history indicates probable 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 Sec. Sec. 422.208 and 422.210 of
this chapter.
(c) A State determines whether an MCO, PCCM or PCCM entity has
distributed 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 State determines whether--
(1) An MCO has violated any of the other requirements of sections
1903(m) or 1932 of the Act, or any implementing regulations.
(2) A PCCM or PCCM entity has violated any of the other applicable
requirements of sections 1932 or 1905(t)(3) of the Act, or any
implementing regulations.
(3) For any of the violations under paragraphs (d)(1) and (d)(2) of
this section, only the sanctions specified in Sec. 438.702, paragraphs
(a)(3), (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 for an MCO as provided in
Sec. 438.706.
(3) Granting enrollees the right to terminate enrollment without
cause and notifying the affected enrollees of their right to disenroll.
(4) Suspension of all new enrollment, including default enrollment,
after the date the Secretary or the State notifies the MCO of a
determination of a violation of any requirement under sections 1903(m)
or 1932 of the Act.
(5) Suspension of payment for beneficiaries 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

[[Page 31289]]

prevents State agencies from exercising that authority.

Sec. 438.704 Amounts of civil money penalties.

(a) General rule. If the State imposes civil monetary penalties as
provided under Sec. 438.702(a)(1), the maximum civil money penalty the
State may impose varies depending on the nature of the MCO's, PCCM or
PCCM entity's action or failure to act, as provided in this section.
(b) Specific limits. (1) The limit is $25,000 for each
determination under Sec. 438.700(b)(1), (b)(5), (b)(6), and (c).
(2) The limit is $100,000 for each determination under Sec.
438.700(b)(3) or (b)(4).
(3) The limit is $15,000 for each beneficiary the State determines
was not enrolled because of a discriminatory practice under Sec.
438.700 (b)(3). (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 maximum 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. If the State imposes temporary
management under Sec. 438.702(a)(3), the State may do so only if it
finds (through onsite surveys, enrollee or other complaints, financial
status, or any other source) any of the following:
(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.
(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.
(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 sections 1903(m) or 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), and must notify the affected enrollees of their right to
terminate enrollment.
(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, PCCM or PCCM entity contract.

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

Sec. 438.710 Notice of sanction and pre-termination hearing.

(a) Notice of sanction. Except as provided in Sec. 438.706(c),
before imposing any of the intermediate 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 appeal rights that the State elects to provide.
(b) Pre-termination hearing. (1) General rule. Before terminating
an MCO, PCCM or PCCM entity contract under Sec. 438.708, the State
must provide the entity a pre-termination hearing.
(2) Procedures. The State must do all of the following:
(i) Give the MCO, PCCM or PCCM entity 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.
(iii) For an affirming decision, give enrollees of the MCO, PCCM or
PCCM entity 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, PCCM or PCCM entity that it intends
to terminate the contract, the State may do the following:
(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 CMS written notice whenever it imposes or
lifts a sanction for one of the violations listed in Sec. 438.700.
(b) The notice must adhere to all of the following requirements:
(1) Be given no later than 30 days after the State imposes or lifts
a sanction.
(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.

(a) The State plan must include a plan to monitor for violations
that involve the actions and failures to act specified in this part and
to implement the provisions of this part.
(b) A contract with an MCO must provide that payments provided for
under the contract will be denied for new enrollees when, and for so
long as, payment for those enrollees is denied by CMS under Sec.
438.730(e).

Sec. 438.730 Sanction by CMS: Special rules for MCOs.

(a) Basis for sanction. A State may recommend that CMS impose the
denial of payment sanction specified in paragraph (e) of this section
on an MCO with a contract under this part if the agency determines that
the MCO acts or fails to act as specified in Sec. 438.700(b)(1)
through (b)(6).
(b) Effect of an agency determination. (1) The State's
determination becomes CMS' determination for purposes of section
1903(m)(5)(A) of the Act unless CMS reverses or modifies it within 15
days.
(2) When the State decides to recommend imposing the sanction
described in paragraph (e) of this section, this recommendation becomes
CMS' decision, for purposes of section 1903(m)(5)(B)(ii) of the Act,
unless CMS rejects this recommendation within 15 days.
(c) Notice of sanction. If the State's determination becomes CMS'
determination under paragraph (b)(2) of this section, the State takes
all of the following actions:

[[Page 31290]]

