[Federal Register Volume 81, Number 61 (Wednesday, March 30, 2016)]
[Rules and Regulations]
[Pages 18390-18445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06876]



[[Page 18389]]

Vol. 81

Wednesday,

No. 61

March 30, 2016

Part V





 Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 438, 440, 456, et al.





 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 
Organizations, the Children's Health Insurance Program (CHIP), and 
Alternative Benefit Plans; Final Rule

  Federal Register / Vol. 81 , No. 61 / Wednesday, March 30, 2016 / 
Rules and Regulations  

[[Page 18390]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 438, 440, 456, and 457

[CMS-2333-F]
RIN 0938-AS24


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 
Organizations, the Children's Health Insurance Program (CHIP), and 
Alternative Benefit Plans

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

ACTION: Final rule.

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SUMMARY: This final rule will address the application of certain 
requirements set forth in the Public Health Service Act, as amended by 
the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction 
Equity Act of 2008, to coverage offered by Medicaid managed care 
organizations, Medicaid Alternative Benefit Plans, and Children's 
Health Insurance Programs.

DATES: These regulations are effective on May 31, 2016.

FOR FURTHER INFORMATION CONTACT:
John O'Brien, (410) 786-5529, Alternative Benefit Plan.
Debra Dombrowski, (312) 353-1403, Managed Care.
Amy Lutzky, (410) 786-0721.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary
II. Background
    A. Introduction
    B. Legislative Overview
III. Provisions of the Final Rule
    A. Definitions
    B. Parity Requirements for Aggregate, Lifetime and Annual Limits
    C. Parity Requirements for Financial Requirements and Treatment 
Limitations
    D. Cumulative Financial Requirements
    E. Compliance With Other Cost-sharing Rules
    F. Nonquantitative Treatment Limitations (NQTLs)
    G. Parity for Mental Health and Substance Use Disorder Benefits 
in CHIP Programs Covering EPSDT
    H. Availability of Information
    I. Application to EHBs and Other ABP Benefits
    J. ABP State Plan Requirements
    K. Application of Parity Requirements to the Medicaid State Plan
    L. Scope and Applicability of the Final Rule
    M. Scope of Services
    N. Increased Cost Exemption
    O. Enforcement, Managed Care Rate Setting and Contract Review 
and Approval
    P. Applicability and Compliance
    Q. Utilization Control
    R. Institutions for Mental Diseases
    S. Medicare-Medicaid Dual Eligible Beneficiaries
IV. Summary of Changes
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Anticipated Effects
    D. Alternatives Considered
    E. Accounting Statement and Table
    F. Regulatory Flexibility Act
    G. Unfunded Mandates Reform Act
    H. Federalism
    I. Conclusion
Regulations Text

Acronyms, Abbreviations, and Short Forms

    Because of the many terms to which we refer by acronym, 
abbreviation, or short form in this final rule, we are listing the 
acronyms, abbreviation, and short forms used and their corresponding 
terms in alphabetical order below:

2008 Extenders Act Tax Extenders and Alternative Minimum Tax Relief 
Act of 2008 (Division C)
The Act Social Security Act
The Affordable Care Act Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the 
Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-
152)
The Departments Departments of the Treasury, Labor, and Health and 
Human Services
ABP Alternative Benefit Plan
BBA Balanced Budget Act of 1997
CHIP Children's Health Insurance Program
CHIPRA Children's Health Insurance Program Reauthorization Act of 
2009
CMS Centers for Medicare and Medicaid Services
The Code Internal Revenue Code of 1986
DOL Department of Labor
DSM Diagnostic and Statistical Manual of Mental Disorders (current 
edition)
EHB Essential Health Benefit
EPSDT Early and Periodic Screening, Diagnostic and Treatment
ERISA Employee Retirement Income Security Act of 1974
FFP Federal Financial Participation
FFS Fee for Service
HHS Department of Health and Human Services
ICD International Classification of Diseases
MCE Managed Care Entity
MCO Managed Care Organization
MH Mental Health
MH/SUD Mental Health or Substance Use Disorder
MHPA Mental Health Parity Act of 1996
MHPAEA Paul Wellstone and Pete Domenici Mental Health Parity and 
Addiction Equity Act of 2008
NQTL Nonquantitative Treatment Limitation
PAHP Prepaid Ambulatory Health Plan
PHS Act Public Health Service Act
PIHP Prepaid Inpatient Health Plan
SHO State Health Official
SUD Substance Use Disorder
Treasury Department of the Treasury

I. Executive Summary

    This final rule addresses the application to Medicaid and the 
Children's Health Insurance Program (CHIP) of certain mental health 
parity requirements added to the Public Health Service Act (PHS Act) by 
the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction 
Equity Act of 2008 (MHPAEA) (Pub. L. 110-343, enacted on October 3, 
2008). Specifically, this final rule addresses the application of 
MHPAEA parity requirements to: (1) Medicaid managed care organizations 
(MCOs) as described in section 1903(m) of the Social Security Act (the 
Act); (2) Medicaid benchmark and benchmark-equivalent plans (referred 
to in this rule as Medicaid Alternative Benefit Plans (ABPs)) as 
described in section 1937 of the Act; and (3) Children's Health 
Insurance Program (CHIP) under title XXI of the Act.
    Under section 1932(b)(8) of the Act, Medicaid MCOs are required to 
comply with the requirements of subpart 2 of part A of title XXVII of 
the PHS Act, to the same extent that those requirements apply to a 
health insurance issuer that offers group health insurance. Subpart 2 
includes mental health parity requirements added by MHPAEA that are now 
found at section 2726 of the PHS Act (as renumbered; formerly section 
2705 of the PHS Act).
    Under section 1937(b)(6) of the Act, Medicaid ABPs that are not 
offered by an MCO and that provide both medical and surgical benefits 
and mental health or substance use disorder (MH/SUD) benefits are 
required to ensure that financial requirements and treatment 
limitations for such benefits comply with the mental health parity 
requirements of the PHS Act (renumbered section 2726(a) of the PHS 
Act), in the same manner as such requirements apply to a group health 
plan. The section 1937 provision applies only to ABPs that are not 
offered by MCOs; ABPs offered by MCOs are already required to comply 
with these requirements under section 1932(b)(8) of the Act.
    Section 2103(c)(6) of the Act requires that state CHIP plans that 
provide both medical and surgical benefits and MH/SUD benefits shall 
ensure that financial requirements and treatment limitations for such 
benefits comply with mental

[[Page 18391]]

health parity requirements of the PHS Act (referencing renumbered 
section 2726(a) of the PHS Act) to the same extent as such requirements 
apply to a group health plan. In addition, section 2103(f)(2) of the 
Act requires that CHIP benchmark or benchmark equivalent plans comply 
with all of the requirements of subpart 2 of part A of the title XXVII 
of the PHS Act, which includes the mental health parity requirements of 
the PHS Act, insofar as such requirements apply to health insurance 
issuers that offer group health insurance coverage.
    These final rules incorporate these requirements into our 
regulations.

II. Background

A. Legislative History

    On September 26, 1996, the Congress enacted the Mental Health 
Parity Act of 1996 (Pub. L. 104-204) (MHPA), which required parity in 
aggregate lifetime and annual dollar limits for mental health benefits 
and medical/surgical benefits. Those mental health parity provisions 
were codified in section 712 of ERISA, section 2726 of the PHS Act 
(renumbered under section 1001 of the Affordable Care Act), and section 
9812 of the Code, and applied to employment-related group health plans 
and health insurance coverage offered in connection with a group health 
plan. The Balanced Budget Act of 1997 (Pub. L. 105-33, enacted on 
August 5, 1997) (BBA) added sections 1932(b)(8) and 2103(f)(2) of the 
Act to generally apply certain aspects of MHPA, including the 
provisions of section 2726 of the PHS Act, to Medicaid MCOs and CHIP 
benefits.
    MHPAEA was enacted as sections 511 and 512 of the Tax Extenders and 
Alternative Minimum Tax Relief Act of 2008 (Division C of Pub. L. 110-
343) (the 2008 Extenders Act). MHPAEA amended the Employee Retirement 
Income Security Act of 1974 (ERISA), the PHS Act, and the Internal 
Revenue Code of 1986 (the Code). The changes made by MHPAEA consist of 
new standards, including parity for coverage of substance use disorder 
benefits, as well as amendments to the existing mental health parity 
provisions enacted in MHPA.
    In 2009, section 502 of the Children's Health Insurance Program 
Reauthorization Act of 2009 (Pub. L. 111-3) (CHIPRA) amended section 
2103(c) of the Act by adding paragraph (6), which requires that CHIP 
plans that provide both medical and surgical benefits and MH/SUD 
benefits comply with the provisions of section 2705(a) of the PHS Act, 
as amended by MHPAEA, in the same manner as a group health plan.
    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010 and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) was enacted on March 30, 
2010 (collectively referred to as the ``Affordable Care Act''). Section 
1001 of the Affordable Care Act reorganized and renumbered certain 
provisions of the PHS Act, including renumbering section 2705 of the 
PHS Act as section 2726 of the PHS Act. The Affordable Care Act did not 
make conforming changes to cross-references to the renumbered 
provisions; instead, it contained new cross-references to the former 
section numbers. However, there was no indication that Congress 
intended to alter the meaning of the existing cross-references. As a 
result, we read the cross-references to continue to refer to the same 
section originally referenced, as renumbered. We believe it is clear 
that the new cross-references were also intended to refer to the 
renumbered provisions.
    The Affordable Care Act expanded the application of section 2705(a) 
of the PHS Act, as amended by MHPAEA, and renumbered as section 2726(a) 
of the PHS Act, to benefits in Medicaid ABPs delivered outside of a 
MCO. ABPs delivered through an MCO would already have to comply with 
these requirements under section 1932(b)(8) of the Act. Also, section 
2001(c) of the Affordable Care Act modified the benefit provisions of 
section 1937 of the Act. Specifically, section 2001(c) of the 
Affordable Care Act added mental health benefits and prescription drug 
coverage to the list of benefits that must be included in benchmark-
equivalent coverage; required the inclusion of essential health 
benefits (EHBs) beginning in 2014; and directed that plans described in 
section 1937 of the Act (now known as ABPs) that include medical/
surgical benefits and MH/SUD benefits ensure that the financial 
requirements and treatment limitations applicable to such MH/SUD 
benefits comply with the mental health parity provisions of the PHS 
Act.
    The Departments of Health and Human Services (HHS), Labor, and the 
Treasury (collectively the Departments) published interim final 
regulations implementing MHPAEA on February 2, 2010 (75 FR 5410), and 
final regulations applicable to group health plans and health insurance 
issuers on November 13, 2013 (78 FR 68240) (MHPAEA final 
regulations).\1\ The MHPAEA final regulations do not apply to Medicaid 
MCOs, ABPs, or CHIP state plans.
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    \1\ The MHPAEA final regulations generally apply to group health 
plans and health insurance issuers on the first day of the first 
plan year beginning on or after July 1, 2014. The preamble to the 
MHPAEA final regulations stated that each plan or issuer subject to 
the interim final regulations, issued on February 2, 2010 (75 FR 
5410), must continue to comply with the applicable provisions of the 
interim final regulations until the corresponding provisions of 
these final regulations become applicable to that plan or issuer (78 
FR 68252 and 253). Note: for ease of reference, the citations to 
provisions of the MHPAEA final rules throughout this document will 
only refer to the provisions adopted by HHS in 45 CFR part 146.
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    In 2013, we released a State Health Official (SHO) letter that 
provided guidance to states regarding the implementation of 
requirements under MHPAEA to Medicaid benchmark and benchmark-
equivalent plans (referred to in the letter as ABPs) as described in 
section 1937 of the Act, CHIP under title XXI of the Act, and MCOs as 
described in section 1903(m) of the Act.\2\ We previously issued a SHO 
letter on November 4, 2009, concerning the application of section 502 
of CHIPRA.\3\
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    \2\ http://www.medicaid.gov/federal-policy-guidance/downloads/sho-13-001.pdf.
    \3\ http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO110409.pdf.
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    In April 2015, we published a proposed rule on the 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 
Organizations, the Children's Health Insurance Program (CHIP), and ABPs 
(80 FR 19418-19452). In this rule, we are finalizing regulations to 
address how the MHPAEA requirements in section 2726 of the PHS Act, as 
implemented in the MHPAEA final regulations, apply to MCOs, ABPs, and 
CHIP. For a more detailed description of the proposed provisions, 
please refer to the proposed rule (80 FR 19418).

B. Stakeholder Input

    We received a total of 158 comments from state agencies, advocacy 
groups, health care providers, health insurers, health care 
associations, and the general public. The comments ranged from general 
support or opposition (to various provisions in the proposed rule) to 
very specific questions or comments regarding the proposed changes. 
After consideration of the comments and feedback received from 
stakeholders, we are adopting these final regulations. The following 
are brief summaries of each proposed provision, a summary of public 
comments received, and our responses to the comments. Comments related 
to the paperwork burden and the impact analyses are addressed in the 
``Collection of Information

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Requirements'' and ``Regulatory Impact Analysis'' sections in this 
preamble.

III. Provisions of the Final Rule and Analysis of and Responses to 
Public Comments

    The provisions of this final rule generally mirror the policies set 
forth in the MHPAEA final regulations to implement the statutory 
provisions that require MCOs, ABPs and CHIP to comply with certain 
requirements of section 2726 of the PHS Act (mental health parity 
requirements).
    The following sections, arranged by subject area, include a summary 
of the public comments that we received, and our responses.

A. Definitions (Sec.  438.900, Sec.  440.395, Sec.  457.496)

    The definitions of terms in the proposed rule and in this final 
rule include most terms included in the MHPAEA final regulation at 45 
CFR 146.136(a). The proposed rule modified or added several terms to 
reflect the terminology used in the Medicaid program and CHIP statutes, 
regulations or policies. Some terms that are not relevant to the 
Medicaid program or CHIP were not included in the proposed rule. There 
were also several proposed terms that modified, added or deleted 
language from those definitions in the MHPAEA final regulations. For 
example:
     We proposed to add the terms ABP and Early and Periodic 
Screening, Diagnostic and Treatment (EPSDT) benefits since these terms 
are unique to the Medicaid program.
     We proposed to add the definition of ``essential health 
benefits'', since Medicaid benchmark and benchmark-equivalent plans 
(now also known as ABPs) must cover EHBs and MH/SUD services provided 
as an EHB must be compliant with parity.
     We proposed a different definition for the term ``medical/
surgical benefits,'' to reflect that the state defines these benefits 
in the Medicaid and CHIP contexts. Under existing law, the state has 
the responsibility of identifying what is a covered benefit for 
Medicaid and CHIP; MCOs, PIHPs or PAHPs are responsible for providing 
the covered benefits identified by the state. This is different from 
the MHPAEA final regulations, where medical/surgical benefits are 
defined under the terms of the group health plan or health insurance 
coverage and in accordance with applicable federal or state law.
     We also proposed that the definitions of ``medical/
surgical benefits,'' ``mental health benefits,'' and ``substance use 
disorder benefits'' would clearly exclude long term care services in 
the Medicaid and CHIP context. We stated that this clarification was 
consistent with the intent of the MHPAEA final regulations, given that 
the kinds of long term care services included in benefit packages for 
Medicaid and CHIP beneficiaries were not commonly provided in the 
commercial market as part of health benefits coverage. We sought 
comments on our proposal to exclude long term care services from the 
definitions of ``medical/surgical benefits,'' ``mental health 
benefits,'' and ``substance use disorder benefits.''
    Comment: We received many comments on the proposal to exclude long 
term care services from the definitions of ``medical/surgical 
benefits,'' ``mental health benefits,'' and ``substance use disorder 
benefits.'' A few commenters supported the proposal to exclude long 
term care services from the definitions of ``medical/surgical 
benefits,'' ``mental health benefits,'' and ``substance use disorder 
benefits'' as used in this rule. The commenters requested that 
additional guidance regarding the definition of long term care services 
be provided to ensure consistency in states' and plans' parity 
analyses.
    However, a large majority of commenters opposed this approach, and 
recommended that the final rule apply parity protections to long term 
MH/SUD benefits. Commenters who opposed the proposed rule approach 
provided three general concerns. First, many commenters noted that 
Medicaid is the nation's largest provider of benefits coverage for 
individuals with MH/SUD conditions and the only benefits coverage for 
most disabled individuals with these conditions; these commenters 
stated that parity protections in Medicaid should be at least as strong 
as the rules governing the commercial market. The commenters also 
discussed the importance of access to long term care services for the 
effective treatment of many MH/SUD conditions, particularly within the 
populations served by Medicaid and CHIP programs.
    Second, several commenters noted that commercial plans typically do 
cover some forms of long term care services for both MH/SUD and 
medical/surgical conditions, including skilled nursing, inpatient 
rehabilitation, and home health services. From this perspective, 
commenters stated that CMS is prohibited from excluding the application 
of parity to long term care services because section 1932(b)(8) of the 
Act requires Medicaid MCOs to comply with the requirements of MHPAEA 
``to the same extent that those requirements apply to a health 
insurance issuer that offers group health insurance.'' Underlying this 
claim from commenters is the view that commercial insurers of group 
health plans would be obligated to meet parity requirements in 
connection with coverage of long term care services in order to comply 
with PHS Act section 2726. To the extent that Medicaid coverage does 
differ from the commercial market, commenters stated that the 
regulations must reflect the differences between commercial insurance 
and Medicaid and CHIP, as well as the different needs of the 
populations that each type of health coverage serves. These commenters 
stated that the proposed rule's approach misconstrues the intent and 
substance of the parity requirements if parity requirements only apply 
to Medicaid and CHIP services that are also covered by commercial 
insurance. Commenters suggested that there is no statutory basis for 
the interpretation underlying the proposed rule on this point and the 
corresponding application that long term services be excluded from the 
parity analysis. Commenters also stated that there are many services 
covered in the commercial plans that are comparable to long term 
services covered by Medicaid such as personal care, where the services 
might be covered for medical-surgical conditions, but not for MH/SUD 
because they are defined as ``long term care.'' This opens the door for 
decisions to exclude coverage or impose different financial or 
treatment limitations that would be otherwise prohibited by this rule 
but are wholly justified on any plausible rationale that characterizes 
the services as long term care.
    Third, and finally, many commenters also identified the difficulty 
of formulating clear and consistent standards to distinguish between 
long term care services and other services across treatment settings, 
from both a definitional and an operational perspective; they stated 
that it would be administratively difficult to implement a policy that 
carved these services out of medical, surgical, MH/SUD benefits to 
exclude long term care services from parity protections. Many 
commenters also raised concerns that adopting this exclusion without 
providing a regulatory definition of long term care services would 
allow states and plans to declare a number of services to be long term 
care and thus not subject to parity in an inconsistent manner. Having 
no consistent definition of long term service would create disparate 
policies across states as to which services would

