[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  

[[Page 31098]]


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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


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

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

[[Page 31101]]

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

[[Page 31126]]

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

[[Page 31127]]

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.
---------------------------------------------------------------------------

    \12\ AHRQ Web site: http://www.ahrq.gov/professionals/prevention-chronic-care/improve/coordination/index.html.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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

[[Page 31153]]

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

[[Page 31184]]

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)]

[[Page 31201]]

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