(1) Gives the MCO written notice of the nature and basis of the
proposed sanction.
(2) Allows the MCO 15 days from the date it receives 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.
(3) May extend the initial 15-day period for an additional 15 days
if--
(i) The MCO submits a written request that includes a credible
explanation of why it needs additional time.
(ii) The request is received by CMS before the end of the initial
period.
(iii) CMS has not determined that the MCO's conduct poses a threat
to an enrollee's health or safety.
(d) Informal reconsideration. (1) If the MCO submits a timely
response to the notice of sanction, the State--
(i) Conducts an informal reconsideration that includes review of
the evidence by a State agency official who did not participate in the
original recommendation.
(ii) Gives the MCO a concise written decision setting forth the
factual and legal basis for the decision.
(iii) Forwards the decision to CMS.
(2) The State's decision under paragraph (d)(1)(ii) of this section
becomes CMS' decision unless CMS reverses or modifies the decision
within 15 days from date of receipt by CMS.
(3) If CMS reverses or modifies the State decision, the agency
sends the MCO a copy of CMS' decision.
(e) Denial of payment. (1) CMS, based upon the recommendation of
the agency, may deny payment to the State for new enrollees of the MCO
under section 1903(m)(5)(B)(ii) of the Act in the following situations:
(i) If a CMS determination that an MCO has acted or failed to act,
as described in paragraphs (b)(1) through (b)(6) of Sec. 438.700, is
affirmed on review under paragraph (d) of this section.
(ii) If the CMS determination is not timely contested by the MCO
under paragraph (c) of this section.
(2) Under Sec. 438.726(b), CMS' denial of payment for new
enrollees automatically results in a denial of agency payments to the
MCO for the same enrollees. (A new enrollee is an enrollee that applies
for enrollment after the effective date in paragraph (f)(1) of this
section.)
(f) Effective date of sanction. (1) If the MCO does not seek
reconsideration, a sanction is effective 15 days after the date the MCO
is notified under paragraph (c) of this section of the decision to
impose the sanction.
(2) If the MCO seeks reconsideration, the following rules apply:
(i) Except as specified in paragraph (d)(2) of this section, the
sanction is effective on the date specified in CMS' reconsideration
notice.
(ii) If CMS, in consultation with the State, determines that the
MCO's conduct poses a serious threat to an enrollee's health or safety,
the sanction may be made effective earlier than the date of the
agency's reconsideration decision under paragraph (d)(1)(ii) of this
section.
(g) CMS' role. (1) CMS retains the right to independently perform
the functions assigned to the State under paragraphs (a) through (d) of
this section.
(2) At the same time that the State sends notice to the MCO under
paragraph (c)(1) of this section, CMS forwards a copy of the notice to
the OIG.
(3) CMS conveys the determination described in paragraph (b) of
this section to the OIG for consideration of possible imposition of
civil money penalties under section 1903(m)(5)(A) of the Act and part
1003. In accordance with the provisions of part 1003, the OIG may
impose civil money penalties on the MCO in addition to, or in place of,
the sanctions that may be imposed under this section.

Subpart J--Conditions for Federal Financial Participation (FFP)

Sec. 438.802 Basic requirements.

FFP is available in expenditures for payments under an MCO contract
only for the periods during which the contract--
(a) Meets the requirements of this part; and
(b) Is in effect.

Sec. 438.806 Prior approval.

(a) Comprehensive risk contracts. FFP is available under a
comprehensive risk contract only if all of the following apply:
(1) CMS has confirmed that the contractor meets the definition of
an MCO or is one of the entities described in paragraphs (b)(2) through
(b)(5) of Sec. 438.3.
(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 provisions of 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. 438.807 Deferral and/or disallowance of FFP for non-compliance
with Federal requirements.

CMS may defer and/or disallow FFP under a contract subject to
approval under this part, payment amounts associated with services
under a MCO contract, in accordance with the requirements in Sec.
430.40 and Sec. 430.42 of this chapter, respectively, if the
Administrator finds that--
(a) The contract, as submitted for approval or as administered by
the State, is non-compliant with the requirements of section
1903(m)(2)(A) of the Act, the applicable requirements of section 1932
of the Act, or the provisions of this part for the service or services;
or
(b) The final capitation rates as developed and described in the
rate certification are noncompliant with the requirements in Sec. Sec.
438.4 through 438.7 for the service or services.

Sec. 438.808 Exclusion of entities.

(a) General rule. FFP is available in payments under MCO contracts
or PIHP, PAHP, PCCM, or PCCM entity contracts under a section1915(b)(1)
of the Act waiver 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 or an individual described in Sec.
438.610(a).
(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 described in Sec. 438.610(a).
(ii) Any individual or entity that would provide those services
through an individual or entity described in Sec. 438.610(a).

Sec. 438.810 Expenditures for enrollment broker services.

(a) Definitions. As used in this section--
Enrollment activities means activities such as distributing,
collecting, and processing enrollment materials and

[[Page 31291]]

taking enrollments by phone, in person, or through electronic methods
of communication.
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, PCCM entity 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, PCCM entity or other health care
provider in the State;
(ii) Is owned or controlled by an MCO, PIHP, PAHP, PCCM, PCCM
entity or other health care provider in the State; or
(iii) Owns or controls an MCO, PIHP, PAHP, PCCM, PCCM entity 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.
(3) 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 beneficiaries 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. 438.816 Expenditures for independent consumer support services
for enrollees using LTSS.

State expenditures for the person or entity providing the services
outlined in Sec. 438.71(e) are considered necessary for the proper and
efficient operation of the State plan and thus eligible for FFP only if
all of the following conditions are met:
(a) Costs must be supported by an allocation methodology that
appears in the State's approved Public Assistance Cost Allocation Plan
in Sec. 433.34 of this chapter.
(b) The costs do not duplicate payment for activities that are
already being offered or should be provided by other entities or paid
by other programs.
(c) The person or entity providing the services must meet the
requirements in Sec. 438.810(b)(1) and (2).
(d) The initial contract or MOA for services performed has been
reviewed and approved by CMS.

Sec. 438.818 Enrollee encounter data.