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not be subject to parity and therefore would have allowable 
quantitative and nonquantitative treatment limits on services that were 
needed on a long term basis. In addition, some services that may be 
currently considered intermediate and subject to parity may be 
intentionally classified by states or MCOs, PIHPs or PAHPs to be long 
term services and excluded from parity. Commenters stated that if all 
long term care services are excluded from parity protections, MCOs, 
PIHPS and PAHPs may financially benefit from the anticipated cost 
savings of shifting away from acute care to long term care and have no 
obligation to ensure that there is mental health parity within long 
term care benefits. This may also preclude any systematic basis to 
audit MCOs, PIHPs or PAHPs compliance with relevant MHPAEA requirements 
applied to long term services.
    For these reasons, most commenters requested that parity 
requirements under this final rule be applied to long term care 
services that are within the scope of medical/surgical or mental 
health/substance use disorder services, or that if the exclusion were 
to be maintained, that very clear definitions and guidelines be 
provided regarding the services to be characterized as long term care 
services that are excluded from these other classification of services 
set forth in this rule.
    Response: We agree with the commenters and have revised this final 
rule to include long term care services in the definitions of medical/
surgical, mental health, and substance use disorder benefits, and, 
thus, to apply parity protections under this final rule to long term 
care services. Therefore, long term care services will need to be 
included in the appropriate classification(s) of benefits provided for 
in this rule for the purposes of the parity analysis. We intend to 
provide additional information to states regarding the application of 
parity to long term services. This information will assist states in 
determining how various medical/surgical and MH/SUD long term services 
would be classified in the four areas (inpatient, outpatient, pharmacy 
and emergency).
    We believe this change will reduce the likelihood that states would 
have disparate policies regarding which services would be subject to 
parity and could ensure that beneficiaries have similar protections 
regardless of where they live. In addition, this prevents states from 
applying treatment limits to long term care services needed for MH/SUD 
conditions more restrictively than treatment limits are applied for 
long term care services for medical/surgical conditions. We also 
believe that by requiring the categorization of long term services used 
to treat MH/SUD conditions, this final rule could improve beneficiary 
access to needed MH/SUD benefits. Finally, finalizing the regulations 
in this final rule with this change will provide MCOs and states with 
needed clarity regarding the application of parity to these services.
    Comment: Many commenters supported the guidance provided in the 
proposed rule regarding state-defined MH/SUD benefits. Commenters noted 
that requiring state definitions to be consistent with generally 
recognized independent standards of current medical practice will help 
ensure Medicaid managed care beneficiaries receive clinically 
appropriate levels of care. However, several commenters offered 
specific recommendations regarding the scope of definitions for 
medical/surgical services and MH/SUD services in the proposed rule. For 
instance, one commenter recommended that CMS define the scope of MH/SUD 
to be consistent with the psychiatric diagnoses listed in the new DSM-5 
and in the Diagnostic Classification of Mental Health and Developmental 
Disorders Infancy and Early Childhood. Several commenters also 
cautioned that Medicaid's medical/surgical benefits should be defined 
specifically for the child and adolescent population to ensure 
consistent implementation.
    Several other commenters recommended that CMS provide a non-
exhaustive list of ``mental health conditions'' that must be included 
within a state's definition of ``mental health condition''. They added 
that simply stating that this term must be defined consistent with 
generally recognized independent standards of medical practice does not 
provide sufficient clarity and guidance to states. Commenters suggested 
that a non-exhaustive list would give greater clarity and uniformity 
among states, thus facilitating the collection and analysis of data and 
outcomes measures.
    Response: We believe that requiring states to include specific 
diagnosis or providing a non-exhaustive list of mental health 
conditions in a state's definition of mental health conditions is 
beyond the scope of this regulation and CMS authority. Since Medicaid 
is a state and federal partnership, we believe that the state, and not 
CMS, should identify which conditions are considered medical/surgical 
and MH/SUD conditions. Therefore, we do not provide a list (either 
exhaustive or non-exhaustive) of mental health conditions in this final 
rule. The language in the final regulation provides states guidance 
regarding generally recognized independent standards of current medical 
practice to determine what conditions are medical/surgical, mental 
health, and substance use disorders.
    Comment: One commenter suggested that CMS should clarify that 
quantitative visit limits do not apply to required services such as 
services provided by clinical psychologists and clinical social workers 
in FQHCs.
    Response: We believe that the current regulation provides 
sufficient information regarding the application of parity standards to 
treatment limits imposed on MH/SUD services. To the extent permissible 
under existing law, states and MCOs may impose quantitative treatment 
limits for MH/SUD benefits, so long as these limits are no more 
restrictive than the predominant limits applied to substantially all 
medical/surgical benefits in each classification; if existing law 
prohibits the imposition of any treatment limitation on a service 
covered by a Medicaid or CHIP state plan, this rule does not provide 
authority to impose such limits merely because parity standards would 
be met. This rule allows states to apply quantitative treatment limits, 
consistent with other law, to services regardless of the type of 
practitioner that renders either a medical/surgical service or MH/SUD 
service so long as the parity requirements are met. A discussion of the 
mandatory coverage requirements for Medicaid and CHIP is otherwise 
outside the scope of this final rule.
    Comment: Another commenter recommended that CMS should clarify that 
utilization management and prior authorization or concurrent review can 
function as ``soft limits'' that allow for an individual to exceed 
medical/surgical or MH/SUD benefit limits based on medical necessity.
    Response: We are clarifying in this final rule that benefit limits 
that allow for an individual to exceed numerical limits for medical/
surgical or MH/SUD benefits based on medical necessity are not 
considered to be quantitative treatment limits under this rule, but are 
subject to the provisions of this rule governing Nonquantitative 
Treatment Limitations (NQTLs) for medical/surgical or MH/SUD benefits. 
The processes, strategies, evidentiary standards, or other 
considerations that are used to determine whether to apply a soft limit 
must be comparable to and applied no more stringently than factors used 
in applying the limitation for medical surgical/benefits in the 
classification.
    Comment: Another commenter suggested that CMS include a list of

[[Page 18394]]

terms that have different meanings in Medicaid and commercial plans and 
clarify how these meanings apply in the context of parity protections 
provided in Medicaid and the commercial market.
    Response: We appreciate the commenter's suggestion. However, we 
believe that we provide adequate discussion of the similarities and 
differences in the use of terms in Medicaid and commercial plans in the 
text of this regulation and other regulations governing Medicaid, CHIP 
and the commercial health insurance market.
    For the reasons described in the proposed rule and in consideration 
of the comments received, we are finalizing the provisions proposed in 
Sec.  438.900, Sec.  440.395, and Sec.  457.496 of the proposed rule 
with modification. We are finalizing revised definitions of medical/
surgical, mental health, and substance use disorder services so that 
they include, rather than exclude, long term care services. Additional 
modifications to the definitions proposed in Sec.  457.496 are 
discussed in section III.G of this final rule.

B. Parity Requirements for Aggregate Lifetime and Annual Dollar Limits 
(Sec.  438.905 and Sec.  457.496(c))

    In proposed Sec.  438.905 and Sec.  457.496(c), we addressed the 
parity requirements for aggregate lifetime and annual dollar limits for 
MCOs (including PIHPs and PAHPs when providing coverage for MCO 
enrollees) and CHIP. As noted above, the application of these 
requirements under this rule is generally the same as under the MHPAEA 
final regulations (45 CFR 146.136(b)). If a regulated entity applies an 
aggregate lifetime or annual dollar limit to at least two-thirds of all 
medical/surgical benefits, it must either apply the aggregate limit to 
both to medical/surgical benefits and to MH/SUD benefits in a manner 
that does not distinguish between the medical/surgical and MH/SUD 
benefits, or not include an aggregate lifetime or annual dollar limit 
on MH/SUD benefits that is less than the aggregate limit on medical/
surgical benefits. If a regulated entity does not include an aggregate 
lifetime or annual dollar limit on medical/surgical benefits or 
includes a limit that applies to less than one-third of all medical/
surgical benefits, it may not impose an aggregate lifetime or annual 
dollar limit, respectively, on MH/SUD benefits. If a regulated entity 
applies an aggregate lifetime or annual dollar limit to between one-
third and two-thirds of all medical/surgical benefits, it must either 
impose no aggregate lifetime or annual dollar limit on MH/SUD benefits, 
or impose an aggregate lifetime or annual dollar limit on MH/SUD 
benefits that is no more restrictive than the average limit for 
medical/surgical benefits. These requirements do not address the 
provisions of section 2711 of the PHS Act, which prohibit imposing 
lifetime and annual limits on the dollar value of essential health 
benefits.
    We noted in the proposed rule that for managed care arrangements, 
we are using our authority in section 1902(a)(4) of the Act to require 
PIHPs and PAHPs to comply with mental health parity requirements when 
providing coverage for MCO enrollees. The proposed regulations included 
definitions of ``aggregate lifetime dollar limit'' and ``annual dollar 
limit'' at Sec.  438.900, Sec.  440.395(a), and Sec.  457.496(a).
    Comment: One commenter suggested that CMS should consider including 
a definition of ``coverage unit'' that mirrors the definitions in the 
MHPAEA final regulations.
    Response: We did not include a definition of coverage unit in this 
rule because in Medicaid and CHIP programs, the coverage unit will 
always be the individual beneficiary, regardless of marital or family 
status.
    Comment: Another commenter requested that CMS provide clarification 
on the use of aggregate lifetime and annual dollar limits in the 
context of section 2711 of the PHS Act, as added by section 1001 of the 
Affordable Care Act, which generally prohibits lifetime and annual 
limits on the dollar amount of EHB, including MH/SUD services.
    Response: Section 2711 of the PHS Act, as added by the Affordable 
Care Act, generally prohibits lifetime and annual limits on the dollar 
amount of EHB in group health plans and health insurance coverage. As 
set forth in section 1302(b) of the Affordable Care Act, the definition 
of EHB includes ``mental health and substance use disorder services, 
including behavioral health treatment.'' \4\ Thus, notwithstanding the 
provisions of MHPAEA that permit aggregate lifetime and annual dollar 
limits with respect to MH/SUD benefits as long as those limits are in 
accordance with the parity requirements for such limits, such dollar 
limits are prohibited with respect to MH/SUD benefits that are covered 
as EHB, regardless of the service delivery system within Medicaid 
Alternative Benefit Plans.
---------------------------------------------------------------------------

    \4\ See section 1302(b)(1)(E) of the Affordable Care Act.
---------------------------------------------------------------------------

    Section 2711 of the PHS Act is applied to Medicaid MCOs by section 
1932(b)(8) of the Act and to CHIP benchmark or benchmark-equivalent 
plans by section 2103(f)(2) of the Act (as section 2711 is part of 
subpart 2 of part A of title XXVII of the PHS Act). ABP and CHIP 
benefits that are offered through an MCO, or through a PIHP or PAHP 
that provides coverage to MCO enrollees are also subject to the 
prohibition on lifetime and annual limits. However, the prohibition on 
annual and lifetime limits in section 2711 of the PHSA does not apply 
to ABPs that are not offered by an MCO or by a PIHP, or PAHP to 
enrollees of an MCO.
    Regardless of whether services are delivered in managed care or 
non-managed care arrangements, all Medicaid ABPs (including benchmark 
equivalent and Secretary-approved benchmark plans) and CHIP plans are 
statutorily required by sections 1937(b)(6) and 2103(c)(6) of the Act 
to meet the financial requirements and treatment limitations components 
of the mental health parity provisions set forth at section 2726(a) of 
the PHS Act.
    Comment: One commenter indicated that CMS should consider the 
extent to which Sec.  438.905 appears to sanction aggregate lifetime or 
annual dollar limits in the Medicaid program. For example, paragraph 
(c) discusses a Medicaid MCO with an annual or lifetime dollar limit on 
two-thirds of all medical and surgical benefits. The commenter further 
states that it is difficult to imagine how a lifetime limit on two-
thirds of all medical and surgical benefits would meet the sufficiency, 
access and comparability requirements of Medicaid.
    Response: This final rule neither sanctions nor prohibits aggregate 
lifetime and annual dollar limits; this rule merely provides the 
standards for applying parity requirements to such limits if the limits 
are otherwise authorized. While we agree that a lifetime limit on two-
thirds of all medical and surgical benefits would not likely meet the 
sufficiency, access, and comparability requirements of Medicaid, 
sufficiency, access, and comparability requirements are outside of the 
scope of this final rule.
    Comment: One commenter noted that the use of the phrase ``in states 
that cover both medical and surgical benefits and mental health and 
substance use disorder benefits under their State plan'' is not 
necessary. All state Medicaid programs contain at least some mental 
health and SUD benefits, because hospital and physician services are 
mandatory benefits that include mental health and SUD treatment.
    Response: We agree that inpatient hospital and physician services 
are mandatory state plan services that

[[Page 18395]]

furnish services to address MH/SUD. However, as noted, under section 
1932(b)(8) of the Act, Medicaid MCOs are required to comply with mental 
health parity requirements in section 2726 of the PHS Act to the same 
extent that those requirements apply to a health insurance issuer that 
offers group health insurance. The parity requirements in section 2726 
of the PHS Act are limited to group health plans or health insurance 
issuers offering group or individual health insurance coverage that 
provides both medical and surgical benefits and MH/SUD benefits. 
Similarly, section 2103(c)(6) of the Act requires that state CHIP plans 
that provide both medical and surgical benefits and MH/SUD benefits 
shall ensure that financial requirements and treatment limitations for 
such benefits comply with mental health parity requirements of section 
2726(a) of the PHS Act to the same extent as such requirements apply to 
a group health plan. Therefore, we are retaining the clarifying 
language in Sec. Sec.  438.905(a), 438.910(b), 457.496(d)(2), and 
457.496(f) of this final rule that these requirements apply to states 
that offer both medical and surgical and MH/SUD benefits.
    We are finalizing the provisions at Sec. Sec.  438.905 and 
457.496(c) about aggregate lifetime and annual limits for Medicaid MCOs 
and CHIP as proposed. In the proposed rule, we included under Sec.  
438.905 the title of ``General'' under paragraph (a), with paragraph of 
``General parity requirement'' under (a)(1). As we do not intend to use 
paragraph (a)(2), in the final rule we have removed the paragraph 
numbering for (a)(1) and named ``General parity requirement'' simply 
under paragraph (a) of this section, rather than including ``General'' 
in the title.

C. Parity Requirements for Financial Requirements and Treatment 
Limitations (Sec. Sec.  438.910, 440.395(b), and 457.496(d))

    Sections 438.910, 440.395(b), and 457.496(d) of the proposed rule 
set forth parity requirements for financial requirements and treatment 
limitations.
1. Clarification of Terms
    In the proposed rule, we indicated that ``classification of 
benefits'' means a classification as described in Sec.  438.910, Sec.  
440.395(b), and Sec.  457.496(d), which describe parity requirements 
for financial requirements and treatment limitations. Specifically, we 
proposed to modify the classifications of benefits set forth in the 
regulations that were adopted by the Departments in the 2010 MHPAEA 
final rule (as discussed in section III.C.2). As in the MHPAEA final 
regulations, we proposed in this Medicaid and CHIP rule that parity 
requirements for financial requirements and treatment limitations be 
applied on a classification by classification basis.
    We proposed the term ``type'' to refer to financial requirements 
and treatment limitations of the same nature. Different types of 
financial requirements and treatment limitations include copayments, 
coinsurance, annual visit limits, and episode visit limits. We proposed 
that a financial requirement or treatment limitation must be compared 
only to financial requirements or treatment limitations of the same 
type within a classification.
    In addition, we proposed the term ``level'' to refer to the 
magnitude (such as the dollar, percentage, day, or visit amount) of the 
financial requirement or treatment limitation. We did not receive any 
comments on the definitions of terms described at Sec.  438.910, Sec.  
440.395(b), and Sec.  457.496(d) and are finalizing these terms as 
proposed.
2. General Parity Requirement for Financial Requirements and Treatment 
Limitations
    At proposed Sec.  438.910(b), Sec.  440.395(b)(2), and Sec.  
457.496(d)(2), we included general parity provisions to prohibit a MCO, 
PIHP or PAHP (when providing benefits to an MCO enrollee), ABP (when 
used in a non-managed care arrangement), or CHIP state plan from 
applying any financial requirement or treatment limitation to MH/SUD 
benefits in any classification that is more restrictive than the 
predominant financial requirement or treatment limitation of that type 
that is applied to substantially all medical/surgical benefits in the 
same classification. For this purpose, the general parity requirement 
of MHPAEA would apply separately for each type of financial requirement 
or treatment limitation (for example, unit limits are compared to unit 
limits, or co-pays are compared to co-pays).
    We noted in the proposed rule that the MHPAEA final regulations at 
Sec.  146.136(c)(2)(ii) set forth the following classifications of 
benefits: inpatient in-network; inpatient out-of-network; outpatient 
in-network; outpatient out-of-network; emergency care; and prescription 
drugs. We proposed to follow the general structure of the 
classifications used in the MHPAEA final regulations with a significant 
distinction. Specifically, we proposed to eliminate the in-network and 
out-of-network distinctions for the inpatient and outpatient 
classifications, and therefore to provide four classifications: 
inpatient; outpatient; emergency care; and prescription drugs.
    As discussed in this final rule, we maintain this classification 
structure. The four classifications in this final rule are the only 
classifications to be used for purposes of applying the parity 
requirements of MHPAEA to Medicaid and CHIP. Moreover, these 
classifications must be used for all financial requirements and 
treatment limitations to the extent that a MCO, PIHP, PAHP, ABP, or 
CHIP provides benefits in a classification and imposes any separate 
financial requirement or treatment limitation (or separate level of a 
financial requirement or treatment limitation) for benefits in the 
classification. Similar to the MHPAEA final rule, this final rule does 
not define what services are included in the inpatient, outpatient, or 
emergency care classifications. These terms are subject to the design 
of a state's managed care program and their meanings may differ 
depending on the benefit packages.
    For the purposes of applying parity requirements to Medicaid, we 
proposed that the classifications of benefits should relate to how 
states construct and manage their Medicaid benefits. All Medicaid 
benefits provided should fall into one of the classifications of 
benefits. We noted that the MHPAEA final regulations discussed the 
application of parity requirements to intermediate services (such as 
residential treatment, partial hospitalization, and intensive 
outpatient treatment) provided under the health plan. Specifically, the 
MHPAEA final regulations required group health plans and issuers to 
assign covered intermediate MH/SUD benefits to a benefit classification 
in the same manner that they assign comparable intermediate medical/
surgical benefits to a classification. The MHPAEA final regulations do 
not specifically define intermediate services; nor do current statutory 
and regulatory provisions governing the Medicaid and CHIP programs 
define intermediate services within state plan benefits. Therefore, we 
did not propose to specify an intermediate classification to be used in 
the parity analysis for Medicaid or CHIP programs. As in the MHPAEA 
final rule, we proposed to allow the applicable regulated entity (the 
MCO, PIHP or PAHP, or state in connection with the ABP, and CHIP) to 
assign intermediate level services to any of the classifications 
listed, but require that assignment to those classifications be done 
using the same standards for both medical/surgical services and MH/SUD 
services (see Sec.  438.910(b)(2), Sec.  440.395(b)(2)(ii), and

[[Page 18396]]