(a) FFP is available for expenditures under an MCO, PIHP, or PAHP
contract only if the State meets the following conditions for providing
sufficient and timely enrollee encounter data to CMS:
(1) Enrollee encounter data reports must comply with the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) security
and privacy standards and be submitted in the format required by the
Medicaid Statistical Information System or format required by any
successor system to the Medicaid Statistical Information System.
(2) States must ensure that enrollee encounter data is validated
for accuracy and completeness before each data submission. States may
use the external quality review activity required in Sec. 438.358 for
the validation of encounter data to meet this requirement.
(3) States must cooperate with CMS to fully comply with all
encounter data reporting requirements of the Medicaid Statistical
Information System or any successor system.
(b) CMS will assess a State's submission to determine if it
complies with current criteria for accuracy and completeness.
(c) If, after being notified of compliance issues under paragraph
(b) of this section the State is unable to make a data submission
compliant, CMS will take appropriate steps to defer and/or disallow FFP
on all or part of an MCO, PIHP, or PAHP contract in a manner based on
the enrollee and specific service type of the noncompliant data.
(d) States must, within 90 days of the effective date of this
requirement, submit to CMS a detailed plan of their procedures and
processes to ensure that complete and accurate enrollee encounter data
are being submitted timely.

Subpart K--[Reserved]

PART 440--SERVICES: GENERAL PROVISIONS

0
9. The authority citation for part 440 continues to read as follows:

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

0
10. Section 440.262 is added to read as follows:

Sec. 440.262 Access and cultural considerations.

The State must have methods to promote access and delivery of
services in a culturally competent manner to all beneficiaries,
including those with limited English proficiency, diverse cultural and
ethnic backgrounds, disabilities, and regardless of gender, sexual
orientation or gender identity. These methods must ensure that
beneficiaries have access to covered services that are delivered in a
manner that meet their unique needs.

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
11. The authority citation for part 457 continues to read as follows:

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

0
12. Section 457.10 is amended by revising the definition of ``fee-for-
service entity'' and adding the definitions of ``actuarially sound
principles'', ``comprehensive risk contract'', ``external quality
review'', ``external quality review organization'', ``managed care
organization'', ``prepaid ambulatory health plan'', ``prepaid inpatient
health plan'', ``primary care case management'', ``primary care case
management entity'', ``primary care case manager'', and ``risk
contract'' in alphabetical order to read as follows:

Sec. 457.10 Definitions and use of terms.

* * * * *
Actuarially sound principles means generally accepted actuarial
principles and practices that are applied to determine aggregate
utilization patterns,

[[Page 31292]]

are appropriate for the population and services to be covered, and have
been certified by actuaries who meet the qualification standards
established by the Actuarial Standards Board.
* * * * *
Comprehensive risk contract means a risk contract between the State
and an MCO 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.
* * * * *
External quality review (EQR) means the analysis and evaluation by
an EQRO, of aggregated information on quality, timeliness, and access
to the health care services that an MCO, PIHP, or PAHP, or their
contractors furnish to CHIP beneficiaries.
External quality review organization (EQRO) means an organization
that meets the competence and independence requirements set forth in
Sec. 438.354 of this chapter, and holds a contract with a State to
perform external quality review, other EQR-related activities as set
forth in Sec. 438.358 of this chapter, or both.
* * * * *
Fee-for-service entity means any individual or entity that
furnishes services under the program on a fee-for-service basis,
including health insurance services.
* * * * *
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 CHIP enrollees as
accessible (in terms of timeliness, amount, duration, and scope) as
those services are to other CHIP beneficiaries within the area served
by the entity.
(ii) Meets the solvency standards of Sec. 438.116 of this chapter.
* * * * *
Prepaid ambulatory health plan (PAHP) means an entity that--
(1) Provides services to enrollees under contract with the State,
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.
(3) Does not have a comprehensive risk contract.
Prepaid inpatient health plan (PIHP) means an entity that--
(1) Provides services to enrollees under contract with the State,
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.
(3) Does not have a comprehensive risk contract.
* * * * *
Primary care case management means a system under which:
(1) A PCCM contracts with the State to furnish case management
services (which include the location, coordination and monitoring of
primary health care services) to CHIP beneficiaries; or
(2) A PCCM entity contracts with the State to provide a defined set
of functions to CHIP beneficiaries.
Primary care case management entity (PCCM entity) means an
organization that provides any of the following functions, in addition
to primary care case management services, for the State:
(1) Provision of intensive telephonic or face-to-face case
management, including operation of a nurse triage advice line.
(2) Development of enrollee care plans.
(3) Execution of contracts with and/or oversight responsibilities
for the activities of fee-for-service providers in the fee-for-service
program.
(4) Provision of payments to fee-for-service providers on behalf of
the State.
(5) Provision of enrollee outreach and education activities.
(6) Operation of a customer service call center.
(7) Review of provider claims, utilization and practice patterns to
conduct provider profiling and/or practice improvement.
(8) Implementation of quality improvement activities including
administering enrollee satisfaction surveys or collecting data
necessary for performance measurement of providers.
(9) Coordination with behavioral health systems/providers.
(10) Coordination with long-term services and supports systems/
providers.
Primary care case manager (PCCM) means a physician, a physician
group practice or, at State option, any of the following in addition to
primary care case management services:
(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.
(2) Incurs loss if the cost of furnishing the services exceeds the
payments under the contract.
* * * * *
0
13. Section 457.204 is amended by revising paragraph (a) to read as
follows:

Sec. 457.204 Withholding of payment for failure to comply with
Federal requirements.

(a) Basis for withholding. CMS withholds payments to the State, in
whole or in part, only if, after giving the State notice, a reasonable
opportunity for correction, and an opportunity for a hearing, the
Administrator finds--
(1) That the State plan is in substantial noncompliance with the
requirements of title XXI of the Act or the regulations in this part.
Substantial non-compliance includes, but is not limited to, failure to
comply with requirements that significantly affect federal or state
oversight or state reporting; or
(2) That the State is conducting its program in substantial
noncompliance with either the State plan or the requirements of title
XXI of the Act or the regulations in this part. Substantial non-
compliance includes, but is not limited to, failure to comply with
requirements that significantly affect federal or state oversight or
state reporting. (Hearings are generally not called until a reasonable
effort has been made to resolve the issues through conferences and
discussions. These efforts may be continued even if a date and place
have been set for the hearing.)
* * * * *
0
14. Section 457.700 is amended by redesignating paragraphs (a)(1) and
(a)(2) as paragraphs (a)(3) and (a)(4), and adding new paragraphs
(a)(1) and (a)(2) to read as follows:

[[Page 31293]]

Sec. 457.700 Basis, scope, and applicability.

(a) * * *
(1) Section 2101(a) of the Act, which provides that the purpose of
title XXI is to provide funds to States to enable them to initiate and
expand the provision of child health assistance to uninsured, low-
income children in an effective and efficient manner; and
(2) Section 2103(f)(3) of the Act, which required compliance with
managed care requirements, including quality assurance standards; and
* * * * *
0
15. Section 457.760 is added to subpart G to read as follows:

Sec. 457.760 CHIP component of the State comprehensive quality
Strategy.

(a) General rule. As a component of the State comprehensive quality
strategy required under part 431, subpart I of this chapter, each state
must address how it will assess and improve the quality of health care
and services furnished to all CHIP enrollees.
(b) Under the CHIP component of the State comprehensive quality
strategy, the State must:
(1) Address all elements set forth in Sec. 431.502 of this
chapter; and
(2) Follow the development, evaluation, and revision requirements
as provided in Sec. 431.504 of this chapter.
(c) Each State contracting with an MCO, PIHP, or PAHP as defined in
Sec. 457.10 of this chapter must also address, within the
comprehensive quality strategy in paragraph (a), the requirements
described in Sec. 457.1240 of this chapter.

Sec. 457.902 [Removed]

0
16. Section 457.902 is removed.
0
17. Section 457.940 is revised to read as follows:

Sec. 457.940 Procurement standards.

(a) A State must submit to CMS a written assurance that title XXI
services will be provided in an effective and efficient manner. The
State must submit the assurance--
(1) With the initial State plan; or
(2) For States with approved plans, with the first request to amend
the approved plan.
(b) A State must provide for free and open competition, to the
maximum extent practical, in the bidding of all procurement contracts
for coverage or other services in accordance with the procurement
requirements of 45 CFR 74.43 or 45 CFR 92.36, as applicable.
(c) All contracts under this part must include provisions that
define a sound and complete procurement contract, as required by 45 CFR
part 74 or 45 CFR part 92, as applicable.
0
18. Section 457.950 is amended by revising paragraph (a) to read as
follows:

Sec. 457.950 Contract and payment requirements including
certification of payment-related information.

(a) MCOs, PAHPs, PIHPs, PCCMs, and PCCM entities. The contract
requirements for MCOs, PAHPs, PIHPs, PCCMs, and PCCM entities are
provided in Sec. 457.1201.
* * * * *
0
19. Subpart L is added to part 457 to read as follows:

Subpart L--Managed Care

Sec.

GENERAL PROVISIONS

457.1200 Basis, scope, and applicability.
457.1201 Standard contract requirements.
457.1203 Rate development standards.
457.1205 Medical loss ratio.
457.1206 Non-emergency medical transportation PAHPs.
457.1207 Information requirements.
457.1208 Requirements that apply to MCO, PIHP, PAHP, PCCM, and PCCM
entity contracts involving Indians, Indian health care provider
(IHCP), and Indian managed care entities (IMCE).

STATE RESPONSIBILITIES

457.1210 Managed care enrollment.
457.1212 Disenrollment.
457.1214 Conflict of interest safeguards.
457.1216 Continued services to enrollees.
457.1218 Network adequacy standards.

ENROLLEE RIGHTS AND PROTECTIONS

457.1220 Enrollee rights.
457.1222 Provider-enrollee communication.
457.1224 Marketing activities.
457.1226 Liability for payment.
457.1228 Emergency and poststabilization services.

MCO, PIHP, AND PAHP STANDARDS

457.1230 Access standards.
457.1233 Structure and operation standards.

QUALITY MEASUREMENT AND IMPROVEMENT; EXTERNAL QUALITY REVIEW

457.1240 Quality measurement and improvement.
457.1250 External quality review.

GRIEVANCE SYSTEM

457.1260 Grievance system.

SANCTIONS

457.1270 Sanctions.

Subpart L--Managed Care

GENERAL PROVISIONS

Sec. 457.1200 Basis, scope, and applicability.