Sec.  457.496(d)(2)(ii)). This final rule also requires that the method 
used to assign services to the four classifications be reasonable.
    We note that similar concerns may arise regarding the 
classification of long term care services, given the revised 
definitions of mental health benefits and substance use disorder 
benefits set forth in this final rule. We did not propose and do not 
finalize any specific rules for the classification of long term care 
services. This final rule allows the applicable regulated entity (the 
MCO, PIHP or PAHP, or state in connection with the ABP, a carve-out 
managed care delivery system, and CHIP) to assign long term care 
services to any of the four listed classifications, but, as with 
intermediate and other services, requires that assignment to those 
classifications be done using the same reasonable standards for both 
medical/surgical services and MH/SUD services.
    Comment: Many commenters provided feedback on this approach. Some 
commenters requested that CMS create a new intermediate level services 
classification and clarify that intermediate services for MH/SUD must 
be covered if similar types of services are covered for medical/
surgical conditions. However, most commenters supported the consistency 
of the proposed approach with the MHPAEA final rules, and appreciated 
that this approach would give some flexibility to states and health 
plans to assign intermediate level services to the four classifications 
in the proposed rule. Commenters noted that consistency with the MHPAEA 
final rules would make it easier for states and plans to comply. Since 
other aspects of the benefit, including financial requirements and 
NQTLs, are influenced by the classification a service is put into, this 
flexibility would allow states and plans to determine the most 
appropriate classification for intermediate services based on the 
entire benefit package that is offered.
    Response: Similar to the MHPAEA final rule, this final rule does 
not define what services are included in the inpatient, outpatient, or 
emergency care classifications. Similar to the reasoning provided in 
the MHPAEA final regulations, we did not intend to impose a benefit 
mandate through the parity requirement in order to require greater 
benefits for mental health conditions and substance use disorders than 
for medical/surgical conditions. In addition, as noted above, current 
statutory and regulatory provisions governing the Medicaid and CHIP 
programs do not define intermediate services within state plan 
benefits. The definitions of the four classifications used by this rule 
are subject to the design of a state's managed care program, and their 
meanings may differ depending on the benefit packages. State health 
insurance laws may define these terms, and in the event that these are 
not defined, we expect each regulated entity within a state to define 
these classifications in a similar manner. Further, each regulated 
managed care plan (MCOs, PIHPs and PAHPs) or the state in connection 
with ABP, or CHIP, must apply these terms uniformly for both medical/
surgical benefits and MH/SUD benefits under Sec.  438.910(b)(2), Sec.  
440.395(b)(2)(ii) and Sec.  457.496(d)(2)(ii). Therefore, we are not 
including a new intermediate level services classification in this 
final rule.
    Comment: Some commenters requested that the final rule clearly 
state that intermediate services offered in Medicaid and CHIP are 
subject to the parity requirements. The commenters urged CMS to provide 
guidance regarding MH/SUD intermediate care services and provide 
examples and resources that mirror the provisions included in the 
MHPAEA final rule. Many commenters also requested guidance on the types 
of factors and processes that should be used to classify intermediate 
care services into the benefit classifications for parity assessments 
to ensure consistency across payers in the application of parity to 
these services. Many commenters requested additional examples of 
intermediate services that can be classified as inpatient or 
outpatient. Commenters expressed particular concern about the need to 
define intermediate services clearly if long term care services were 
excluded from the final rule. Given the similarities and overlap 
between many intermediate services and long term care services, 
commenters expressed concern that plans would be able to classify 
services as long term care and exclude them from parity protections.
    Response: We reiterate that all Medicaid services provided should 
be placed into one of the classifications of benefits for the purposes 
of this final rule. This final rule does not provide any authority for 
a medical/surgical or mental health/substance use disorder benefit to 
be classified or characterized as something other than the four 
classifications in Sec.  438.910(b)(2), Sec.  440.395(b)(2)(ii) and 
Sec.  457.496(d)(2)(ii). In addition, as noted in section III.A, this 
final rule includes long term care services in the definitions of 
``medical/surgical benefits,'' ``mental health benefits,'' and 
``substance use disorder benefits.'' Therefore, the distinction between 
intermediate services and long term care services is not material to 
the application or enforcement of this final rule. However, we have 
amended the provisions at Sec. Sec.  438.910(b)(2), 440.395(b)(2)(ii) 
and 457.496(d)(2)(ii) to note that the factors used to classify 
services in the four classifications must be reasonable in addition to 
being the same for medical/surgical and MH/SUD services. We believe 
that this reasonableness requirement should help to allay concerns that 
services could be classified according to arbitrary factors in an 
attempt to permit the application of discriminatory limitations to MH/
SUD services under this rule.
    Comment: One commenter emphasized the difficulty of ensuring parity 
requirements across delivery platforms, especially as they relate to 
NQTLs and intermediate services. The commenter noted that the line 
between intermediate services and long term care services is not always 
clear, and stated that medical necessity criteria would need to be 
established to differentiate levels of care within long term care 
services. The commenter requested additional guidance on how to address 
parity requirements for services that are unique to Medicaid and for 
which comparable services on the medical/surgical side do not exist.
    Response: As noted above, this final rule applies parity 
requirements to all intermediate and long term care services. Medical 
necessity determinations for long term care services or other services 
are an NQTL that must comply with the requirements of this rule. The 
parity analysis does not require a one-to-one comparison of a MH/SUD 
service to a medical/surgical service, but instead requires that a NQTL 
may not be imposed for a MH/SUD benefit in any classification unless, 
under the terms of the coverage, as written and in operation, any 
factors used in applying the NQTL to the MH/SUD benefit are comparable 
to and applied no more stringently than factors used in applying the 
same NQTL to medical/surgical benefits in the classification; we 
address NQTL standards in greater detail in section F. If questions 
persist regarding the development and use of medical necessity criteria 
under this rule, and/or methodologies for classifying intermediate and 
long term care services into the four benefit classifications provided 
in this rule, we may develop further guidance or provide technical 
assistance as needed.
    Comment: One commenter requested guidance to the states on 
developing clinically appropriate intensity of

[[Page 18397]]

service and licensure expectations of facilities that provide 
behavioral health services which are not readily classifiable.
    Response: This final rule clarifies that mental health parity 
requirements under this final rule do not apply to state licensure 
laws, and therefore such guidance is beyond the scope of this final 
regulation. Clinical determinations regarding medical necessity, such 
as the intensity of services that is medically necessary for an 
individual, are subject to the NQTL requirements set forth in this 
final rule. In addition, any processes, strategies, evidentiary 
standards, or other considerations that are used to guide clinical 
determinations concerning the appropriate intensity of service are also 
subject to the NQTL requirements set forth in this final rule.
    As indicated in the responses to comments, we are finalizing these 
provisions mostly as proposed. We are finalizing Sec. Sec.  
438.910(b)(2), 440.395(b)(2)(ii) and 457.496(d)(2)(ii) with a 
modification that requires that the standards used to assign benefits 
to a classification be reasonable as well as the same for both medical/
surgical and MH/SUD benefits.
3. Applying the General Parity Requirement to Financial Requirements 
and Quantitative Treatment Limitations (Sec. Sec.  438.910(c), 
440.395(b)(3), and 457.496(d)(3))
    At proposed Sec. Sec.  438.910(c), 440.395(b)(3) and, 
457.496(d)(3), we addressed the application of the general parity 
requirement of MHPAEA to financial requirements and quantitative 
treatment limitations in MCOs, PIHPs, PAHPs, ABP and CHIP state plans. 
The general parity requirement at proposed Sec. Sec.  438.910(b), 
440.395(b)(2), and 457.496(d)(2) and now finalized in this rule would 
prohibit a MCO, PIHP or PAHP (in connection with coverage provided to 
an MCO enrollee), or ABP state plan (when used in a non-managed care 
arrangement), or CHIP state plan or MCE contracting with a CHIP state 
plan from applying any financial requirement or treatment limitation to 
MH/SUD benefits in any classification that is more restrictive than the 
``predominant'' financial requirement or treatment limitation of that 
type applied to ``substantially all'' medical/surgical benefits in the 
same classification. In the proposed regulation text (that is, 
Sec. Sec.  438.910(c), 440.395(b)(3) and 457.496(d)(3)), we proposed 
standards that are the same as those in the MHPAEA final regulations 
for determining the portion of medical/surgical benefits subject to a 
financial requirement or quantitative treatment limitation for purposes 
of the parity analysis. Under the proposed and now final rule, the 
portion of medical/surgical benefits in a classification subject to a 
financial requirement or quantitative treatment limitation would be 
based on the dollar amount of all payments for medical/surgical 
benefits in the classification expected to be paid during a specific 
year. For MCOs, PIHPS and PAHPs, this means dollar amounts for payment 
during a contract year. For ABPs and CHIP state plans, this means 
dollar amounts for the year starting the effective date of the approved 
ABP or CHIP state plan; effective dates for these plans will vary based 
on the date the ABP or CHIP state plan was approved by CMS. For 
purposes of this calculation, the MCOs (when such organizations are 
responsible for coverage of MH/SUD benefits) or the state (in cases 
where PIHPs and PAHPs are used in conjunction with MCOs) must determine 
the total amount projected to be expended to determine the two-thirds 
threshold.
    We included a detailed example to illustrate how our proposal would 
work:
    Example. Facts. A state is providing a comprehensive service 
package through an MCO. The MCO is currently providing coverage of 
services with limits that are consistent with the approved state plan. 
The MCO benefit package includes:
     Inpatient Hospital services for medical/surgical--30 days 
per year limit.
     Inpatient Hospital services for MH/SUD--30 days per year 
limit.
     Primary Care Physician Services for medical/surgical--
unlimited.
     Specialist Physician Services for medical/surgical--50 
visits per year.
     Outpatient MH services--20 visits per year limit.
     Physical Therapy--20 visits per year limit.
     Occupational Therapy--20 visits per year limit.
     Emergency Services--Unlimited for medical/surgical or MH/
SUD
    The MCO projects its payments as follows for medical/surgical 
benefits:

                                Table 1--Example of Quantitative Treatment Limit
----------------------------------------------------------------------------------------------------------------
                                                                                                   Percent of
                                                                             Percent of total    classification
        Benefit/classification--Medical/Surgical         Projected payment        costs          subject to  a
                                                                                                     limit
----------------------------------------------------------------------------------------------------------------
Inpatient Hospital.....................................              $400x                100                100
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Inpatient total....................................               400x                100                100
----------------------------------------------------------------------------------------------------------------
Physician Services.....................................               150x                 27                  0
Specialist Services....................................               250x                 46                 46
Physical Therapy.......................................                75x               13.5               13.5
Occupational Therapy...................................                75x               13.5               13.5
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Outpatient total...................................               550x                100                 73
----------------------------------------------------------------------------------------------------------------
Emergency Services.....................................               100x                100                  0
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Emergency total....................................               100x                100                  0
----------------------------------------------------------------------------------------------------------------

    Example. Conclusion. In this example, the MCO would be able to 
maintain some level of day and visit limits on benefits in both the 
inpatient and outpatient MH/SUD classifications because both 
classifications meet the ``substantially all'' standard--in other 
words, more than two-thirds of the medical/surgical benefits in each 
classification are subject to those types of limits (100 percent of all 
medical/surgical inpatient benefits are subject to a day limit, and 73 
percent of all medical/surgical outpatient benefits are subject to a 
visit limit).

[[Page 18398]]

    With regards to the level of the quantitative treatment limitation 
on inpatient MH/SUD services, the MCO may maintain its 30 day limit 
because 100 percent of all inpatient medical/surgical benefits are also 
subject to a 30 day limit, making it the predominant level.
    However, with regards to the level of the quantitative treatment 
limitation on outpatient MH/SUD services, the MCO may not maintain its 
current limit of 20 visits per year. Of the total amount of outpatient 
medical/surgical benefits subject to a visit limit ($400x), 62.5 
percent ($250x) are subject to a 50 visit limit (specialist services), 
and only 37.5 percent ($150x) are subject to a 20 visit limit (physical 
therapy and occupational therapy). Because the 20 visit limitation is 
not the predominant level (that is, it does not apply to at least 50 
percent of the medical/surgical benefits in the classification subject 
to the visit limit), the MCO would need to either remove the visit 
limits altogether on outpatient MH/SUD services or increase the visit 
limitation to at least 50 visits per year to align with the least 
restrictive level of visit limits on outpatient medical/surgical 
benefits. Lastly, because there are currently unlimited emergency 
visits under the medical/surgical benefits, the MCO would need to 
maintain unlimited visits for emergency services for MH/SUD, and would 
not be able to impose any limits on MH/SUD unless limits were also 
imposed on medical/surgical services and such limits were consistent 
with parity requirements.
    We received no comments on applying the general parity requirement 
to financial requirements and quantitative treatment limitations as 
described in Sec. Sec.  438.910(c), 440.395(b)(3), and 457.496(d)(3). 
We are finalizing these provisions as proposed.
4. Special Rules for Multi-Tiered Prescription Drug Benefits and Other 
Benefits (Sec. Sec.  438.910(c)(2), 440.395(b)(3)(ii), 
457.496(d)(3)(ii))
    The MHPAEA final regulations at 45 CFR 146.136(c)(3)(iii)(A) permit 
plans under certain circumstances to apply different levels of 
financial requirements to different tiers of prescription drugs and 
still satisfy the parity requirements. The proposed rule would allow a 
MCO, PIHP, PAHP, ABP, or CHIP state plan to subdivide the prescription 
drug classification into tiers based on reasonable factors as described 
in the proposed regulations and without regard to whether a drug is 
generally prescribed for medical/surgical benefits or for MH/SUD 
benefits.
    The MHPAEA final regulations at 45 CFR 146.136(c)(3)(iii)(C) permit 
a subclassification for office visits, separate from other outpatient 
items and services. Other subclassifications not specifically 
permitted, such as separate sub-classifications for generalists and 
specialists, cannot be used for purposes of determining parity. As 
proposed and finalized in this rule, we will retain this approach to 
subclassifications in the application of these parity requirements 
established in parts 438, 440 and 457 (that is, to services provided to 
enrollees in Medicaid MCOs, and to ABPs and CHIP). After the 
subclassification is established, a MCO, PIHP, PAHP, ABP, or CHIP state 
plan may not impose any financial requirement or quantitative treatment 
limitation on MH/SUD benefits in any sub-classification (for example, 
office visits or non-office visits) that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification, using the parity analysis for financial requirements 
and quantitative treatment limitations.
    In the MHPAEA final regulations, the Departments recognized that 
tiered provider networks have become an important tool for health plan 
efforts to manage care and control costs. Therefore, for purposes of 
applying the financial requirement and treatment limitation rules under 
MHPAEA, the MHPAEA final regulations provide that if a plan (or health 
insurance coverage) provides benefits through multiple tiers of in-
network providers (such as an in-network tier of preferred providers 
with more generous cost-sharing to participants than a separate in-
network tier of participating providers in any classification), the 
plan may divide its benefits furnished on an in-network basis into sub-
classifications that reflect those network tiers, if the tiering is 
done without regard to whether a provider is a MH/SUD provider or a 
medical/surgical provider. While network tiers may also be used in 
Medicaid managed care, we do not believe that the parity standards for 
Medicaid managed care need to address such network structures so we did 
not propose regulation text to address financial limitations (for 
example, different cost-sharing requirements) in that context in this 
rule. Medicaid cost-sharing rules apply regardless of network status. 
Any quantitative treatment limitation outlined in the contract must be 
applied to the service broadly and therefore cannot have separate 
limitations based on network tiers. We recognize there may be network 
tiers used to commonly refer enrollees or for purposes of building the 
network and have varying payment rates to providers, but the use of 
multiple network tiers in the context of NQTLs is discussed in section 
III.E. of this final rule.
    Comment: One commenter stated that network adequacy provisions in 
Sec.  438.206 are not specific enough and encouraged CMS to provide 
more specificity in the number, types of providers that must be in 
network, as well as time and distance requirements in current Medicaid 
managed care regulations.
    Response: We believe that providing standards that specify the 
number and types of providers that must be in the network is beyond the 
scope of this rule. These standards are addressed in existing 
regulations at Sec.  438.206 and Sec.  438.207.\5\ The parity proposed 
rule stated that a plan complying with the network adequacy 
requirements of Sec.  438.206(b)(4) will be deemed in compliance with 
Sec.  438.910(d)(3). In this final rule we removed the provision to 
deem compliance with Sec. Sec.  438.910(d)(3) and 457.496(d)(5) of this 
rule (regarding parity requirements for access to out-of-network 
providers) where an MCO, PIHP, PAHP, or CHIP state plan is found to be 
in compliance with the provider network standard found in Sec.  
438.206(b)(4).
---------------------------------------------------------------------------

    \5\ We note that CMS proposed changes to Sec. Sec.  438.206 and 
438.207 that we believe are consistent with the intent of these 
final rules in CMS-2390-P Medicaid and CHIP Programs; Medicaid 
Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP 
Comprehensive Quality Strategies, and Revisions Related to Third 
Party Liability.
---------------------------------------------------------------------------

    As indicated in the responses to the comments, we are finalizing 
the provisions regarding multi-tiered prescription drug benefits and 
other benefits at Sec. Sec.  438.910(c)(2), 440.395(b)(3)(ii), 
457.496(d)(3)(ii) as proposed.

D. Cumulative Financial Requirements (Sec.  438.910(c)(3), Sec.  
440.395(b)(3)(iii), Sec.  457.496(d)(3)(iii))

    While financial requirements such as copayments and coinsurance 
generally apply separately to each covered expense, other financial 
requirements (in particular, deductibles) accumulate across covered 
expenses. In the case of deductibles, generally an amount of otherwise 
covered expenses must be accumulated before the plan pays benefits. 
Financial requirements that determine whether and to what extent 
benefits are provided based on accumulated amounts were defined in the 
proposed rules as cumulative

[[Page 18399]]

financial requirements. As in the MHPAEA final rule at Sec.  
146.136(c)(v), we proposed and are finalizing in this final rule that 
separate cumulative financial requirements (separate for mental health, 
substance use or medical/surgical) will not be permitted for entities 
subject to our proposed requirements (namely, MCOs, PIHPs and PAHPs in 
connection with coverage provided to MCO enrollees, and in ABP and 
CHIP).
    However, unlike the MHPAEA final rule for insurers of group health 
plans, in the Medicaid and CHIP proposed rule we proposed to permit 
quantitative treatment limitations to accumulate separately for 
medical/surgical and MH/SUD services as long as they comply with the 
general parity requirement. We proposed to allow this separate 
accumulation of treatment limits in Medicaid and CHIP for several 
reasons. First, benefits for MCO beneficiaries must be provided in at 
least the same amount, duration, and scope as set forth in the state 
plan. Requiring plans to have cumulative limits across medical/surgical 
benefits and MH/SUD benefits within a classification may incentivize 
MCOs to retain the quantitative treatment limitation level applied on 
the medical/surgical benefits in the state plan as the total cumulative 
limit for both medical/surgical and MH/SUD benefits. This would comply 
with the requirements of parity, but would not meet the requirements of 
providing at least what is in the state plan. In addition, we believe 
that requiring quantitative treatment limitations within a 
classification of benefits to accumulate jointly toward a unified limit 
level may not benefit the enrollee. Specifically, if there were a 
combined visit or treatment limit individuals that have co-occurring 
disorders may not be able to use the same level of MH/SUD services they 
would have been able to use if benefits accumulated separately. In 
recognition of the positive beneficiary impact, we proposed and are 
finalizing in this rule to permit the MCO, PIHP, or PAHP to maintain 
separate quantitative treatment limitations, provided that any such 
limit for MH/SUD benefits is no more restrictive than the predominant 
limit applied to substantially all medical/surgical benefits in a given 
classification.
    However, as noted in this section, to align with the MHPAEA final 
regulations, we are retaining the proposal that separate cumulative 
financial requirements will not be permitted. This is because we also 
believe that a unified cumulative deductible is also more beneficial 
for the beneficiary and is in recognition that Medicaid programs 
generally do not have financial requirements that are cumulative, such 
as deductibles, and that financial requirements such as co-pays, which 
are common in Medicaid programs, do not typically include cumulative 
limits. While we recognize the potential for ABPs to include 
deductibles, we note that nearly all group health plans and insurers 
had eliminated the use of separate deductibles for MH/SUD benefits by 
2011.\6\
---------------------------------------------------------------------------

    \6\ Final Report: Consistency of Large Employer and Group Health 
Plan Benefits with Requirements of the Paul Wellstone and Pete 
Domenici Mental Health Parity and Addiction Equity Act of 2008. NORC 
at the University of Chicago for the Office of the Assistant 
Secretary for Planning and Evaluation. This study analyzed 
information on large group health plan benefit designs from 2009 
through 2011 in several databases maintained by benefits consulting 
firms that advise plans on compliance with MHPAEA as well as other 
requirements.
---------------------------------------------------------------------------

    Comment: A few commenters supported the proposal to follow the 
general approach in the MHPAEA final rule, but to allow entities 
subject to our proposed requirements to maintain separate accumulation 
of quantitative treatment limits. Commenters noted that unified 
quantitative treatment limitations that accumulate across entities 
would be very difficult for Medicaid managed care plans to administer, 
particularly if they do not have contractual relationships with other 
entities, and also supported that view that this provision is necessary 
to address the complex health needs of Medicaid and CHIP populations.
    Response: We appreciate the comments in support of our approach.
    As indicated in the response to comments, we are finalizing 
Sec. Sec.  438.910(c)(3), 440.395(b)(3)(iii), 457.496(d)(3)(iii) as 
proposed.