(a) Statutory basis. This subpart implements the following sections
of the Act:
(1) Section 2101(a), which provides that the purpose of Title XXI
is to provide funds to States to enable them to initiate and expand the
provision of child health assistance to uninsured, low-income children
in an effective and efficient manner.
(2) Section 2103(f)(3) and 2107(e)(1)(M) of the Act, which apply
certain provisions of Title XIX related to Medicaid managed care to
CHIP.
(3) Sections 2107(b) and 2107(e)(2) of the Act, which relate to
program integrity.
(b) Scope. This subpart sets forth requirements for the provision
of services through managed care organizations, prepaid ambulatory
health plans, prepaid inpatient health plans, and primary care case
management entities, as defined in Sec. 457.10.
(c) Applicability. The requirements of this subpart apply to child
health assistance provided under a separate child health program
operating a managed care delivery system. Regulations relating to
managed care that are applicable to a Medicaid expansion program are
found at part 438 of this chapter.

Sec. 457.1201 Standard contract requirements.

(a) CMS review. The State must submit all MCO, PAHP, PIHP, PCCM,
and PCCM entity contracts for review in accordance with standards
specified by the Secretary.
(b) Entities eligible for comprehensive risk contracts. The State
may enter into a comprehensive risk contract only with 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) of the Act, these entities are
subject to the regulations governing MCOs under this part.
(c) Payment. The final contract rates per contracted MCO, PIHP, or
PAHP must be specifically identified in the applicable contract
submitted for CMS review. The final contract rates must be based only
upon services covered under the State plan and additional services
deemed by the State to be necessary to comply with the Mental Health
Parity and Addiction Equity Act, follow the requirements in Sec.
457.1203 and represent a payment amount that is adequate to allow the
MCO, PIHP or PAHP to efficiently deliver high quality services to CHIP-
eligible individuals in a manner compliant with contractual
requirements.

[[Page 31294]]

(d) Enrollment discrimination prohibited. Contracts with MCOs,
PAHPs, PIHPs, PCCMs and PCCM entities must provide as follows:
(1) The MCO, PAHP, PIHP, PCCM or PCCM entity 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) The MCO, PAHP, PIHP, PCCM or PCCM entity will not, on the basis
of health status or need for health care services, discriminate against
individuals eligible to enroll.
(3) The MCO, PAHP, PIHP, PCCM or PCCM entity will not discriminate
against individuals eligible to enroll on the basis of race, color,
national origin, sex, sexual orientation, gender identity, or
disability, and will not use any policy or practice that has the effect
of discriminating on the basis of race, color, or national origin, sex,
sexual orientation, gender identity, or disability.
(e) Compliance with applicable laws and conflict of interest
safeguards. All contracts with MCOs, PAHPs, PIHPs, PCCMs or PCCM
entities must meet the following provisions:
(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; the Americans with Disabilities Act of 1990 as amended;
and section 1557 of the Patient Protection and Affordable Care Act.
(2) Comply with the conflict of interest safeguards described in
Sec. 457.1214.
(f) Inspection and audit of records and access to facilities. Risk
contracts must provide that the State, CMS, and the Office of the
Inspector General may inspect and audit any records or documents of the
MCO, PAHP, PIHP, PCCM or PCCM entity or its subcontractors, and may
inspect the premises, physical facilities, and equipment related to its
CHIP enrollees.
(g) Physician incentive plans. (1) MCO, PAHP, and PIHP contracts
must provide for compliance with the requirements set forth in
Sec. Sec. 422.208 and 422.210 of this chapter.
(2) In applying the provisions of Sec. Sec. 422.208 and 422.210 of
this chapter, references to ``MA organization,'' ``CMS,'' and
``Medicare beneficiaries'' must be read as references to ``MCO, PAHP,
or PIHP,'' ``State,'' and ``CHIP beneficiaries,'' respectively.
(h) Subcontracts. All subcontracts must fulfill the requirements of
this part for the service or activity delegated under the subcontract
in accordance with Sec. 457.1233(b).
(i) Choice of health professional. The contract must allow each
enrollee to choose his or her health professional to the extent
possible and appropriate.
(j) Audited financial reports. The contract must require MCOs,
PAHPs, and PIHPs to submit audited financial reports on an annual
basis. The audit must be conducted in accordance with generally
accepted accounting principles and generally accepted auditing
standards.
(k) [Reserved]
(l) 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 beneficiaries who reside sufficiently
near one of the PCCM'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.
(m) Additional rules for contracts with PCCM entities. In addition
to the requirements in paragraph (l) of this section, the State must
submit PCCM entity contracts to CMS for review to ensure compliance
with the provisions of paragraph (l) of this section; Sec. 457.1206;
and if the State's contract with the PCCM entity provides for shared
savings, incentive payments, or other financial reward for improved
quality outcomes, Sec. 457.1240(b), Sec. 457.1240(e) and 457.1240(f)
if the State's contract with the PCCM entity provides for shared
savings, incentive payments or other financial reward for improved
quality outcomes.
(n) Attestations. Contracts with MCO, PAHP, PIHP, PCCM or PCCM
entities must include an attestation to the accuracy, completeness, and
truthfulness of claims and payment data, under penalty of perjury.
(o) Guarantee not to avoid costs. Contracts with MCO, PAHP, PIHP,
PCCM or PCCM entities must include a guarantee that the MCO, PAHP,
PIHP, PCCM or PCCM entity will not avoid costs for services covered in
its contract by referring enrollees to publicly supported health care
resources.
(p) Recordkeeping requirements. MCOs, PIHPs, and PAHPs, must
retain, and require subcontractors to retain, as applicable, the
following information: enrollee grievance and appeal records in Sec.
457.1260, MLR reports in Sec. 457.1205, and the data, information, and
documentation specified in Sec. 457.1270 for a period of no less than
6 years.

Sec. 457.1203 Rate development standards.

(a) A state must use payment rates based on public or private
payment rates for comparable services for comparable populations,
consistent with actuarially sound principles as defined at Sec.
457.10.
(b) A State may establish higher rates than permitted under
paragraph (a) of this section if such rates are necessary to ensure
sufficient provider participation, provider access, or to enroll
providers who demonstrate exceptional efficiency or quality in the
provision of services.
(c) The rates must be developed in such a way that the MCO, PIHP,
or PAHP would reasonably achieve a medical loss ratio standard, as
calculated under Sec. 438.8 of this chapter, of at least 85 percent
for the rate year. In addition, the rates must be developed in such a
way to achieve a medical loss ratio standard, as calculated under Sec.
438.8, that provides for reasonable administrative costs.
(d) The State must provide to CMS, if requested, a description of
the manner in which rates were developed in accordance with the
requirements of paragraphs (a), (b), or (c) of this section.

Sec. 457.1205 Medical loss ratio.

(a) The state must comply with the requirements related to medical
loss ratios as provided in Sec. 438.74 of this chapter, except that
the description of the reports received from the MCOs, PIHPs and PAHPs
pursuant to Sec. 438.8(k) will not be submitted with the actuarial
certification described in Sec. 438.7.
(b) The state must ensure, through its contracts, that each MCO,
PIHP, and PAHP complies with the requirements Sec. 438.8 of this
chapter.

Sec. 457.1206 Non-emergency medical transportation PAHPs.

(a) For purposes of this section Non-Emergency Medical
Transportation (NEMT) PAHP means an entity that provides only NEMT
services to enrollees under contract with the State, and on the basis
of prepaid capitation payments, or other payment arrangements that do
not use State plan payment rates.
(b) Unless listed in this paragraph, a requirement of this part
does not apply

[[Page 31295]]

to NEMT PAHPs, NEMT PAHP contracts, or States in connection with a NEMT
PAHP. The following requirements and options apply to NEMT PAHPs, NEMT
PAHP contracts, and States in connection with NEMT PAHPs, to the same
extent that they apply to PAHPs, PAHP contracts, and States in
connection with PAHPs.
(1) All contract provisions in Sec. 457.1202 except requirements
for:
(i) Physician Incentive plans;
(ii) Audited Financial Reports; and
(iii) MHPAEA.
(2) The rate development standards in Sec. 457.1203.
(3) The information requirements in Sec. 457.1207.
(4) The provision against provider discrimination in Sec.
457.1208.
(5) The State responsibility provisions in Sec. Sec. 457.1212,
457.1214, and 438.62(a) of this chapter, as cross referenced by Sec.
457.1216.
(6) The provisions on enrollee rights and protections in Sec. Sec.
457.1220, 457.1222, 457.1224, and 457.1226.
(7) The PAHP Standards in Sec. 438.206(b)(1) of this chapter, as
cross-referenced by Sec. Sec. 457.1230(a); 457.1230(d); and
457.1233(a) through (c).
(8) An enrollee's right to a State review under subpart K of this
chapter.
(9) Prohibitions against affiliations with individuals debarred or
excluded by Federal agencies in Sec. 457.1285.

Sec. 457.1207 Information requirements.

The State must provide, or ensure its contracted MCO, PAHP, PIHP,
PCCM and PCCM entities provide all enrollment notices, informational
materials, and instructional materials related to enrollees and
potential enrollees as provided in Sec. 438.10 of this chapter.

Sec. 457.1208 Requirements that apply to MCO, PIHP, PAHP, PCCM, and
PCCM entity contracts involving Indians, Indian health care provider
(IHCP), and Indian managed care entities (IMCE).

The State must follow, and ensure through its contracts, that each
MCO, PIHP, PAHP, PCCM, and PCCM entity follows, the requirements
related to Indians, IHCPs, and IMCEs as provided in Sec. 438.14 of
this chapter.

STATE RESPONSIBILITIES

Sec. 457.1210 Managed care enrollment.

(a) If a state uses a default enrollment process to assign
beneficiaries to a MCO, PIHP, PAHP, PCCM, or PCCM entity, the process
must:
(1) Assign beneficiaries to a qualified MCO, PIHP, PAHP, PCCM or
PCCM entity. To be a qualified, the MCO, PIHP, PAHP, PCCM or PCCM
entity must:
(i) Not be subject to the intermediate sanction described in Sec.
438.702(a)(4) of this chapter.
(ii) Have capacity to enroll beneficiaries.
(2) Seek to preserve existing provider-beneficiary relationships
and relationships with providers that have traditionally served CHIP
beneficiaries.
(i) An ``existing provider-beneficiary relationship'' is one in
which the provider was the main source of CHIP services for the
beneficiary during the previous year. This may be established through
State records of previous managed care enrollment or fee-for-service
experience, encounter data, or through contact with the beneficiary.
(ii) A provider is considered to have ``traditionally served'' CHIP
beneficiaries if it has experience in serving the CHIP population.
(3) If the approach in paragraph (a)(2) of this section is not
possible, the State must distribute the beneficiaries equitably among
the MCOs, PIHPs, PAHPs, PCCMs and PCCM entities.
(i) The State may not arbitrarily exclude any MCO, PIHP, PAHP, PCCM
or PCCM entity from being considered.
(ii) The State may consider additional criteria to conduct the
default enrollment process, including the enrollment preferences of
family members, previous plan assignment of the beneficiary, quality
assurance and improvement performance, procurement evaluation elements,
accessibility of provider offices for people with disabilities (when
appropriate), and other reasonable criteria that support the objectives
of the managed care program.
(4) The State must send a confirmation of the enrollee's managed
care enrollment to the enrollee within 5 calendar days of the MCO,
PIHP, PAHP, PCCM or PCCM entity enrollment being processed by the
State. The confirmation must clearly explain the enrollee's right to
disenroll within 90 days from the effective date of the enrollment.
(b) Priority for enrollment. The state must have an enrollment
system under which beneficiaries already enrolled in an MCO, PIHP,
PAHP, PCCM, or PCCM entity are given priority to continue that
enrollment if the MCO, PIHP, PAHP, PCCM, or PCCM entity does not have
the capacity to accept all those seeking enrollment under the program.