E. Compliance With Other Cost-Sharing Rules (Sec.  438.910(c)(4))

    States and the MCOs, PIHPs and PAHPs that contract with states are 
bound by the existing Medicaid and CHIP cost-sharing rules (Sec.  
438.108 and part 457, subpart E). As previously indicated, the Medicaid 
program and CHIP are held to strict cost-sharing requirements for both 
managed care and non-managed care delivery systems. In the proposed 
rule, we emphasized that all financial requirements included in a 
MHPAEA analysis must also be in compliance with both existing cost-
sharing rules and the requirements of this rule. Compliance with the 
parity requirements does not mean that a state, or MCO, PIHP or PAHP 
can violate existing cost-sharing requirements. Therefore, some cost-
sharing structures in a state's Medicaid program or CHIP may need to 
change to be compliant with the MHPAEA parity standards addressed in 
this rule. To clarify this, in Sec.  438.910(c)(4) we reiterated that 
requirement with a cross-reference to the cost-sharing rules applicable 
to MCOs, PIHPs and PAHPs.
    We received no comments on this specific proposal and are 
finalizing Sec.  438.910(c)(4) as proposed.

F. Nonquantitative Treatment Limitations (NQTLs) (Sec.  438.910(d), 
Sec.  440.395(b)(4), and Sec.  457.496(d)(4) and (d)(5))

    MCOs, PIHPs, PAHPs, ABP and CHIP state plans may impose a variety 
of limits affecting the scope or duration of benefits that are not 
expressed numerically. Nonetheless, such nonquantitative provisions are 
also treatment limitations affecting the scope or duration of benefits. 
As proposed and now finalized, Sec. Sec.  438.910(d), 440.395(b)(4), 
and 457.496(d)(4) prohibit the imposition of any nonquantitative 
treatment limitation (NQTL) to MH/SUD benefits unless certain 
requirements are met. In addition, the proposed provisions and this 
final rule provide an illustrative list of NQTLs, including medical 
management standards; prescription drug formulary design; standards for 
provider admission to participate in a network; and conditioning 
benefits on completion of a course of treatment.
    Under the MHPAEA final regulations at Sec.  146.136(c)(4), a NQTL 
may not be imposed for MH/SUD benefits in any classification unless, 
under the terms of the plan (or health insurance coverage) as written 
and in operation, any factors used in applying the NQTL to MH/SUD 
benefits in a classification are comparable to and applied no more 
stringently than factors used in applying the limitation for medical 
surgical/benefits in the classification. For these purposes, factors 
mean the processes, strategies, evidentiary standards, or other 
considerations used in determining limitations on coverage of services.
    We proposed to adopt the same approach to NQTLs in the application 
of parity requirements to Medicaid MCOs, PIHPs and PAHPs providing 
services to MCO enrollees, ABPs, and CHIP state plans. For states that 
are using a non-managed care delivery system for their ABPs and CHIP, 
the state (through its ABP and CHIP state plan) may only impose a NQTL 
on a MH/SUD benefit in any classification if it has written and 
operable processes, strategies, evidentiary standards or other factors 
used in applying--to MH/SUD benefits in that classification--the NQTL 
that are

[[Page 18400]]

comparable to or less restrictive and applied no more stringently than 
any processes, strategies, evidentiary standards, or other factors used 
in applying the limitation for medical/surgical services in that 
classification. The phrase ``applied no more stringently'' requires 
that any processes, strategies, evidentiary standards, or other factors 
that are comparable on their face be applied in the same manner to 
medical/surgical benefits and MH/SUD benefits.
    We proposed and are finalizing in this rule an example of an NQTL 
regarding standards for accessing out-of-network providers. As 
discussed earlier, in the context of CHIP or ABPs that use a FFS 
delivery system or other non-managed care arrangement, absent a waiver, 
beneficiaries may choose from any qualified provider that has signed a 
Medicaid or CHIP provider agreement and are not limited to a network. 
In a Medicaid managed care environment, if a provider network is unable 
to provide necessary services covered under the contract to a 
particular enrollee, the MCO, PIHP or PAHP must adequately (and on a 
timely basis) cover these services out-of-network for the enrollee for 
as long as the MCO, PIHP or PAHP is unable to provide them in-
network.\7\ The proposed rule specified that the standard for providing 
access to out-of-network services (when they cannot be provided in-
network) is considered to be an NQTL for the purposes of this rule. The 
proposed regulation stated that regulated entities providing access to 
out-of-network providers for medical/surgical benefits within a 
classification must use the same processes, strategies, evidentiary 
standards, or other factors in determining access to out-of-network 
providers for MH/SUD benefits within the same classification. As 
discussed further, we are revising the proposed regulation in this 
final rule for consistency with the general NQTL standard, to require 
that the factors used in determining access to out-of-network providers 
for MH/SUD benefits be comparable to and applied no more stringently 
than the factors used in determining access to out-of-network providers 
for medical/surgical benefits in the classification, rather than 
requiring that the same factors be applied to both sets of benefits.
---------------------------------------------------------------------------

    \7\ See Sec.  438.206(b)(4).
---------------------------------------------------------------------------

    Finally, the proposed rule provided that if MCOs, PIHPs or PAHPs, 
ABPs and CHIP State plans provided through managed care are found to be 
in compliance with Sec.  438.206(b)(4), that would be evidence that 
they are in compliance with Sec.  438.910(d)(3) and Sec.  
457.496(d)(5), although the state will want to review how the plan is 
doing this in practice. We noted that the additional example of a NQTL 
regarding out-of-network providers is not relevant for states that are 
using a non-managed care delivery system for ABPs and CHIP state plan, 
since providers must be enrolled in Medicaid or CHIP and would not be 
considered out-of-network. As discussed below, we are not finalizing 
this approach to deemed compliance in this final rule in Sec. Sec.  
438.910(d)(3) and 457.496(d)(5), and instead are clarifying that 
regulated entities must comply with both sets of requirements.
    We included in the proposed rule the examples, which have been 
modified slightly for greater clarity below, to illustrate the 
operation of the requirements for NQTLs.
    Example 1. Facts. A MCO requires prior authorization that a 
treatment is medically necessary for all inpatient medical/surgical 
benefits and for all inpatient MH/SUD benefits. In practice, inpatient 
benefits for medical/surgical conditions are routinely approved for 7 
days, after which a treatment plan must be submitted by the patient's 
attending provider and approved by the MCO. Conversely, for inpatient 
MH/SUD benefits, routine approval is given only for 1 day, after which 
a treatment plan must be submitted by the beneficiary's attending 
provider and approved by the MCO.
    Example 1. Conclusion. In this example, the MCO violates the NQTL 
provision of this rule (Sec.  438.910(d)) because it is applying a 
stricter NQTL in practice to MH/SUD benefits than is applied to 
medical/surgical benefits.
    Example 2. Facts. A MCO applies concurrent review to inpatient care 
where there are high levels of variation in length of stay (as measured 
by a coefficient of variation exceeding 0.8). In practice, the 
application of this standard affects 60 percent of MH/SUDs, but only 30 
percent of medical/surgical conditions.
    Example 2. Conclusion. In this example, the MCO complies with the 
NQTL provisions of this rule because the evidentiary standard used by 
the MCO is applied no more stringently for MH/SUD benefits than for 
medical/surgical benefits, even though it results in an overall 
difference in the application of concurrent review for MH/SUDs than for 
medical/surgical conditions.
    Example 3. Facts. A MCO requires prior approval that a course of 
treatment is medically necessary for outpatient medical/surgical and 
MH/SUD benefits and uses comparable criteria in determining whether a 
course of treatment is medically necessary. For MH/SUD treatments that 
do not have prior approval, no benefits will be paid; for medical/
surgical treatments that do not have prior approval, providers will 
only receive a 25 percent reduction in payments for these treatments 
from the MCO.
    Example 3. Conclusion. In this example, the MCO violates the NQTL 
provision of this rule. Although the same NQTL--medical necessity--is 
applied both to MH/SUD benefits and to medical/surgical benefits for 
outpatient services, it is not applied in a comparable way. The penalty 
for failure to obtain prior approval for MH/SUD benefits is not 
comparable to the penalty for failure to obtain prior approval for 
medical/surgical benefits.
    Example 4. Facts. A MCO generally covers medically appropriate 
treatments. For both medical/surgical benefits and MH/SUD benefits, 
evidentiary standards used in determining whether a treatment is 
medically appropriate are based on recommendations made by panels of 
experts with appropriate training and experience in the fields of 
medicine involved. The evidentiary standards are applied in a manner 
that is based on clinically appropriate standards of care for a 
condition.
    Example 4. Conclusion. In this example, the MCO complies with the 
NQTL provision of the rule because the processes for developing the 
evidentiary standards used to determine medical appropriateness and the 
application of these standards to MH/SUD benefits are comparable to and 
are applied no more stringently than for medical/surgical benefits. 
This is the result even if the application of the evidentiary standards 
does not result in similar numbers of visits, days of coverage, or 
other benefits utilized for MH/SUDs as it does for any particular 
medical/surgical condition, so long as the outcomes are the result of 
consistent application of the guidelines.
    Example 5. Facts. Training and state licensing requirements often 
vary among types of providers. An MCO applies a general standard that 
any provider must meet the minimum requirement related to supervised 
clinical experience under applicable state licensure laws to 
participate in the MCO's provider network. State law requires master's 
level general medical providers to have post-degree, supervised 
clinical experience; therefore the MCO requires all master's level 
providers in its network (including mental health providers) to have 
post-degree, supervised clinical experience.

[[Page 18401]]

State law does not require master's level mental health therapists to 
have post-degree, supervised clinical experience; therefore the MCO 
requirement to participate in the network is effectively higher than 
state law for master's level mental health therapists.
    Example 5. Conclusion. In this example, the MCO complies with the 
provision of this rule pertaining to NQTLs. The requirement that all 
master's-level providers (including mental health providers) must have 
supervised post-degree supervised clinical experience to join the 
network is permissible because the MCO is consistently applying the 
same standard to all providers, even though it may have a disparate 
impact on certain mental health providers.
    Example 6. Facts. A state contracts with an external utilization 
review entity to review inpatient admissions for all beneficiaries 
participating in its ABP. All inpatient services in the ABP are 
delivered on a FFS basis. The state's utilization review contractor 
considers a wide array of factors in designing medical management 
techniques for both MH/SUD and medical/surgical inpatient benefits, 
such as cost of treatment; high cost growth; variability in cost and 
quality; elasticity of demand; provider discretion in determining 
diagnosis, or type or length of treatment; clinical efficacy of any 
proposed treatment or service; licensing and accreditation of 
providers; and claim types with a high percentage of fraud. Based on 
application of these factors in a comparable fashion, prior 
authorization is required for some (but not all) inpatient MH/SUD 
benefits, as well as for some (but not all) medical/surgical benefits. 
The evidence considered in developing its medical management techniques 
includes consideration of a wide array of recognized medical literature 
and professional standards and protocols (including comparative 
effectiveness studies and clinical trials). This evidence and how it 
was used to develop these medical management techniques is also well 
documented by the state's utilization review organization.
    Example 6. Conclusion. In this example, the state and its 
utilization review contractor comply with the NQTL rules. Under the 
terms of the ABP as written and in operation, the processes, 
strategies, evidentiary standards, and other factors considered by the 
contractor in implementing the prior authorization requirement for MH/
SUD inpatient benefits are comparable to, and applied no more 
stringently than, those applied to medical/surgical benefits.
    Example 7. Facts. A MCO provides coverage for medically appropriate 
medical/surgical benefits, as well as MH/SUD benefits. The MCO excludes 
coverage for inpatient SUD services when obtained outside of the state. 
There is no similar exclusion for medical/surgical benefits within the 
same classification.
    Example 7. Conclusion. In this example, the MCO violates the NQTL 
provisions of this rule. The MCO is imposing a NQTL that restricts 
benefits based on geographic location. Because there is no comparable 
exclusion that applies to medical/surgical benefits, this exclusion may 
not be applied to MH/SUD benefits.
    Example 8. Facts. A state's CHIP program requires prior 
authorization for all outpatient MH/SUD services after the ninth visit 
and will only approve up to 5 additional visits per authorization. For 
outpatient medical/surgical benefits, the state's CHIP program allows 
an initial visit without prior authorization. After the initial visit, 
benefits must be pre-approved based on the individual treatment plan 
recommended by the attending provider based on that individual's 
specific medical condition. There is no explicit, predetermined cap on 
the amount of additional visits approved per authorization.
    Example 8. Conclusion. In this example, the state's CHIP program 
violates the NQTL provisions of the rule. Although the same NQTL--prior 
authorization to determine medical appropriateness--is applied to both 
MH/SUD benefits and medical/surgical benefits for outpatient services, 
it is not applied in a comparable way. While the state CHIP plan is 
more generous in the number of visits initially provided without pre-
authorization for MH/SUD benefits, treating all MH/SUDs in the same 
manner, while providing for individualized treatment of medical 
conditions, is not a comparable application of this NQTL.
    Example 9. Facts. A state provides an ABP that is compliant with 
EHB requirements, including the provision of MH/SUD services. The state 
aligns its ABP's outpatient benefits with those described in the state 
plan and applies the same prior authorization requirements. For 
outpatient MH/SUD services, prior authorization is required for each 
individual treatment session. In contrast, for outpatient medical/
surgical services, a series of treatments is provided under a single 
authorization.
    Example 9. Conclusion. In this example, the state's ABP design does 
not comply with the NQTL provisions of this rule. Although the same 
NQTL--prior authorization to determine medical appropriateness--is 
applied to both MH/SUD benefits and medical/surgical benefits for 
outpatient services, it is not applied in a comparable way.
    Example 10. Facts. A state's ABP requires preauthorization for all 
outpatient substance use disorder services. The state ABP does not 
require preauthorization for any medical/surgical services.
    Example 10. Conclusion. The state ABP does not comply with the NQTL 
requirements in this rule. If a state ABP requires preauthorization for 
each outpatient SUD service it cannot remain in compliance if there is 
no comparable limitation on medical/surgical services.
    Example 11. Facts. In cases where an MCO is unable to provide 
necessary outpatient services to a particular enrollee, the MCO 
requires that the enrollee must get prior approval in order to see any 
outpatient out-of-network provider. The MCO approves the use of an out-
of-network provider for medical/surgical outpatient services if there 
is not an in-network provider within 10 miles of the person's 
residence. Approval of an out-of-network provider for outpatient MH/SUD 
services is only authorized if there is not an in-network provider 
within 30 miles of a person's residence.
    Example 11. Conclusion. In this example, the MCO violates the NQTL 
provisions of this rule. The MCO is imposing a restriction that limits 
access to out-of-network providers. Although the same nonquantitative 
treatment limitation is applied to both the MH/SUD benefits and to 
medical/surgical benefits for outpatient services, it is not applied in 
a comparable way.
    Example 12. Facts. A state contracts with MCO A to provide coverage 
for inpatient and outpatient mental health services to its Medicaid 
enrollees. MCO A requires prior authorization in person from MCO A's 
staff for all inpatient admissions for any mental health condition. The 
state provides medical/surgical benefits to its Medicaid enrollees 
through a separate MCO (``MCO B''). MCO B does not require prior 
authorization in person but instead provides that authorization for an 
inpatient admission may be obtained from MCO B over the phone. The in-
person prior authorization process for MCO A imposes a higher 
administrative burden on providers than the telephonic prior 
authorization, and in many cases also involves a longer waiting period 
for approval.
    Example 12. Conclusion. In this example, MCO A violates the NQTL 
provisions of this rule. The in-person

[[Page 18402]]

prior authorization requirement in MCO A applies to all inpatient 
mental health benefits whereas prior authorization may be obtained more 
easily and quickly over the phone for inpatient medical/surgical 
benefits in MCO B. MCO A is applying a stricter NQTL in practice to 
mental health and substance use disorder benefits than is applied to 
medical/surgical benefits.
    Example 13. Facts. An MCO includes buprenorphine, a medication for 
treating opioid dependence, on its formulary. However, coverage is 
limited to one year total over a beneficiary's lifetime. The MCO does 
not apply this type of limit (a lifetime limit) to any other 
prescription drugs.
    Example 13. Conclusion. In this example, the MCO violates the 
parity requirements for financial requirements and treatment 
limitations in this rule. The lifetime limit on coverage of this 
medication does not apply to substantially all medical/surgical 
benefits in the prescription drug classification.
    Comment: A few commenters proposed additional, very specific 
criteria for determinations of whether a NQTL is applied to a given 
service. For example, one commenter suggested that the final rule 
stipulate that criteria including the following would justify the 
application of an NQTL to a MH/SUD service in a classification where 
similar NQTLs are not applied to medical/surgical services:
     Treatments involving multiple services per session, with 
an increasing likelihood of medically unnecessary services with the 
higher number of services per session;
     Services with highly variable rates of progress for 
individuals patients; and
     Services with highly variable treatment approaches among 
providers.
    Response: We believe that the standards proposed and finalized in 
this rule and illustrated in the examples above in this section strike 
an appropriate balance between the need for clarity and the need to 
provide flexibility to regulated entities to determine the most 
effective way to structure the covered benefits: a NQTL may not be 
imposed for MH/SUD benefits in any classification unless, under the 
policies and procedures of the MCO, PIHP, or PAHP, or under the terms 
of the ABP or CHIP state plan, as written and in operation, any factors 
used in applying the NQTL to MH/SUD benefits in a classification are 
comparable to and applied no more stringently than factors used in 
applying the limitation for medical surgical/benefits in the 
classification. For these purposes, factors mean the processes, 
strategies, evidentiary standards, or other considerations used in 
determining limitations on coverage of services. Therefore, we are not 
providing additional criteria for determination of whether an NQTL is 
applied to a given service. If questions arise about the 
appropriateness of criteria that are being used to apply NQTLs to MH/
SUD benefits, we will consider whether additional subregulatory 
guidance or further rulemaking is needed.
    Comment: Many commenters requested additional details to clarify 
what constitutes an NQTL and additional examples of typical parity 
violations. Most commenters also requested supplementary materials to 
provide further guidance, including information regarding typical 
violations as they are identified, along with regular and ongoing 
technical assistance to states and plans to help them implement the 
requirements of parity regarding NQTLs and to minimize the 
administrative burden related to this analysis.
    Response: We clarify that all NQTLs imposed on MH/SUD benefits by 
regulated entities are to be applied in accordance with the 
requirements of this rule. We believe that the illustrative list of 
NQTLs provided in this final rule (Sec. Sec.  438.910(d)(2), 
440.395(b)(4)(ii), and 457.496(d)(4)(ii)) is sufficient to provide an 
understanding of the NQTLs that are commonly used in current health 
care practices. Given our attempts to align these provisions with the 
requirements of the MHPAEA final rules, we encourage interested parties 
to review guidance issued by Department of Labor (DOL), Department of 
Health and Human Services (HHS) and Department of the Treasury 
(Treasury) about application of the parity standards to group health 
plans and health insurance issuers. In addition, we will provide 
technical assistance to states regarding the implementation of these 
provisions and questions or issues that may arise. We will develop 
educational materials about the requirements of parity for Medicaid 
managed care, ABPs and CHIP programs, and about effective quality 
control strategies to ensure that managed care contracts include 
provisions that reflect best practices and promote quality of care in 
the context of parity. We will also identify and promote best practices 
and quality control strategies for states to help managed care 
organizations ensure that their benefits and service delivery 
strategies adhere to the requirements of parity.
    Comment: Many commenters requested additional clarity on the 
application of parity requirements to provider networks, including 
additional examples. A few commenters noted that the proposed 
regulatory language regarding access to out-of-network providers 
differed slightly from the language of the general rule for NQTLs. 
Proposed Sec.  438.910(d)(3) provided that any MCO, PIHP or PAHP 
providing access to out-of-network providers for medical/surgical 
benefits within a classification, must use the same processes, 
strategies, evidentiary standards, or other factors in determining 
access to out-of-network providers for MH/SUD benefits. In contrast, 
for other NQTLs the proposed rule required only that the factors used 
in applying the NQTL to MH/SUD benefits be comparable to and applied no 
more stringently than factors used in applying the limitation to 
medical/surgical benefits in the classification.
    Response: We have revised this requirement in the final regulatory 
language. This final rule has been revised to require that the factors 
used to apply the limitation to MH/SUD benefits be ``comparable to'' 
and applied no more stringently than the factors used in applying the 
limitation to medical/surgical benefits in the classification. This 
language is in alignment with the general NQTL standard. We believe 
that it will reduce administrative burden on regulated entities and 
simplify enforcement to apply the same standard to all NQTLs. This 
final rule clarifies that the types of factors used to apply the NQTL 
will depend on the nature of both the NQTL and the benefit, and that in 
some cases it may be appropriate to use the same factors to apply the 
NQTL for both medical/surgical and MH/SUD benefits, whereas in other 
cases there may not be a single factor or set of factors that can 
practically be applied to both medical/surgical and MH/SUD benefits, 
and instead factors that are comparable may need to be used.
    Comment: Many commenters requested that the rule address access to 
in-network providers. Several commenters also requested clarification 
regarding the interplay between proposed Sec.  438.910(d)(3) of the 
parity rule and Sec.  438.206(b)(4) of the existing managed care rule. 
The parity proposed rule stated that a plan complying with the network 
adequacy requirements of Sec.  438.206(b)(4) will be deemed in 
compliance with Sec.  438.910(d)(3), but commenters noted that Sec.  
438.206(b)(4) does not stipulate the same requirements regarding parity 
in determining access to MH/SUD and medical/surgical providers. For 
this reason, commenters stated that finding