Sec. 457.1212 Disenrollment.

The State must follow and ensure, through its contracts, that each
MCO, PAHP, PIHP, PCCM and PCCM entity follows, the disenrollment
requirements as provided in Sec. 438.56 of this chapter, except that
references to fair hearings should be read to refer to reviews as
described in subpart K of this chapter.

Sec. 457.1214 Conflict of interest safeguards.

The State must have in effect safeguards against conflict of
interest as provided in Sec. 438.58 of this chapter.

Sec. 457.1216 Continued services to enrollees.

The State must follow the requirements related to continued
services to enrollees as provided in Sec. 438.62 of this chapter.

Sec. 457.1218 Network adequacy standards.

The State must develop network adequacy standards as provided in
Sec. 438.68 of this chapter, and, ensure through its contracts, that
each MCO, PAHP, and PIHP meets such standards. In addition to
developing standards provided in Sec. 438.68 of this chapter, the
state must develop time and distance standards for dental providers and
pediatric specialists, if covered under the contracts.

ENROLLEE RIGHTS AND PROTECTIONS

Sec. 457.1220 Enrollee rights.

The State must ensure, through its contracts, that each MCO, PIHP,
PAHP, PCCM, and PCCM entity follow the enrollee rights requirements as
provided in Sec. 438.100 of this chapter.

Sec. 457.1222 Provider-enrollee communication.

The State must ensure, through its contracts, that each MCO, PIHP,
and PAHP protects communications between providers and enrollees as
provided in Sec. 438.102 of this chapter.

Sec. 457.1224 Marketing activities.

The State must ensure, through its contracts, that each MCO, PIHP,
PAHP, PCCM, and PCCM entity follows the requirements related to
marketing activities as provided in Sec. 438.104 of this chapter.

Sec. 457.1226 Liability for payment.

The State must ensure, through its contracts, that enrollees of
MCOs, PIHPs, and PAHPs are not held liable for services or debts of the
MCO, PIHP, or PAHPs as provided in Sec. 438.106 of this chapter.

Sec. 457.1228 Emergency and poststabilization services.

The State must ensure that emergency services, as defined in Sec.
457.10, are available and accessible to enrollees as provided in Sec.
438.114 of this chapter.

[[Page 31296]]

MCO, PIHP, AND PAHP STANDARDS

Sec. 457.1230 Access standards.

(a) Availability of services. The State must ensure that the
services are available and accessible to enrollees as provided in Sec.
438.206 of this chapter.
(b) Assurances of adequate capacity and services. The State must
ensure, through its contracts, that each MCO, PIHP and PAHP has
adequate capacity to serve the expected enrollment as provided in Sec.
438.207 of this chapter.
(c) Coordination and continuity of care. The State must ensure,
through its contracts, that each MCO, PIHP and PAHP complies with the
coordination and continuity of care requirements as provided in Sec.
438.208 of this chapter.
(d) Coverage and authorization of services. The State must ensure,
through its contracts, that each MCO, PIHP or PAHP complies with the
coverage and authorization of services requirements as provided in
Sec. 438.210 of this chapter, except:
(1) Section 438.210(a)(5) related to medically necessary services
does not apply;
(2) Notice of adverse benefit determination must meet the
requirements of Sec. 457.1260;
(3) The time frames set forth in Sec. 438.210(d) do not apply. For
the timeframe for decisions, each MCO, PIHP, or PAHP contract must
provide for the decisions and notices in accordance with Sec.
457.1160.

Sec. 457.1233 Structure and operation standards.

(a) Provider selection. The State must ensure, through its
contracts, that each MCO, PIHP or PAHP complies with the provider
selection requirements as provided in Sec. 438.214 of this chapter.
(b) Subcontractual relationships and delegation. The State must
ensure, through its contracts, that each MCO, PIHP and PAHP complies
with the subcontractual relationships and delegation requirements as
provided in Sec. 438.230 of this chapter.
(c) Practice guidelines. The state must ensure, through its
contracts, that each MCO and, when applicable, each PIHP and PAHP,
complies with the practice guidelines requirements as provided in Sec.
438.236 of this chapter.
(d) Health information systems. The State must ensure, through its
contracts, that each MCO, PIHP, and PAHP complies with the health
information systems requirements as provided in Sec. 438.242 of this
chapter.

QUALITY MEASUREMENT AND IMPROVEMENT; EXTERNAL QUALITY REVIEW

Sec. 457.1240 Quality measurement and improvement.