[[Page 18403]]

provider networks to be in compliance with parity based only on 
adherence to Sec.  438.206(b)(4) would thwart the intent of the MHPAEA 
statute. Commenters also stated that it is unclear what the purpose of 
Sec.  438.910(d)(3) is if it requires nothing more than compliance with 
existing law.
    Response: We agree and in this final rule, we removed the provision 
to deem compliance with Sec. Sec.  438.910(d)(3) and 457.496(d)(5) of 
this rule (regarding parity requirements for access to out-of-network 
providers) where an MCO, PIHP, PAHP, or CHIP state plan is found to be 
in compliance with the provider network standard found in Sec.  
438.206(b)(4). We clarify that compliance with Sec.  438.910(d)(3) and/
or Sec.  457.496(d)(5) does not affect the requirement to comply with 
Sec.  438.206(b)(4). We may provide additional guidance or technical 
assistance to states regarding the requirements of Sec. Sec.  
438.206(b)(4) and 438.910(d)(3) and 457.496(d)(5) if questions persist. 
In response to the comments requesting that the rule address access to 
in-network providers, we also note that Sec. Sec.  438.910(d)(2)(iii) 
and 457.496(d)(4)(ii)(C) include the example of an NQTL pertaining to 
network design for MCOs, PIHPs and PAHPs with multiple network tiers 
because although network tiers may not be used to impose financial 
requirements or quantitative treatment limitations in Medicaid and 
CHIP, we recognize that MCOs, PIHPs and PAHPs may still use them in 
developing NQTLs. For example, the MCO, PIHP, or PAHP may use network 
tiers when recommending providers to enrollees, or how they structure 
their provider directories. MCOs, PIHPs and PAHPs with multiple network 
tiers should be constructing them and providing beneficiary access to 
them in a way that is consistent with the parity standard for NQTLs.
    Comment: Many commenters expressed concerns about the ability of 
regulated entities to manage utilization of MH/SUD services under the 
proposed requirements. For example, one commenter requested that MCOs 
be provided the flexibility to require prior authorization of inpatient 
benefits for psychiatric admissions directly from emergency departments 
to ensure that enrollees have access to alternative crisis 
stabilization options, even where a parallel review is not needed for 
medical/surgical admissions.
    Response: We disagree and we are finalizing this provision as 
discussed. The factors used to determine whether and when the use of 
prior authorization is appropriate must be comparable and applied no 
more stringently for MH/SUD benefits than they are for medical/surgical 
conditions.
    Comment: Some commenters raised concerns about situations where 
medical/surgical services are provided through FFS and MH/SUD services 
are provided by an MCO, PIHP, or PAHP. The commenters expressed concern 
that because FFS delivery systems typically use extremely limited NQTL 
management of benefits, the MCO, PIHP, or PAHP will not be able to use 
any strategies to manage the utilization of MH/SUD services.
    Response: Under this final rule, states have the flexibility to 
offer benefits through a variety of service delivery systems, and to 
employ financial requirements, quantitative treatment limits, and NQTLs 
as appropriate in alignment with the requirements of this rule. As 
stated earlier, we do not apply mental health parity requirements to 
state plan services provided to beneficiaries covered only through a 
FFS or PCCM delivery system, even if care for other beneficiaries is 
delivered through a managed care delivery system. However, as indicated 
in our 2013 SHO letter, we strongly encourage states to consider 
changes to the state plan benefit package to comport with the mental 
health parity requirements of section 2726 of the PHS Act. Benefits 
provided to an individual enrolled in an ABP or CHIP program are 
subject to parity regardless of how they receive their services, as 
explained in sections G and I.
    We understand there could be instances where an MCO enrollee 
receives the majority of his or her services through a FFS delivery 
system. In those cases, the MCO will still need to deliver any MH/SUD 
services in compliance with these regulations; even if that means that 
the ability to use NQTLs is limited. However, states that contract with 
MCOs typically use them to deliver a comprehensive set of medical/
surgical benefits.
    Comment: Some commenters noted that in some delivery systems, the 
use of multiple delivery options (MCO, PIHP, and PAHP) results in 
segmentation of management of the benefit amongst different delivery 
system mechanisms. For example, a state may provide outpatient mental 
health benefits through the MCOs for the first 20 visits per year, but 
provide all additional visits through the FFS system.
    Response: In this situation, because coverage for the service 
remains available to the beneficiary, we do not believe that this 
arrangement constitutes a quantitative treatment limit. Any 
requirements for prior authorization, concurrent review, or other NQTLs 
that are applied when the beneficiary begins receiving outpatient 
mental health services under FFS would be subject to the general parity 
analysis given this beneficiary is an enrollee of an MCO.
    Comment: Some commenters requested clarification regarding the use 
of NQTLs for MH/SUD services where Diagnosis-Related Group (DRG) based 
reimbursement is used for medical/surgical services. Commenters stated 
that DRG-based reimbursement typically functions as an alternative to 
the use of NQTLs, and stated that it is not commonly used for MH/SUD 
benefits due to factors including higher variability in outcomes, lower 
predictability of length of stay, and related considerations regarding 
payment for MH/SUD services. Commenters questioned whether NQTLs may be 
used to manage utilization of MH/SUD services when DRG-based 
reimbursement is being used for medical/surgical services.
    Response: The application of NQTLs to MH/SUD services is subject to 
the requirements of parity under this final rule. Thus, the use of 
concurrent review (a type of NQTL) for MH/SUD services in a 
classification would have to be based on processes, strategies, 
evidentiary standards or other factors that are comparable to and 
applied no more stringently than those used by the plan to determine 
when to use concurrent review for a medical service in the same 
classification. Some acceptable factors may include variability in 
outcomes and lower predictability in length of stay. In this scenario, 
the regulated entity would need to apply comparable criteria to 
medical/surgical services in a classification to determine whether to 
apply concurrent review to a MH/SUD service in that classification.
    Comment: Many commenters recommended that no restrictions be 
allowed for MH/SUD medications that do not exist for medications used 
for medical/surgical treatment, including tiered drug formularies and 
other mechanisms used to limit access. Other commenters simply 
requested clarification regarding the application of the NQTL standard 
to prescription drugs, including formulary tiering standards that 
include off-label use. Commenters noted that Medicaid programs often 
impose limits on medications for MH/SUD, including limits on dosage, 
exclusion of certain medications used to treat SUD, lifetime limits on 
medications used to treat SUD, and complex initial prior authorization 
requirements.

[[Page 18404]]

    Response: We note that all of these restrictions constitute 
quantitative or nonquantitative treatment limits that are subject to 
the parity analysis. However, we are not prohibiting the use of all 
quantitative or nonquantitative treatment limits for MH/SUD 
medications, as we believe these may be important tools for ensuring 
the appropriate management and delivery of effective MH/SUD treatments 
and services.
    Comment: Many commenters requested that Medicare Part D standards 
be integrated into this final rule to ensure non-discriminatory access 
to medications used for the treatment of mental illness and substance 
use disorders.
    Response: While we agree that beneficiaries should have access to 
appropriate medications used for their treatment of medical/surgical 
and MH/SUD conditions, MHPAEA does not mandate the coverage of specific 
treatments, services, or drugs, and instead governs the limitations 
imposed on benefits that are offered. We believe that existing 
protections in Medicaid and CHIP programs are sufficient to ensure non-
discriminatory access to medications used for the treatment of MH/SUD 
conditions. We also note that prescription drug coverage standards 
under Medicare Part D arise from different statutory provisions, 
funding mechanisms, and program requirements, than Medicaid and CHIP 
programs, and therefore are beyond the scope of this final regulation.
    Comment: Many commenters requested the inclusion of additional 
examples to demonstrate the application of NQTL requirements to 
provider reimbursement, noting that reimbursement rates affect the 
sufficiency of network adequacy, which can limit access to care. One 
commenter noted that Medicaid and CHIP inpatient general acute services 
are typically reimbursed using methods tied to diagnosis and severity 
rather than category of service, but that this reimbursement 
methodology is not typically used for MH/SUD services.
    Response: Similar to the guidance provided in the MHPAEA final 
rule, we clarify that regulated entities may consider a wide array of 
factors in determining provider reimbursement methodologies and rates 
for both medical/surgical services and MH/SUD services, such as service 
type; geographic market; demand for services; supply of providers; 
provider practice size; Medicare reimbursement rates; and training, 
experience and licensure of providers. The NQTL provisions require that 
these or other factors be applied comparably to and no more stringently 
than those applied for medical/surgical services, noting that disparate 
results alone do not mean that the NQTLs in use fail to comply with 
these requirements.
    After consideration of the comments received and further analysis 
of the reasons described in the proposed rule, we are revising the 
provisions proposed in Sec.  438.910(d)(3) and Sec.  457.496(d)(5) by 
finalizing them without the language to deem compliance with Sec.  
438.910(d)(3) and Sec.  457.496(d)(5) of this final rule (regarding 
parity requirements for access to out-of-network providers) where an 
MCO, PIHP, or PAHP is found to be in compliance with the provider 
network standard found in Sec.  438.206(b)(4). We are also revising the 
provisions in Sec. Sec.  438.910(d)(3) and 457.496(d)(5) to require 
that the factors used to apply the limitation to MH/SUD benefits be 
``comparable to'' and applied no more stringently than the factors used 
in applying the limitation to medical/surgical benefits in the 
classification, rather than requiring that the ``same'' factors be 
applied to both sets of benefits. We are also finalizing a technical 
change in the punctuation and the placement of the word ``and'' in 
Sec.  457.496(d)(4)(ii)(G) and (H) to increase clarity in the final 
rule regulation text. With the exception of these revisions, as 
indicated in the response to comments, we are finalizing the provisions 
regarding NQTLs at Sec. Sec.  438.910(d), 440.395(b)(4), and 
457.496(d)(4) and (5) as proposed.

G. Parity for Mental Health and Substance Use Disorder Benefits in CHIP 
Programs Covering EPSDT (Sec.  457.496(b))

    Consistent with section 2103(c)(6)(B) of the Act, we proposed at 
Sec.  457.496(b) to deem a separate CHIP compliant with mental health 
parity requirements if the state provides EPSDT in accordance with 
section 1905(r) of the Act. Proposed Sec.  457.496(a) included a 
definition of EPSDT by cross reference to section 1905(r) of the Act, 
which specifies the scope of services and supports that must be 
provided as well as the medical necessity standard applicable to 
individuals entitled to EPSDT. However, to be deemed compliant with the 
mental health parity requirements, section 2103(c)(6)(B) of the Act 
also requires that a separate CHIP provide EPSDT benefits in accordance 
with section 1902(a)(43) of the Act. This requirement was not 
adequately addressed in the proposed regulation. Therefore, as 
discussed below in this final rule, we are modifying Sec.  457.496(b) 
in the final rule to reflect that compliance with the requirements at 
section 1902(a)(43) of the Act is also necessary in order for a 
separate CHIP to be deemed compliant with parity provisions. We are 
also revising several proposed definitions set forth in Sec.  
457.496(a) as discussed later in this section of the final rule.
    We received the following comments on these proposed provisions.
    Comment: The majority of commenters were generally supportive of 
the application of parity requirements related to mental health/
substance use disorder (MH/SUD) benefits to CHIP. However, many 
commenters expressed concern about deeming CHIP programs compliant 
based solely on coverage of EPSDT benefits. In particular, they 
emphasized the need for greater oversight of states' compliance with 
providing the full range of services included within the scope of 
EPSDT, citing lawsuits in which children enrolled in Medicaid allegedly 
have been denied access to MH/SUD treatment even though the state is 
required to cover MH/SUD services as part of the EPSDT benefit. Some 
commenters noted that a few separate CHIP plans indicate that they 
provide EPSDT benefits, but in fact, apply limitations or exclude 
benefits that must be covered under the EPSDT benefit in Medicaid. 
Commenters recommended that CMS scrutinize the coverage under CHIP to 
ensure that programs deemed compliant are in fact providing EPSDT 
benefits as defined under the Medicaid statute. Commenters were 
particularly concerned about the application of treatment limitations, 
including NQTLs, to MH/SUD benefits compared to medical/surgical 
benefits for children enrolled in separate CHIPs that cover EPSDT under 
the CHIP state plan. Some commenters suggested not providing for deemed 
compliance at all.
    A few commenters were supportive of deeming separate CHIPs as 
compliant with MHPAEA strictly based on the state plan indicating that 
EPSDT benefits are covered for the population, and were opposed to 
considering other criteria, such as an examination of treatment limits, 
cost sharing, and NQTLs.
    Response: We agree that EPSDT is a critical benefit that ensures 
children, adolescents, and young adults under age 21 have access to a 
comprehensive benefit package and other medically necessary services 
tailored to meet their needs. While we understand some commenters are 
concerned that implementation of EPSDT in Medicaid may not fulfill the 
requirements of the statute across all states, implementation of EPSDT 
in state Medicaid programs is

[[Page 18405]]

a compliance issue that is beyond the scope of this regulation.
    However, we appreciate commenters' concerns that it is not 
sufficient that the state plan only indicate coverage of EPSDT under a 
separate CHIP in order to be deemed compliant with mental health parity 
requirements. We also agree with commenters that separate CHIPs that 
exclude benefits or place limits on benefits that are not consistent 
with the scope of EPSDT under the Medicaid statute should not be 
considered eligible for deemed compliance with mental health parity 
requirements. Section 2103(c)(6)(B) of the Act provides that CHIPs 
covering EPSDT benefits are deemed compliant with parity requirements 
under MHPAEA. Specifically, section 2103(c)(6)(B) provides that a 
separate CHIP which provides EPSDT benefits and services consistent 
with sections 1905(r) and 1902(a)(43) of the Act are deemed compliant 
with the mental health parity requirements, and we have retained that 
statutorily-prescribed policy in the final regulation.
    Section 1905(r) of the Act requires states to provide screening and 
diagnostic services as well as any medically necessary health care 
services, or treatments covered under section 1905(a) of the Act needed 
to correct or ameliorate defects and mental and physical illnesses or 
conditions, regardless of whether the service is covered under the 
Medicaid state plan. This allows for a broad array of services to be 
available under EPSDT such as rehabilitative and therapy services, 
counseling, personal care services, immunizations, periodic 
comprehensive well-child checkups and screenings for vision, hearing, 
and dental care, even if not covered for adults under the Medicaid 
state plan. Section 1905(r) of the Act also requires states to provide 
screening services at intervals that align with periodicity schedules 
that meet reasonable standards of medical or dental practice. Section 
1902(a)(43) of the Act requires states to provide and arrange for these 
medically necessary screenings, diagnostic services, and treatments, 
and to inform individuals under 21 in Medicaid about the availability 
of the full range of EPSDT services available to them. Separate CHIP 
programs that comply with these statutory requirements will be 
considered to provide ``full'' EPSDT in their separate CHIPs and will 
be deemed compliant with the parity requirements. Separate CHIPs that 
do not comply with all of the statutory requirements in sections 
1905(r) and 1902(a)(43) of the Act will not be deemed compliant; 
compliance for these programs will be based on satisfaction of the 
standards set forth in Sec.  457.496.
    In response to commenters' concerns that separate CHIPs will be 
deemed compliant with MHPAEA without providing the full scope of EPSDT 
benefits and supports, we are modifying Sec.  457.496(b) of the final 
regulation to provide, with new language at paragraph (b)(1), that to 
be deemed compliant with the mental health parity requirements under 
Sec.  457.496, a state must elect in its state plan to cover all EPSDT 
services required under section 1905(r) of the Act, as well as meet the 
informing and administrative requirements under section 1902(a)(43) of 
the Act and the approved State Medicaid plan. We are also adding new 
language at paragraph (b)(2) to require that the child health plan 
include a description of how the state will comply with the applicable 
Medicaid statute and the requirements of paragraph (b)(1)(i). The 
exclusion of services for particular conditions or diagnoses is also 
not permitted under section 1905(r) of the Act for individuals under 21 
entitled to EPSDT services. Therefore, we have added a provision at 
Sec.  457.496(b)(1)(ii) to preclude separate CHIPs from excluding any 
particular condition, disorder, or diagnosis under EPSDT benefits. We 
are also revising the meaning of EPSDT at Sec.  457.496(a) to include 
references to both sections 1905(r) and 1902(a)(43) of the Act. We are 
not finalizing the proposed text that referred to ``expansion of 
Medicaid programs'' which we believe was confusing since the regulation 
applies only to separate CHIP programs.
    In evaluating whether a state is fully compliant with the statutory 
requirements governing EPSDT benefits with respect to children enrolled 
in its separate CHIP, we will consider whether there are any 
outstanding compliance issues associated with the state's provision of 
EPSDT in its Medicaid program. While we recognize that in some states, 
the Medicaid and CHIP programs may not be identical and/or administered 
by different agencies, what is critical to be deemed compliant with the 
mental health parity requirements is that the provision of EPSDT in 
CHIP is compliant with the requirements in sections 1902(a)(43) and 
1905(r) of the Act. For example, if a separate CHIP covers all benefits 
identified in section 1905(a) of the Act in accordance with the 
requirements set forth in section 1905(r)(5) of the Act, we would deem 
compliance with parity requirements in this final rule only if the 
separate CHIP also had procedures to inform individuals of the 
availability of those services, provide or arrange for screening 
services, and assure necessary transportation as part of the 
administration of those benefits as required by section 1902(a)(43) of 
the Act.
    States that elect to apply any type of NQTLs under their separate 
program must ensure that such limits are consistent with EPSDT 
requirements at section 1905(r)(5) of the Act. We will closely review 
states' NQTLs to ensure that they meet deemed compliance standards 
under Sec.  457.496(b). For example, states will have the discretion to 
exclude some experimental services, and this type of NQTL would be 
unlikely to present a barrier to deemed compliance. Conversely, annual 
and lifetime limits are not consistent with Medicaid and/or EPSDT, and 
this practice would preclude a state from deemed compliance.
    Finally, we have added paragraph (b)(3) to Sec.  457.496 to be 
clear that if a state has elected in its state child health plan to 
cover EPSDT benefits only for certain children eligible under the state 
child health plan, the state is deemed compliant with this section only 
with respect to such children.
    Comment: Some commenters recommended that the states should submit 
documentation beyond state plan assurances to show how they plan to 
meet parity requirements. Furthermore, commenters were concerned that 
separate CHIPs deemed compliant with parity regulations would apply 
NQTLs to MH/SUD benefits in a manner that is not comparable to or is 
more restrictive than the NQTLs applied to medical/surgical benefits.
    Response: We will develop a state plan amendment (SPA) template for 
states to use in indicating how they will comply with the requirements 
of Sec.  457.496. For states that report providing EPSDT, we anticipate 
asking them to attest that the full EPSDT benefits being offered to 
children in the separate CHIP, as described in section 1905(r) of the 
Act, are being provided in a manner that is compliant with section 
1902(a)(43) of the Act.
    States will also be required to affirm in their state plan that the 
processes, strategies, evidentiary standards, or other factors used in 
applying NQTLs to MH/SUD benefits are comparable to and applied no more 
stringently than those used in applying the limitation to medical/
surgical benefits. As a part of the review process, we will work 
closely with states to ensure compliance with the parity requirements 
and assist states in their efforts to address any inconsistencies 
discovered during the review process.

[[Page 18406]]

    Comment: Commenters expressed concern about how states not 
providing EPSDT in CHIP would document compliance with MHPAEA. One 
commenter asked for clarification about the assurances states will 
provide when submitting their CHIP state plan amendments to CMS.
    Response: For CHIP programs that do not provide full EPSDT benefits 
(and therefore do not meet the deeming requirements), a full benefit 
and cost sharing analysis of the CHIP state plan must be conducted by 
the state to determine compliance with the parity standards in this 
final rule. The state's parity analysis must also include an 
examination of the processes, strategies, evidentiary standards, and 
other factors used in the application of NQTLs to MH/SUD benefits. The 
state must ensure these factors are comparable to and applied no more 
stringently than those used in applying NQTLs to medical/surgical 
benefits in the same classification. We will develop a state plan 
template to facilitate this analysis.
    Comment: Another commenter expressed concerns about lack of current 
tracking of certain mental health benefits that are required under 
EPSDT because they are not reported on the CMS-416 form.
    Response: The CMS-416 mandatory reporting form does not include a 
measure specific to any mental health screenings, diagnostic methods, 
or treatments. The CMS-416 is primarily focused on defining the number 
of children eligible for EPSDT, the overall number of screenings these 
children receive, and oral health and dental care measurements. 
However, section 401 of the CHIPRA required that the HHS Secretary 
develop a standardized set of measures for voluntary state use relating 
to a variety of topics within children's health. The initial Child Core 
Set was published in February 2011 and has been expanded to include 
measures specific to behavioral health. We will continue our efforts to 
collaborate with states to improve the quality of the behavioral health 
measures data. Additional information on the Child Core Measurement Set 
is available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Quality-of-Care/CHIPRA-Initial-Core-Set-of-Childrens-Health-Care-Quality-Measures.html.
    Comment: Many commenters recommended clarifying what medically 
necessary services separate CHIP programs are required to provide 
through EPSDT, such as home services and intensive care coordination.
    Response: EPSDT is a required Medicaid benefit for categorically 
needy individuals under age 21 that entitles these individuals to 
medically necessary services, as described in section 1905(a) of the 
Act, to treat physical or mental illnesses or conditions, whether or 
not these services are otherwise covered under the Medicaid state plan. 
Under section 1905(r)(5) of the Act, the EPSDT benefit includes 
services necessary to correct or ameliorate defects and physical or 
mental illnesses and conditions discovered by screening services. To be 
deemed compliant with the parity requirements under Sec.  457.496(b) of 
the final regulations, the coverage of EPSDT under a separate CHIP 
requires the same scope of coverage that a child covered by Medicaid 
would receive--that is, a CHIP enrollee would have to be entitled to 
all benefits and services described in section 1905(a) of the Act if 
medically necessary and consistent with section 1905(r) of the Act. We 
believe that including a list of specific services that are required to 
be provided under EPSDT is outside of the scope of this regulation. 
Additional information on the scope of benefits required under the 
EPSDT benefit can be found in ``EPSDT--A Guide for States: Coverage in 
the Medicaid Benefit for Children and Adolescents,'' available at 
http://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/downloads/epsdt_coverage_guide.pdf.
    Comment: One commenter noted that applied behavior analysis (ABA) 
is another service that is considered a medically necessary service 
that must be provided under EPSDT.
    Response: Whether or not a specific service is medically necessary 
for a particular child is beyond the scope of this final rule. However, 
we direct the commenter to the CMCS Informational Bulletin 
``Clarification of Medicaid Coverage of Services to Children with 
Autism'' at https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/CIB-07-07-14.pdf, and the frequently asked question issuance entitled 
``Services to Address Autism'', which discusses the provision of ABA 
therapy under EPSDT, available at http://www.medicaid.gov/Federal-Policy-Guidance/downloads/FAQ-09-24-2014.pdf.
    Comment: Many commenters expressed concern that the exclusion of 
coverage for services related to specific diagnoses is not considered a 
treatment limitation under this rule. Commenters believed that 
excluding benefits for certain diagnoses or conditions would directly 
conflict with current Medicaid regulations that prohibit discrimination 
based on diagnosis and could lead to states not fulfilling their 
obligations. Many commenters believed that states would view the 
proposed regulation as superseding current regulations. To avoid this 
confusion, many commenters suggested adding clarifying language that 
the proposed regulation does not trump the state's obligation to comply 
with current Medicaid regulations regarding discrimination based on 
diagnosis or other legislation such as the Americans with Disabilities 
Act (ADA). Other commenters recommended not including the exclusion in 
the final regulations.
    Response: In this final rule we maintain the definition of 
``treatment limitation'' set forth at Sec.  457.496(a) in the proposed 
rule under which a permanent exclusion of all benefits for a particular 
condition or disorder is not a treatment limitation. This definition 
aligns with the definition of ``treatment limitation'' provided in the 
MHPAEA final regulations (the final rules applicable outside of 
Medicaid and CHIP, as defined in section II of this final rule). As 
previously discussed, we agree that states providing EPSDT benefits in 
their separate CHIP must be compliant with the all requirements 
associated with EPSDT in the Medicaid statute. Exclusion of treatment 
for any conditions is not permitted under section 1905(r) of the Act 
for individuals under age 21 who are enrolled in Medicaid, so if a 
separate CHIP excludes coverage for particular conditions, disorders, 
or diagnoses, that separate CHIP will not be considered as providing 
EPSDT benefits consistent with section 1905(r)(5) of the Act. 
Therefore, states which exclude treatment for particular conditions, 
disorders, or diagnoses cannot be deemed compliant with the mental 
health parity requirements under Sec.  457.496(b) of the final 
regulations. In response to comments, we have added language in Sec.  
457.496(b)(1)(ii) to expressly provide that a separate CHIP cannot be 
deemed compliant with mental health parity requirements under the final 
regulation if it excludes benefits for a particular condition, 
disorder, or diagnosis.
    In considering the comments received, we are finalizing the 
provisions proposed in Sec.  457.496(a) with modifications to revise 
the definition of EPSDT benefits to specify that, for the purposes of 
Sec.  457.496, EPSDT benefits means benefits defined in section 1905(r) 
of the Act that are provided in accordance with section 1902(a)(43) of 
the Act to mirror the statutory requirement in section 2103(c)(6)(B) of 
the Act regarding deemed compliance. Additional changes to proposed 
definitions in

[[Page 18407]]

paragraph (a) include the modification of ``CHIP State Plan'' to 
``State Plan'' in order to use terminology consistent with existing 
CHIP regulations.
    Furthermore, Sec.  457.496(b) is being finalized with substantive 
changes and a technical change to clarify the standards which must be 
met to be deemed compliant with Sec.  457.496, including the provision 
of all EPSDT benefits as defined in section 1905(r) of the Act, and 
compliance with requirements for providing EPSDT benefits in accordance 
with section 1902(a)(43) of the Act. Additional language is also being 
incorporated to clarify that the state plan must include a description 
of how the state will comply with the EPSDT deeming requirements in 
Sec.  457.496(b).

H. Availability of Information (Sec.  438.915, Sec.  440.395(d), Sec.  
457.496(e))

    Under the MHPAEA final regulations at Sec.  146.136 (d)(1), the 
criteria for medical necessity determinations made under a group health 
plan or health insurance coverage for MH/SUD benefits must be made 
available by the plan administrator or the health insurance issuer 
offering such coverage in accordance with regulations to any current or 
potential participant, beneficiary, or contracting provider upon 
request, in accordance with section 2726(a)(4) of the PHS Act. Under 
the same authority, the MHPAEA final regulations also require at Sec.  
146.136(d)(2) that the reason for any denial under a group health plan 
or health insurance coverage of reimbursement or payment for services 
for MH/SUD benefits in the case of any participant or beneficiary be 
made available, upon request or as otherwise required, by the plan 
administrator or the health insurance issuer to the participant or 
beneficiary. The proposed rule also addressed these issues.
    We proposed to apply these disclosure requirements imposed on the 
health insurance issuer under MHPAEA and the MHPAEA final regulations 
regarding availability of information in a similar manner to MCOs and 
to PIHPs and PAHPs that provide coverage to MCO enrollees. As proposed 
and finalized in this rule in Sec.  438.915(a), MCOs, PIHPs, and PAHPs 
subject to parity requirements must make their medical necessity 
criteria for MH/SUD benefits available to any enrollee, potential 
enrollee or contracting provider upon request. We proposed that MCOs, 
PIHPs, and PAHPs found to be in compliance with Sec.  438.236(c),which 
requires dissemination by MCOs, PIHPs and PAHPs of practice guidelines 
to all affected providers, and, upon request to enrollees and potential 
enrollees, will be deemed to meet this requirement. In addition, we 
proposed in Sec.  438.915(b) to require MCOs, PIHPs, or PAHPs to make 
available the reason for any denial of reimbursement or payment for 
services for MH/SUD benefits to the enrollee. As noted in the proposed 
rule, Sec.  438.210(c) already requires each contract with an MCO, 
PIHP, or PAHP to 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.
    Although the statute that applies MHPAEA to ABPs does not include 
specific provisions regarding the availability of plan information, in 
the proposed rule we proposed to use our authority under section 
1902(a)(4) of the Act to extend this provision to all ABPs, as well as 
those ABPs with services delivered through MCOs, PIHPs and all PAHP. 
This final rule retains this provision. At Sec.  440.395(c)(1), we 
proposed that all states delivering ABP services through a non-MCO must 
make available to beneficiaries and contracting providers on request 
the criteria for medical necessity determinations for MH/SUD benefits. 
Similarly, Sec.  440.395(c)(2) in the proposed rule required the state 
to make available to the enrollee the reason for any denial of 
reimbursement or payment for services for MH/SUD benefits. For the same 
reasons, using our authority under section 2101(a) of the Act, we 
proposed at Sec.  457.496(e) to require disclosure, upon request, to 
any current or potential CHIP enrollee or contracting provider of the 
criteria for medical necessity determinations and to require that the 
reason for any denial of reimbursement or payment for MH/SUD benefits 
be made available to the enrollee. As proposed, the CHIP rule would 
also apply to managed care plans, so we included a provision in that 
proposal for deeming compliance with the parity disclosure requirement 
if the managed care entity complied with Sec.  438.236(c) disclosure 
requirements. We also proposed for CHIP plans that other laws requiring 
disclosure would still apply.
    The MHPAEA final regulations at Sec.  146.136(d)(2) state that non-
federal governmental group health plans (or health insurance coverage 
offered in connection with such plans) that provide the reason for 
claim denial in a form and manner consistent with the requirements of 
29 CFR 2560.503-1 for group health plans will be found in compliance 
with the MHPAEA disclosure requirements for denials.\8\ The standards 
at 29 CFR 2560.503-1 do not themselves apply to Medicaid; we did not 
propose in this rule to make them applicable as a condition for deemed 
compliance because similar requirements are already applicable under 
existing law. MCOs, PIHPs, PAHPs and states are required to give a 
``reason'' for any adverse benefit determinations under requirements 
for notices in, respectively, Sec.  438.404 and Sec.  431.210. The 
information provided in this disclosure of the reason for the adverse 
benefit determination must be made in compliance with these and all 
other provisions of applicable federal or state law.
---------------------------------------------------------------------------

    \8\ The requirements of 29 CFR 2560.503-1 are applicable to 
ERISA plans, as well as all non-grandfathered group health plans and 
health insurance issuers in the group and individual markets, 
through the claims and appeals regulations adopted under the 
Affordable Care Act. See 78 FR 68247 for a full discussion.
---------------------------------------------------------------------------

    For similar reasons, the proposed rule did not make claim denial 
requirements of 29 CFR 2560.503-1 a condition of deemed compliance for 
CHIP programs. CHIP enrollees have an opportunity for an external 
review of denials, reduction or suspension of health services under 
Sec.  457.1130.
    We requested comments on any additional provisions concerning the 
availability of plan information or notice of adverse determinations 
that may be necessary to facilitate compliance with MHPAEA for MCOs, 
PIHPs, PAHPs, ABPs, and CHIP.
    Comment: Some commenters expressed concern that the requirements 
for MCOs, PIHPs, and PAHPs that are specific to parity compliance were 
less stringent than the disclosure requirements that apply to 
commercial plans under the final MHPAEA rule. The commenters 
recommended that the final rule be revised to set more specific 
standards for the release of medical necessity determinations.
    Response: We disagree and believe the proposed rule set forth the 
same standards regarding availability of medical necessity information 
for MCOs and to PIHPs and PAHPs that provide coverage to MCO enrollees 
that are imposed on the health insurance issuer through section 2726 of 
the PHS Act and the MHPAEA final regulations. We proposed and are 
finalizing the regulation at Sec.  438.915(a) to provide that MCOs, 
PIHPs and PAHPs subject to MHPAEA requirements must make their medical 
necessity criteria for MH/SUD benefits available to any enrollee,

[[Page 18408]]

potential enrollee or contracting provider upon request.
    Comment: Some commenters were concerned that the proposed rule did 
not have the same claims denial requirements as required for group 
health plans. The commenters recommended that CMS require MCOs, PIHPs, 
and PAHPs to provide the reason for a claim denial in a form and manner 
consistent with the requirements of 29 CFR 2560.503-1. In addition, 
some commenters suggested that CMS establish a firm timeframe for the 
release of such information and for the release of claims denials. 
Several commenters recommended that CMS establish penalties for 
Medicaid MCOs, CHIP plans and ABPs that fail to make plan information 
available in a timely and easily accessible manner.
    Response: As we stated in the proposed rule, the provisions under 
29 CFR 2560.503-1 do not themselves apply to Medicaid and CHIP and we 
did not see a reason to propose to extend those provisions to Medicaid 
and CHIP. There is a disclosure requirement applicable in Medicaid and 
CHIP. MCOs, PIHPs, PAHPs and states are required to give a ``reason'' 
for any adverse benefit determinations under requirements for notices 
in, respectively, Sec.  438.404 and Sec.  431.210. CHIP enrollees have 
an opportunity for an external review of denials, reduction or 
suspension of health services under Sec.  457.1130. There are current 
rules that do require states to provide notice of adverse action within 
certain timeframes and (Sec.  432.211 and Sec.  432.213). In addition, 
there is specific information that must be included in a notice of 
action to a beneficiary including: The action, reason for the action, 
right to appeal and the right to continue benefits pending the result 
of the appeal (Sec.  438.404). Therefore, we do not believe it is 
necessary or appropriate to adopt additional general disclosure 
standards in this rule.
    Comment: Many commenters expressed concern that the proposed rule 
would not provide beneficiaries, providers and stakeholders with 
comparable information regarding medical necessity standards for 
medical/surgical service, and therefore, would not provide sufficient 
information to compare medical necessity requirements for MH/SUD 
against similar requirements for medical/surgical services. The 
commenters recommended the rule should specify that information about 
criteria used for making medical necessity determinations for 
comparable medical/surgical treatment should be provided to plan 
beneficiaries and providers upon request.
    Response: The current managed care rules Sec.  438.236 do require 
Medicaid managed care plans to provide practice guidelines (including 
medical/surgical and MH/SUD) to enrollees and potential enrollees. 
Additionally, Sec.  431.210 and Sec.  438.404 require MCOs, PIHPs, 
PAHPs and states (for state fair hearings) to provide the reason for a 
denial. In addition, under Sec.  438.404 beneficiaries can be provided 
medical necessity criteria for medical/surgical benefits as well as MH/
SUD benefits. In addition, Sec.  438.402 allows providers acting on 
behalf of beneficiaries to file a grievance to request and receive 
information.
    In regards to CHIP, under Sec.  457.1130 and Sec.  457.1180, 
beneficiaries have the right to an external review related to health 
service matters and must receive a notice that includes the reasons why 
a determination was made. We believe these requirements allow 
beneficiaries to request and receive the necessary medical necessity 
information especially in terms of a denial to make a determination 
that access to the service is in compliance with these rules.
    Comment: Some commenters expressed concern that transparency should 
not be predicated upon Medicaid and CHIP beneficiaries having the 
knowledge and wherewithal to request information from health plans 
after specific services have been denied. These commenters made several 
recommendations to improve this transparency. Some commenters 
recommended that plans be required to provide beneficiaries and, when 
appropriate, providers with written criteria for medical necessity 
determinations whenever requests for MH/SUD services are denied rather 
than requiring beneficiaries request this information.
    Response: We agree that transparency is important and we would like 
to remind beneficiaries and providers that they can request that 
information at any time. However, providing written criteria for 
medical necessity determinations to all beneficiaries when services are 
denied may be overwhelming for all beneficiaries and may be 
administratively burdensome for states and MCOs, PIHPs and PAHPs. 
Therefore, we are not imposing a requirement in this final rule to 
provide beneficiaries and, when appropriate, providers with written 
criteria for medical necessity determinations whenever requests for MH/
SD services are denied.
    Comment: Commenters recommended that MCOs, PIHPs, and PAHPs should 
be required to publish their medical necessity criteria for MH/SUD 
treatment and medical/surgical treatment on their Web sites and in 
other formats easily accessible to consumers, families, and treatment 
providers including requirements for persons with limited English 
proficiency or disabilities. Some commenters made other recommendations 
to improve health plans' transparency, including a request that MCOs, 
PIHPs, and PAHPs should be required to periodically publish information 
about denial rates for inpatient and outpatient MH/SUD treatment and 
denial rates for inpatient and outpatient medical/surgical treatment 
which would allow states to identify possible issues with parity 
compliance and to take necessary actions to ensure that the provisions 
of this rule are enforced.
    Response: We believe that existing requirements in Sec.  438.236 
(governing the adoption, dissemination and application of practice 
guidelines by MCOs, PIHPs and PAHPs) as well as the requirements in 
Sec.  438.10 mandating that member materials be provided in alternative 
formats is sufficient for providing the necessary information to 
beneficiaries. We also believe that the language in Sec.  438.10 can be 
interpreted to include posting information on the Web site as that 
modality becomes more available to individuals enrolled in Medicaid. 
However, we would encourage states to post this information regarding 
practice guidelines on their Web site. We are providing technical 
assistance to states regarding the data and information that would be 
helpful to review to identify possible issues with plans' efforts to 
understand and comply with parity. Further, we believe that data 
regarding denial rates across classifications will be important 
information for states to analyze and determine if there are potential 
issues with complying with the provisions of this rule and taking 
corrective action when appropriate with their MCOs, PIHPs, or PAHPs.
    Comment: Several commenters raised concerns that additional 
requirements regarding the availability of information could have 
unintended consequences. One example of such consequences included 
duplicating or complicating existing efforts to ensure transparency and 
adequate information to enrollees; another example suggested that 
additional requirements would make it more difficult for members to 
navigate the available information and could also divert plan resources 
away from Medicaid beneficiaries who were enrolled in managed care. 
Several commenters noted that current

[[Page 18409]]