(a) Scope. This section sets forth requirements related to quality
assessment and performance improvement that each State contracting with
an MCO, PIHP, or PAHP must meet.
(b) Quality assessment and performance improvement program. The
State must require, through its contracts, that each MCO, PIHP, and
PAHP must establish and implement an ongoing comprehensive quality
assessment and performance improvement program for the services it
furnishes to its enrollees as provided in Sec. 438.330, except that
the terms of Sec. 438.330(d)(3) of this chapter (for dual eligibles)
do not apply.
(c) State review and approval of MCOs, PIHPS, and PAHPs. The State
must review and approve the performance of each MCO, PIHP, and PAHP in
accordance with the requirements as set forth in Sec. 438.332 of this
chapter.
(d) Managed Care quality rating system. The State must collect data
and apply the methodology established by CMS under the process
described in Sec. 438.330(a)(2) to determine a quality rating or
ratings for each MCO, PIHP, and PAHP in accordance with the
requirements set forth in Sec. 438.334, except that the terms of
438.334(d) of this chapter (for dual eligible) do not apply.
(e) Managed care elements of the State comprehensive quality
strategy. In addition to the requirements set forth in Sec. 457.760,
any State contracting with an MCO, PIHP, or PAHP must also address the
managed care elements described in Sec. 438.340 of this chapter.

Sec. 457.1250 External quality review.

(a) Each State that contracts with MCOs, PIHPs, or PAHPs must
follow all applicable external quality review requirements as set forth
in Sec. Sec. 438.350, 438.352, 438.354, 438.356, 438.358, and 438.364
of this chapter.
(b) Exceptions. (1) The following provisions do not apply to the
CHIP external quality review process for States contracting with MCOs,
PIHPs, or PAHPs;
(i) Nonduplication of mandatory activities (as set forth in Sec.
438.360 of this chapter.)
(ii) Exemption from external quality review (as set forth in Sec.
438.362 of this chapter.)
(2) A State may amend an existing EQRO contract to include the
performance of EQR-related activities and/or EQR in accordance with
paragraph (a) of this section, provided that the existing contract
meets the requirements in Sec. 438.356 of this chapter.

GRIEVANCE SYSTEM

Sec. 457.1260 Grievance system.

The State must ensure that its contracted MCOs, PIHPs, and PAHPs
comply with the grievance and appeals requirements and procedures as
provided in subpart F of part 438 of this chapter, except that the
terms of Sec. 438.420 do not apply and that references to fair
hearings should be read to refer to reviews as described in subpart K
of this chapter.

SANCTIONS

Sec. 457.1270 Sanctions.

The State must comply, and ensure that its contracted MCOs comply,
with the sanctions requirements as provided in subpart I of part 438 of
this chapter.
0
20. Add a new undesignated center heading to subpart K after Sec.
457.1190 to read as follows:

PROGRAM INTEGRITY

Sec. 457.955 [Redesignated as Sec. 457.1280]

0
21. Section 457.955 is redesignated as new Sec. 457.1280 in subpart K.
0
22. Newly redesignated Sec. 457.1280 is amended by revising the
section heading and paragraphs (a), (b)(1), (b)(2), (b)(3), and (d) to
read as follows:

Sec. 457.1280 Conditions necessary to contract as an MCO, PAHP, or
PIHP.

(a) The State must assure that any entity seeking to contract as an
MCO, PAHP, or PIHP under a separate child health program has
administrative and management arrangements or procedures designed to
safeguard against fraud and abuse.
(b) * * *
(1) Enforce MCO, PAHP, and PIHP compliance with all applicable
Federal and State statues, regulations, and standards.
(2) Prohibit MCOs, PAHPs, and PIHPs from conducting any unsolicited
personal contact with a potential enrollee by an employee or agent of
the MCO, PAHP, or PIHP for the purpose of influencing the individual to
enroll with the entity.
(3) Include a mechanism for MCOs, PAHPs, and PIHPs to report to the
State, to CMS, or to the Office of Inspector General (OIG) as
appropriate, information on violations of law by subcontractors,
providers, or enrollees

[[Page 31297]]

of an MCO, PAHP, or PIHP and other individuals.
* * * * *
(d) The State may inspect, evaluate, and audit MCOs, PIHPs, and
PAHPs at any time, as necessary, in instances where the State
determines that there is a reasonable possibility of fraudulent and
abusive activity.
0
23. Section 457.1285 is added to subpart K to read as follows:

Sec. 457.1285 Program integrity safeguards.

The state must comply with the program integrity safeguards as
provided in subpart H of part 438, except that the terms of Sec.
438.604(a)(2) of this chapter do not apply.

PART 495--STANDARDS FOR THE ELECTRONIC HEALTH RECORD TECHNOLOGY
INCENTIVE PROGRAM

0
24. The authority citation for part 495 continues to read as follows:

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

Sec. 495.332 [Amended]

0
25. In Sec. 495.332, amend paragraph (d)(2) by removing the reference
``Sec. 438.6(v)(5)(iii)'' and add in its place the reference ``Sec.
438.6(b)(2)''.

Sec. 495.366 [Amended]

0
26. In Sec. 495.366, amend paragraph (e)(7) by removing the reference
``Sec. 438.6(c)(5)(iii)'' and add in its place the reference ``Sec.
438.6(b)(2)''.

Dated: March 11, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
Dated: May 21, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-12965 Filed 5-26-15; 4:15 pm]
BILLING CODE 4120-01-P