Medicaid regulations already provide sufficient protections for 
Medicaid and CHIP enrollees regarding medical necessity determinations 
indicating that CMS already requires Medicaid MCOs to notify the 
requesting provider and/or give the enrollee written notice of any 
decision to deny a service authorization request or to authorize a 
service in an amount, duration, or scope that is less than requested. 
In addition, the commenters indicated that the Medicaid program already 
has disclosure requirements concerning the availability of plan 
information and notice of adverse determinations and those should be 
followed instead of increasing the administrative burden for states and 
plans by creating new requirements specific to parity. The commenters 
stated that creating additional or new requirements would increase the 
administrative and operational burden for both plans and states. One 
commenter recommended that if additional guidance was needed, 
subregulatory guidance, such as a State Medicaid Director Letter, could 
address some of the complexities around availability of information 
such as medical necessity and adverse determination notices. Another 
commenter recommended that CMS engage states, accreditation 
organizations, and Medicaid managed care plans to better understand 
activities already occurring before layering on additional monitoring 
requirements on states and plans.
    Response: We believe that current Medicaid and CHIP regulations 
provide sufficient disclosure to current beneficiaries; the proposed 
regulation solidifies a provider's ability to obtain medical necessity 
information. The current provisions require MCOs, PIHPs or PAHPs to 
provide their medical necessity criteria for mental health and 
substance disorder benefits to beneficiaries and affected providers. We 
proposed and are finalizing Sec.  438.915(a) that will require the plan 
administrators to provide such medical necessity criteria to any 
contracting provider. We believe that an affected provider in Sec.  
438.236(c) is consistent with this definition because given certain 
referral practices in place within an MCO, PIHP or PAHP; providers may 
need to understand practice guidelines for more than their area of 
expertise.
    Comment: One commenter expressed concern regarding issues with 
sharing medical necessity criteria because the proposed provisions (and 
this final rule) require provision of medical necessity criteria or 
practice guidelines to enrollees and prospective enrollees as well as 
participating providers. Specifically, this commenter recommended that 
CMS specify that licensed and proprietary criteria should not be made 
available unless such criteria are relevant to specific treatments or 
services and are requested by current or prospective insured patients, 
or healthcare providers with appropriate notice of disclosure of 
confidential and proprietary information.
    Response: We agree with the commenter that this final rule requires 
information regarding the medical necessity criteria for specific 
treatments be made available upon request to current or prospective 
beneficiaries or health care provider; this final rule does not require 
that this information be more broadly disseminated to the general 
public.
    Comment: Another commenter recommended that CMS require states to 
engage all stakeholders in an open and public process on the state's 
plans to comply with the parity requirements.
    Response: While the regulation requires states to post information 
on their parity analysis on the state Web site, the proposed rule did 
not address stakeholder engagement regarding states' efforts to 
determine if MCOs or other delivery systems were parity compliant. 
Without prior notice and opportunity for comment, we do not believe it 
appropriate to finalize a requirement that states develop stakeholder 
engagement processes regarding their efforts to review compliance with 
the final regulation. However, we do encourage states to undertake 
these efforts and to include stakeholders as much as possible.
    Comment: One commenter recommended that CMS require states to 
educate both beneficiaries and providers regarding any new benefit 
changes.
    Response: We agree that beneficiary education is important which is 
shown in current managed care regulations under Sec.  438.10. Section 
438.10(f) currently specifies that enrollees must be notified of their 
benefits available under the MCO, PIHP or PAHP contract, how to obtain 
a prior authorization, how the enrollee can obtain benefits including 
benefits that are available under the state plan but not covered under 
the contract. Enrollees must be notified at the time of enrollment and 
also at any time a change to the benefits or processes listed here is 
considered significant.
    Comment: Another commenter recommended CMS consider including, or 
clarifying, the ability of a Medicaid beneficiary to designate a 
personal representative with the legal authority to request information 
from the MCOs regarding medical necessity criteria and the basis of 
service denials.
    Response: Currently parents or legal guardians of children 
participating in the Medicaid or CHIP program may request the medical 
necessity criteria or receive information on service denials. 
Individuals that have a power of attorney for an individual would also 
have authority to make these requests. In addition, Sec.  438.406(b)(4) 
provides that the enrollee and his or her representative must be 
included in the appeals process.
    As indicated in the response to comments, we are finalizing the 
provisions regarding availability of information at Sec.  438.915, 
Sec.  440.395(d), Sec.  457.496(e) as proposed with a technical change 
in Sec.  457.496(e)(1) to use the term ``deemed'' in place of 
``determined.'' There was an oversight of an inconsistency between the 
corresponding Medicaid regulations at Sec.  438.915 that has been 
corrected in this final rule.

I. Application to EHBs and Other ABP Benefits (Sec.  440.395(c), Sec.  
440.395(e)(1))

    Section 1937(b)(6) of the Act, as added by section 2001(c) of the 
Affordable Care Act, and implemented through regulations at Sec.  
440.345(c) directs that ABPs that provide both medical and surgical 
benefits and MH or SUD benefits must comply with certain parity 
requirements. Further, ABPs must provide the 10 EHBs, including MH/SUD 
services. As states determine their ABP service package, states must 
use all of the EHB services from the base-benchmark plan selected by 
the state to define EHBs, consistent with the applicable requirements 
in 45 CFR part 156.
    Section 1937 of the Act offers flexibility for states to provide 
medical assistance by designing different benefit packages, including 
other services beyond the EHBs for different groups of eligible 
individuals, as long as each benefit package contains all of the EHBs 
and meets certain other requirements, including parity provisions under 
section 2726 of the PHS Act.
    While we did not request comment specifically on this section, we 
did receive many comments on ABPs. For the reasons set forth below, we 
are finalizing the proposed provisions at paragraphs (c) and (e)(1), 
with modification, which we describe below.
    Comment: Several commenters remarked on various topics regarding 
the intersections between MHPAEA requirements and ABPs. Several 
commenters requested that we clarify if parity requirements differ by 
type of ABP such as ABPs that offer only state

[[Page 18410]]

plan benefits or ABPs that serve medically frail beneficiaries and have 
benefits that are more than the state plan benefits.
    Response: Consistent with the proposed rule, the final regulation 
requires every approved ABP to meet parity requirements, regardless of 
the benefit package offered by the ABP. In final Sec.  440.395, we 
address ABPs that are provided other than through a managed care 
delivery system and in final Sec.  438.900 through Sec.  438.930, we 
address ABPs that are delivered through MCOs, PIHPs and PAHPs. As noted 
throughout this rule, the parity standards are virtually identical in 
these different regulations.
    Comment: Additional commenters noted that section 1937(b)(6)(B) of 
the Act specifies that ABP coverage providing EPSDT should be deemed 
compliant with parity.
    Response: We agree with the commenter. We are therefore finalizing 
Sec.  440.395(c) to implement the statutory deeming provision for ABPs.
    Comment: Many commenters believed that CMS afforded states too much 
discretion regarding how parity analyses are conducted for EHB in ABPs 
and provided too little oversight of state processes used and how 
services are offered (that is, whether services are offered through 
managed care contracts or in fee for service (FFS) arrangements). 
Several commenters requested that CMS provide more structured 
requirements or a mandatory methodology for such analyses in ABPs; one 
commenter wanted CMS to conduct a comprehensive review of EHBs in all 
ABPs with special attention on intermediate behavioral healthcare 
services.
    Response: We are not adding additional requirements or a mandatory 
methodology in this final rule with regard to our proposal that states 
oversee the parity analysis for EHBs in ABPs. This final rule provides 
that states have oversight responsibility for ensuring parity in ABPs, 
similar to their responsibility for ensuring parity in managed care 
contracts. However, we will provide technical assistance to states 
regarding the implementation of these provisions and questions or 
issues that may arise. This technical assistance may include the 
identification and promotion of best practices, tools, and/or other 
assistance for analyzing ABPs for compliance with the requirements of 
this rule.
    Comment: One commenter noted that the proposed rule NQTL 
requirements for ABPs mirrors the requirements for group health 
insurance plans, offering states flexibility in designing NQTLs on a 
benefit by benefit basis.
    Response: We appreciate the commenter's feedback and agree this was 
the intent of the proposed rule and is maintained in the final rule.
    Comment: One commenter asked CMS to confirm that Sec.  440.396 
Benchmark and Benchmark-Equivalent Coverage that was reviewed and 
approved by CMS has been determined to be in compliance with parity.
    Response: We have reviewed all approved ABPs for parity compliance 
and states have attested to their compliance with MHPAEA in the ABP 
SPAs. New SPA applications that are submitted to create ABPs will be 
reviewed by CMS to determine if the plan complies with this final rule.
    Comment: Many commenters requested clarification and examples about 
how parity applied to long term services and supports in ABPs for EHB. 
The commenters believe that many of the EHBs in ABPs include long term 
services and that the Affordable Care Act does not allow such long term 
benefits offered for SUD/mental health to be more restrictive than long 
term medical/surgical benefits.
    Response: We have included long term services and supports in the 
definition of medical/surgical benefits, mental health benefits and 
substance use disorder benefits as such terms are defined and used in 
this final rule. (See section III.A. of this final rule for a more 
detailed discussion). Therefore, this rule is clear that parity 
standards apply to these services.
    As indicated in the response to comments, we are finalizing the 
substance of the applicability standard as proposed in Sec.  
440.395(d)(1); we note that this provision is being designated as Sec.  
440.395(e)(1) in this final rule because of the addition of regulation 
text to address EPSDT in the context of ABPs and the parity 
requirements. In addition, a comma was added to this text (which 
follows the word ``PAHP'') for grammatical reasons. Further, we are 
finalizing regulation text, in Sec.  440.395(c), to deem compliance 
with the parity provisions when an ABP covers EPSDT.

J. ABP State Plan Requirements (Sec.  440.395(e)(3))

    We proposed to require states using ABPs to provide sufficient 
information in the ABP state plan amendment to assure and document 
compliance with parity provisions. The requirement was included in the 
proposed rule at Sec.  440.395(d)(3) and is being re-designated as 
Sec.  440.395(e)(3) in the final rule.
    Comment: Some commenters stated that there is no stipulation in the 
preamble or proposed regulations that define a required methodology 
and/or documentation of the analysis to determine if an ABP complied 
with parity where ABPs are provided on a FFS basis. The commenters 
maintained that the state has no responsibility to the public to 
disclose its documentation of compliance other than providing 
sufficient information to CMS.
    Response: To clarify, where ABPs are provided on a FFS basis, this 
regulation would require states to provide sufficient information in 
the ABP state plan amendment request to assure and document compliance 
with parity requirements. We will review the plan amendment to assure 
compliance with parity requirements and EHB anti-discrimination 
provisions.
    We are finalizing this provision as proposed, with a different 
designation, at Sec.  440.395(e)(3).

K. Application of Parity Requirements to the Medicaid State Plan

    The provisions of section 2726 of the PHS Act that are incorporated 
through sections 1932 and 1937 of the Act do not apply directly to the 
benefit design for Medicaid fee-for-service and non-ABP state plan 
services. Under the proposed rule, the requirements would apply to the 
benefits offered by the MCO (or, as discussed above, if benefits are 
carved out, to all benefits provided to MCO enrollees regardless of 
service delivery system) but did not apply to all Medicaid state plan 
benefit designs; for states that did not use an MCO at all in 
connection with delivery of services, the proposed rule at Sec.  
438.900 through Sec.  438.930 would have not been applicable. States 
that have individuals enrolled in MCOs and have MH/SUD services offered 
through FFS would, under the proposed rule, have the option of amending 
their non-ABP state plan to be consistent with the proposed regulations 
or offering MH/SUD services through a managed care delivery system 
(MCOs, PIHPs, and/or PAHPs) to be compliant with the proposed rules.
    As noted in the proposed rule, for beneficiaries who are not 
enrolled in a MCO, and thus not covered by section 1932(b)(8) of the 
Act, this rule would not affect coverage (other than when the services 
are part of an ABP). However, we encourage states to provide state plan 
benefits in a way that comports with the mental health parity 
requirements of section 2726 of the PHS Act.
    Comment: Many commenters expressed gratitude to CMS for including 
important language in the

[[Page 18411]]

proposed rule encouraging states to provide state Medicaid plan 
benefits in compliance with parity even when they are not required to 
do so under the MHPAEA or regulations. Many commenters supported 
application of parity requirements to all benefits for Medicaid managed 
care enrollees, including benefits that are provided by PIHPs, PAHPs, 
or FFS. Some commenters recommended that CMS work closely with states 
to ensure that all Medicaid beneficiaries have strong coverage for MH/
SUD services.
    Response: We will to continue to provide support and technical 
assistance to states to strengthen coverage of MH/SUD services for all 
Medicaid participants even when states are not required to do so 
through this rule.
    Comment: Many commenters encouraged CMS to apply parity protections 
beyond what is required under federal law. The commenters indicated 
that CMS should encourage states to apply parity benefits equally for 
all Medicaid enrollees, regardless of whether they are enrolled in 
managed care, ABPs or traditional FFS. Some commenters were concerned 
that individuals being served entirely in the FFS environment are being 
denied the same protections as individuals who get some portion of 
their care through a managed care arrangement. The commenters 
maintained that the proposed rule did not promote a level playing field 
between managed care arrangements and FFS. In addition, the commenters 
stated that exempting Medicaid FFS from the proposed mental health 
parity requirements will create inequality in service delivery for 
Medicaid beneficiaries and could have serious implication for the 
viability of Medicaid managed care plans. A commenter suggested that 
requiring Medicaid FFS to comply with the parity requirements outlined 
in the proposed rule would allow for continuity of care, increased 
access to care and services, care coordination and improved quality of 
MH/SUD services for all beneficiaries.
    Response: We acknowledge that this final rule does not provide the 
same protections to Medicaid beneficiaries receiving only FFS benefits 
as it does for those enrolled in MCOs. However, section 1932(b)(8) of 
the Act does not provide authority to apply parity protections to 
beneficiaries who are not enrolled in an MCO and section 1937 of the 
Act limits the application of parity requirements to ABPs.
    While the provisions of this rule do not apply directly to the 
benefit design for Medicaid non-ABP state plan services, the 
requirements would apply to all benefits provided to the majority of 
Medicaid participants because that majority of enrollees are MCO 
enrollees. The rule, as proposed and as finalized, imposes parity 
requirements in terms of the total benefits package provided to MCO 
enrollees, regardless of service delivery system. States that have 
individuals enrolled in MCOs and have MH/SUD services offered through 
FFS will have the option of amending their non-ABP state plan to be 
consistent with these regulations or offering MH/SUD services through a 
managed care delivery system (MCOs, PIHPs, and/or PAHPs) to be 
compliant with these final rules. We also encourage states that have 
some beneficiaries not enrolled in an MCO to offer these beneficiaries 
the protections afforded under parity.
    Comment: Some commenters strongly suggested that CMS work with 
states and other interested parties to find alternative means to 
ensuring quality and access to MH/SUD services in states that have 
chosen to provide those services outside of a managed care product.
    Response: As indicated above, the provisions of the Act impose 
parity requirements in limited cases. Therefore, we can only encourage 
states to take the necessary actions to apply parity to MH/SUD benefits 
for FFS beneficiaries. States can choose to maintain these services on 
a FFS basis in their state plan and make the necessary changes to their 
state plan to comply with this final regulation. Nothing in this final 
regulation prohibits states from including additional MH/SUD services 
in their state plan or in managed care arrangements.
    Comment: Many commenters stated that CMS's proposed mental health 
parity rules impermissibly encroach on states' flexibility to decide 
how to operate their Medicaid programs. The commenters indicated that 
the various delivery system arrangements that states use will become 
significantly more complex and difficult to administer under CMS's 
proposal to apply the mental health parity standards to state plan 
services delivered outside of a Medicaid MCO. Specifically, in some 
states, the administrative complexity of applying the rules to services 
delivered outside of an MCO may drive behavioral health services into 
the MCO contracts to the detriment of a longstanding, publicly operated 
service delivery system. Another commenter indicated that requiring 
that all state plan MH/SUD services to be included in all MCO contracts 
diminishes the state's flexibility and ability to develop new and 
innovative programs based on new evidence-based models. The commenter 
suggested that the state's flexibility to develop new models should be 
preserved.
    Response: We disagree that the proposed mental health parity rules 
impermissibly encroach on states' flexibility to decide how to operate 
their Medicaid programs. We maintain that applying various parity 
provisions across the different delivery systems would allow states the 
most flexibility in designing delivery systems while ensuring that 
parity in coverage of medical/surgical and MH/SUD services is provided 
to MCO enrollees. Under this final rule, parity requirements apply to 
the entire package of services MCO enrollees receive, whether from the 
MCO, PIHP, PAHP, or FFS. If states carve out some MH/SUD services from 
the MCO contract and furnish those services by PIHPs, PAHPs, or through 
FFS, we are applying the parity requirements to the entire package of 
services MCO enrollees receive. Requiring the standards for parity to 
be applied to the overall package of benefits received by MCO enrollees 
will allow MCOs to comply with MHPAEA requirements without requiring 
inclusion of additional MH/SUD benefits in the MCO benefit package, as 
long as these MH/SUD benefits are provided elsewhere within the 
delivery system. In states where MH/SUD benefits are provided across 
multiple delivery systems (including FFS), states are required under 
Sec.  438.920(b)(1) to review the full scope of benefits provided to 
MCO enrollees to ensure compliance with the parity requirements. As 
part of complying with this regulation, we expect states to work with 
their MCOs (or PIHPs and PAHPs) to determine the best method of 
achieving compliance with parity requirements for benefits provided to 
the MCO enrollees. Based on the commenter noting that services may be 
driven into the MCO and in light of our policy in this final rule, we 
reviewed the proposed Sec.  438.920(b)(2) and discovered that proposed 
(b)(2) was written to indicate a state responsibility only when some 
services are carved out of the MCO. We finalize this rule without that 
limitation; all states, regardless of how services are delivered to MCO 
enrollees; have the responsibility to ensure that the program is in 
compliance with these requirements. We believe that because of this 
oversight requirement and the flexibility found in these final rules, 
the state should not have incentives to either move benefits into the 
MCO or

[[Page 18412]]

outside of the MCO for purposes of complying with these rules. Because 
of these reasons we are finalizing Sec.  438.920(b)(2) in the final 
rule with revisions to require states to monitor the program in any 
instance where an enrollee is receiving benefits through an MCO.
    For MH/SUD benefits offered through FFS, states would not 
necessarily be required to amend their non-ABP state plan to meet 
parity requirements, but could use their existing state plan or waiver 
services to achieve parity when individuals are receiving some benefits 
(whether MH/SUD or medical/surgical) from a MCO and also some benefits 
through FFS (or through PIHPs or PAHPs)). However, if a state did not 
have MH/SUD benefits in every classification in which medical/surgical 
benefits are provided across all authorities, the state would have to 
choose either to offer these services through a MCO, PIHP or PAHP or 
amend its state plan (or a waiver of its state plan) to include these 
benefits to achieve compliance with proposed Sec.  438.920(a) and (b).
    Comment: Several commenters indicated that the Medicaid statute 
provides that each Medicaid managed care organization shall comply with 
the mental health parity requirements. The commenters indicated that 
Congress did not mean for the statute to be interpreted the way it was 
in the proposed rule and that only individuals that received all of 
their services through the MCO would be subject to the requirements in 
these rules. The commenters stated that CMS acknowledges the Congress' 
intent, but nonetheless applies the mental health parity rules more 
broadly based on the section 1902(a)(4) authority to provide for 
methods of administration that are necessary for the proper and 
efficient operation of the Medicaid state plan. The commenters stated 
that CMS cannot use its section 1902(a)(4) authority to specify 
Medicaid methods of administration that are inconsistent with a clear 
congressional directive.
    Response: We disagree that this rule is contrary to the purpose of 
section 1932(b)(8) of the Act. We also disagree that the authority of 
section 1902(a)(4) cannot be employed to link the delivery systems that 
would furnish MH/SUD services to individuals enrolled in a Medicaid MCO 
to ensure that enrollees in an MCO receive benefits that are consistent 
with the parity standards. To ensure that the goal of parity is met and 
avoid incentives to carve out all MH/SUD services from an MCO contract, 
we are requiring, through our authority in section 1902(a)(4) of the 
Act to specify methods necessary for the proper and efficient operation 
of the state plan, that if MH/SUD state plan services are provided to 
MCO enrollees through a PIHP, PAHP, or under FFS Medicaid (because such 
services are carved out of the MCO contract scope), MCO enrollees will 
still receive the MHPAEA parity protections with respect to MH/SUD 
state plan services. We are committed to and agree with commenters' 
recommendations to work with states and other interested parties to 
ensure quality and access to mental health and SUD services in states 
that have chosen to provide those services outside of a managed care 
product.
    Comment: Several commenters requested CMS to clarify in the final 
rule that only beneficiaries receiving both their MH/SUD and medical 
surgical benefits through a FFS delivery system are not provided parity 
protections.
    Response: To clarify, the rule does not apply to Medicaid state 
plan beneficiaries who are not enrolled in an MCO, and thus, not 
covered by section 1932(b)(8) of the Act. However, this rule does apply 
to all beneficiaries enrolled in ABPs and CHIP, regardless of the 
benefit delivery system. We encourage states to provide all state plan 
benefits in a way that comports with the mental health parity 
requirements of section 2726 of the PHS Act.
    Comment: A commenter recommended CMS develop a chart for 
beneficiaries, providers, authorized representatives and plans to 
explain which insurance arrangements must meet parity and which do not. 
The commenter indicated there is much confusion among beneficiaries 
about whether MHPAEA applies to such plans as Medicare, Department of 
Defense and Federal Employee Health Benefits Program.
    Response: We appreciate the commenters' recommendations for CMS to 
provide further guidance to states on ensuring and applying parity 
requirements through all service delivery systems in Medicaid and CHIP 
programs, including to individuals receiving services as part of an 
ABP. We will be providing additional information and technical 
assistance to states and MCOs regarding this final rule. Medicare, 
Department of Defense, and the Federal Employee Health Benefits 
Programs are outside the scope of this rule.
    Comment: A few commenters requested further guidance for ensuring 
parity for services authorized as part of a mental health 
rehabilitation and mental health targeted case management as a package 
of services and when services needed outside of the package are 
referred to the MCO organization for prior authorization.
    Response: In this final regulation we are requiring states to apply 
parity to all MH/SUD services offered in their non-ABP state plan for 
individuals that are enrolled in an MCO.
    As indicated throughout this final rule, we are finalizing the 
overall scope of the parity requirements as proposed. Specifically, the 
parity requirements will apply to benefits provided to MCO enrollees 
(regardless of the delivery system of those benefits), to ABPs and to 
CHIP. As discussed in the responses to comment, Sec.  438.920(b)(2) is 
being finalized with changes to require states to monitor the program 
in any instance where an enrollee is receiving benefits through an MCO.

L. Scope and Applicability of the Final Rule (Sec.  438.920(a) and (b), 
Sec.  440.395(e)(2), and Sec.  457.496(f)(1))

    Sections 438.920, 440.395(d), and 457.496(f) of the proposed rule 
addressed the applicability and scope of the rule. Specifically:
     Section 438.920(a) proposed that the requirements of the 
subpart apply to delivery of Medicaid services when an MCO is used to 
deliver some or all of the Medicaid services; section 438.920(b) 
proposed state responsibilities when the MCO delivers only some of the 
Medicaid services. Section 438.920(b)(1) proposed that in the cases 
where some services are delivered outside of the MCO, the state must 
complete the parity analysis and provide evidence to the public. States 
completing the parity analysis must do so consistently with the 
parameters discussed in this rule, meaning they need to review the MH/
SUD benefits to ensure they are included in the contracts with 
limitations or financial requirements that are no more stringent than 
the predominant limitations or financial requirements applied to 
substantially all of the medical/surgical benefits provided to the MCO 
enrollees. Under section 439.920(b)(2), we proposed that the state must 
ensure that MCO enrollees receive services in compliance with subpart K 
when the MCO did not provide all medical/surgical and mental health/
substance use disorder benefits. Our proposal contemplated that these 
responsibilities could be met through appropriate reporting from the 
MCOs in order for the state to adequately oversee the program.
     Proposed Sec.  440.395(d)(1) indicated that Sec.  440.395 
applied to ABPs that are not delivered through managed care.

[[Page 18413]]

     Proposed Sec.  457.496(f)(1) indicated that Sec.  457.496 
applied to CHIP state plans, including when benefits are furnished 
under a contract with MCEs.
    The tri-Department MHPAEA final rules state that if a group health 
plan or health insurance coverage provides MH/SUD benefits in any 
classification of benefits, MH/SUD benefits must be provided in every 
classification in which medical/surgical benefits are provided. Under 
our proposed amendments to part 438, for parity standards to apply, a 
beneficiary must be enrolled in an MCO, as defined in Sec.  438.2, 
under a Medicaid contract. Enrollment in a PIHP or PAHP alone would not 
be not sufficient for parity to apply if a beneficiary were not also 
enrolled in an MCO. The proposed rule noted that whether the MCO 
provides medical/surgical or MH/SUD benefits under that contract is 
irrelevant for the MCO coverage to trigger parity requirements.
    While many Medicaid MCOs are contracted to offer benefits in each 
of the classifications of benefits described in this rule, there are 
other state-initiated ``carve out'' arrangements (for example, PIHPs, 
PAHPs, or FFS) in which the MCOs are only contracted to provide 
benefits in one MH/SUD classification, while PIHPs, PAHPs, FFS, or a 
combination of all three provide coverage of benefits in other 
classifications; the division of coverage might be across the 
classifications identified in Sec.  438.910(b), Sec.  
440.395(b)(2)(ii), and Sec.  457.496(d)(2) or might be based on the 
nature of services as medical/surgical services, mental health services 
or substance use disorder services. For example, MCOs in these carve-
out arrangements could have contracts that include MH/SUD benefits in 
the prescription drug and emergency care classifications of benefits, 
but some or all of the MH/SUD outpatient or inpatient benefits may be 
covered instead through a PIHP, PAHP, or FFS delivery system.
    In instances where the MH/SUD services are delivered through 
multiple managed care delivery vehicles, we proposed in Sec.  
438.920(a) that parity provisions apply across the managed care 
delivery systems; this rule was proposed to apply for managed care 
delivery in the Medicaid program and in CHIP. Coverage parity 
requirements would apply to the entire package of services MCO 
enrollees receive, whether from the MCO, PIHP, PAHP, or FFS. If states 
carve out some MH/SUD services from the MCO contract and furnish those 
services by PIHPs, PAHPs, or FFS, we proposed to apply the foregoing 
parity requirements to the entire package of services MCO enrollees 
receive. Requiring the standards for parity to be applied to the 
overall package of benefits received by MCO enrollees allows MCOs to 
comply with these requirements without requiring inclusion of 
additional MH/SUD benefits in the MCO benefit package, as long as these 
MH/SUD benefits are provided elsewhere within the delivery system. In 
states where MH/SUD benefits are provided across multiple delivery 
systems (including FFS), we proposed in Sec.  438.920(b)(1) that states 
would be required to review the full scope of benefits provided to MCO 
enrollees to ensure compliance with the requirements of this rule. We 
noted that we would expect states to work with their MCOs (or PIHPs and 
PAHPs) to determine the best method of achieving compliance with these 
parity requirements for benefits provided to the MCO enrollees. For MH/
SUD benefits offered through FFS, states would not be required under 
the proposed rule to amend their non-ABP state plan to meet parity 
requirements, but could use their existing state plan or waiver 
services to achieve parity when individuals are receiving some MH/SUD 
benefits from a MCO (including PIHPs or PAHPs) and also some benefits 
through FFS. However, if a state does not have MH/SUD benefits in every 
classification in which medical/surgical benefits are provided across 
all authorities, the state would have to choose either to offer these 
services through a MCO, PIHP or PAHP or to amend its state plan (or a 
waiver of its state plan) to include these benefits to achieve 
compliance with proposed Sec.  438.920(a) and (b). Applying various 
parity provisions across the different delivery system allows states 
the most flexibility in designing delivery systems while ensuring that 
parity in medical/surgical and MH/SUD services is provided to MCO 
enrollees. Given that there are many different delivery system 
configurations that carve out MH/SUD services, this allows compliance 
with parity requirements while reducing incentives for states to 
completely carve in all MH/SUD benefits to a MCO or carve out or 
terminate coverage of MH/SUD services.
    In states where the MCO has responsibility for offering all 
medical/surgical and MH/SUD benefits, we noted in the proposed rule 
that compliance with our proposal would mean that the MCO is 
responsible for undertaking the parity analysis and working with the 
state on changes found to be necessary to the MCO contract for it to be 
compliant with parity requirements. Underlying our proposal was an 
anticipation that states would need to include contract provisions in 
these MCO contracts to make sure they can see the results of the parity 
analysis completed by the MCO and have adequate oversight of the 
program to ensure that enrollees are receiving services in compliance 
with these rules so they can be in compliance with the rules as amended 
in Sec.  438.920(b)(2). In states where some or all MH/SUD benefits are 
provided to MCO enrollees through PIHPs, PAHPs, or FFS, we proposed in 
Sec.  438.920(b)(1) that the state would have the responsibility for 
undertaking the parity analysis across these delivery systems and 
determining if the existing benefits and any financial or treatment 
limitations are consistent with MHPAEA. The state, based on this 
analysis, would have to make the necessary changes to ensure compliance 
with parity requirements for its Medicaid MCO enrollees. We also 
proposed in Sec.  438.920(b)(1) that the state provide documentation of 
its compliance with this analysis to the general public within 18 
months of the effective date of this rule.
    For ABPs and CHIP state plans, we proposed to require states to 
apply the provisions of this rule across all delivery systems to ensure 
that beneficiaries have access to MH/SUD benefits in every 
classification in which medical/surgical benefits are provided. If 
states offer services through an ABP or CHIP state plan with various 
delivery systems (managed care and non-managed care), the state must 
apply the provisions of the rule across the delivery systems utilized 
for its ABP and CHIP state plan. The proposed rule included an example 
of how the proposal would apply across the delivery system in Medicaid:
    Example 1. Facts. A Medicaid MCO enrollee can access Medicaid 
benefits in the following way at any given time during their MCO 
enrollment:
     The MCO comprehensive benefits include inpatient medical/
surgical benefits; outpatient medical/surgical benefits; emergency for 
medical/surgical and MH/SUD benefits; and prescription drugs for 
medical/surgical and MH/SUD benefits.
     The PIHP carve out benefits include inpatient MH benefit 
and the outpatient MH benefit.
     The PAHP carve out benefits include outpatient SUD 
benefits.
     The FFS system provides access to inpatient SUD benefits.
    For purposes of this example, we assume there are no financial 
requirements or treatment limitations

[[Page 18414]]

imposed on any of the benefits in any of the delivery systems noted 
above.
    Example 1. Conclusion. In this example, the MCO, PIHP or PAHP would 
not need to add any additional services to its benefit package because 
the MCO enrollee has access to MH/SUD services through PIHPs, PAHPs and 
FFS. The state is responsible for undertaking the parity analysis 
across delivery systems and making sure the coverage complies with 
parity requirements under Sec.  438.920(a) and (b). The example would 
apply in the same way to a CHIP enrollee.
    Comment: We received several comments regarding the proposal to 
apply the protections of MHPAEA to all MCO enrollees regardless of the 
delivery system for MH/SUD services. Most comments received were in 
support of CMS' interpretation and expressed that if CMS limited the 
protections of MHPAEA to apply only to the benefits provided by the 
MCO, this would not fulfill the intent of the law. In contrast, some 
commenters did not support CMS' interpretation and felt that the rule 
should require all services for both medical/surgical and MH/SUD 
conditions to be provided by the MCO, based primarily on the premise 
that it is easier to provide a level of care coordination that is 
appropriate for the needs of people requiring intensive levels of MH/
SUD services if all benefits are provided by one entity.
    Response: We appreciate the comments related to the application of 
this rule to all MCO enrollees regardless of how the MH/SUD services 
are delivered. We believe that our interpretation is in line with the 
intent of section 1932(b)(8) of the Act and allows the most flexibility 
to states to determine the best delivery system in their state. 
Therefore, we are maintaining this interpretation in the final rule. In 
any system that the state chooses, we recommend that the state pay 
close attention to the care coordination aspects of the program to 
ensure that medical/surgical services and MH/SUD services are 
coordinated and integrated to the greatest extent possible.
    Comment: One commenter suggested CMS require parity compliance for 
all managed care entities that contract with a PIHP or PAHP to deliver 
behavioral health services. This would include primary care case 
management (PCCM) entities or providers.
    Response: While we encourage states to apply parity broadly across 
the state plan and to any service delivery system, section 1932(b)(8) 
of the Act only applies MHPAEA parity requirements to MCOs; therefore, 
we cannot extend its reach to services provided to beneficiaries who do 
not enroll with MCOs. In situations where a state uses a PCCM program 
to provide medical/surgical services and uses a PIHP or PAHP to provide 
MH/SUD services (meaning that the state does not use an MCO at all), 
the state would not be required to meet the requirements in part 438 
this final rule. Similarly, accountable care collaborative models using 
managed FFS authority such as PCCM are not considered MCO contracts 
under the definition provided in Sec.  438.2, and therefore, are not 
required to comply with part 438, subpart K. However, as noted above, 
we do encourage states to consider applying the MHPAEA protections to 
the state plan so that individuals using a PCCM will still benefit from 
provisions in this final rule.
    Comment: Some commenters were unclear if parity requirements were 
applicable, and if so how those requirements would be applied, to 
section 1115 demonstrations and other waiver authorities. Commenters 
were concerned because many states use these programs to provide a 
variety of services to vulnerable populations or to treat specific 
behavioral health conditions, such as autism spectrum disorder.
    Response: Parity requirements set forth in this final regulation 
apply to MCOs and ABP regardless of the authority a state employs for 
its Medicaid program. While we welcome Demonstrations and other Waivers 
that that seek better outcomes for beneficiaries in need of MH/SUD, we 
believe these parity requirements are necessary to provide adequate 
protections for beneficiaries enrolled in demonstration and waiver 
programs. Therefore, we will not approve any Waivers of the parity 
requirements set forth in this final regulation in a request for an 
1115 Waiver.
    Comment: We received several comments about who should be 
responsible for the parity analysis in varying situations. Some 
commenters believed that the state should be able to delegate the 
responsibility to other parties when using a carve-out system, such as 
the entities themselves or county agencies, whereas other commenters 
believed that the state Medicaid Agency should be the sole party 
completing the parity analyses, even in the case where the MCO is 
providing all medical/surgical and MH/SUD benefits within its contract. 
Some comments expressed concern that even in the case of a carve-out 
system, the MCO will end up needing to do the parity analysis, which 
commenters believe will create delays in the 18-month timeline for 
compliance.
    Response: We considered affording the state the option of choosing 
who would have responsibility for the parity analysis in situations 
when the MCO does not provide all MH/SUD services, but we were 
concerned about the timeliness and consistency of the parity reviews if 
the state was not responsible for this analysis under the regulation. 
Therefore, we are finalizing text in Sec.  438.920(b)(1) to require the 
state to perform the parity analysis when the MCO is not providing all 
MH/SUD services to Medicaid beneficiaries; this is the scope and intent 
of the regulation text requiring states to review all services to 
ensure compliance with the rule and implicit in the requirement for the 
state to provide documentation of that compliance. The state may use 
third parties to gather information and make a preliminary parity 
analysis on its behalf, but the state must review and accept that 
preliminary analysis. And, the state will be responsible for providing 
documentation supporting compliance with these rules when submitting 
the MCO contracts to us for review and approval. To the extent that a 
state chooses to use contractor or other resources to complete the 
analysis, we would expect the state to answer any questions about the 
analysis and we will hold the state accountable for its accuracy and 
completeness.
    When the MCO provides all medical/surgical and MH/SUD benefits, the 
statute imposes the parity compliance on the MCO. It is implicit in our 
final rule, at Sec.  438.920(a), that the MCO perform the analysis in 
those circumstances. We believe that states should be aware of the 
timeframe for completing the parity analysis and the outcomes when the 
MCO does it to be sure the state oversees the delivery of benefits in a 
manner that is compliant with these rules, including implementing any 
appropriate contract changes. States should be sure to include contract 
provisions in their MCO contracts in these cases to be sure they get 
the necessary reporting during the 18-month implementation period.
    Comment: One commenter stated that, in cases where an MCO does the 
parity analysis, the MCO could simply provide an assurance of 
compliance. This commenter noted that the proposed rule did not require 
the MCO to tell the state Medicaid Agency what changes needed to be 
made to their contracts, and that the state Medicaid Agency would need 
to determine those changes based on their regulatory oversight.
    Response: While we agree that the final rule does not require 
specific

[[Page 18415]]

documentation from the MCOs when they complete the parity analysis, we 
believe that it would be in the interest of the states to require the 
MCOs to report the findings and the analysis that they complete. We 
encourage states to include contract provisions that they believe are 
necessary during the implementation period to get the information 
necessary to make changes to the contract that would demonstrate 
compliance with these rules. We are not including any additional 
regulatory reporting requirements in this rule as we believe states 
should be at liberty to collect the appropriate reporting they deem 
necessary for the oversight and implementation of their programs 
consistent with these requirements. We are available to help states 
consider contract language to achieve this if necessary during the 18 
month transition period.
    Comment: The proposed rule would have required states to provide 
documentation to CMS with their contract submission in cases where some 
or all MH/SUD benefits are provided to MCO enrollees through PIHPs, 
PAHPs, or FFS. We received several comments requesting guidance on what 
documents must be provided with contracts and state plan amendments to 
document compliance with the requirements of this rule. Some commenters 
requested that these documents be required to be submitted on an annual 
basis. Commenters also raised concerns about situations where the MCO 
provides the full scope of services, stating that an assurance of 
parity compliance from the state in these cases is insufficient and 
creates inconsistency in documentation of compliance requirements. 
Another commenter requested that CMS provide technical assistance to 
states as they complete their parity analyses in order to give ``best 
practices'' in determining compliance.
    Response: We will provide technical assistance and tools for states 
and MCOs that clarify expectations around the types of documentation 
that must be submitted with the MCO contracts and ABP state plan 
amendments to demonstrate compliance with parity. MCO contracts are 
typically submitted on an annual basis, and should include materials 
that demonstrate that the state is confident in the parity analysis. We 
do not believe that the parity analysis needs to be completed on an 
annual basis if the state can show that the plans or state did not 
change their operations in a way that would affect compliance with this 
rule. We will use the submitted documentation as part of our MCO 
contract review and approval process. As noted in a previous response, 
states should consider including provisions in their contract for MCOs 
to report on the outcome of the parity analysis to ensure that parity 
is achieved and can be overseen appropriately. States may want to 
consider requiring the MCOs to complete the analysis in a way that is 
consistent with how the state completes the analysis for its ABP or 
CHIP state plans.
    Comment: We received some comments noting that, in the proposed 
rule, states were only required to review MH/SUD services to ensure the 
full scope of services meets the requirements. Commenters believed that 
states need to review both the medical/surgical criteria and the MH/SUD 
criteria to determine full compliance with this rule.
    Response: We agree with the commenters, and in the final rule we 
have revised to Sec.  438.920(b)(1) to provide that the state must 
review both medical/surgical and MH/SUD benefits provided to determine 
compliance with the final rules where in the proposed rule we only 
indicated that the state would review the MH/SUD benefits. States 
should consider including contract provisions in all MCO and applicable 
PIHP and PAHP contracts to achieve this requirement.
    Comment: One commenter expressed concern over the term ``scope of 
services,'' citing the fact that it has become a term of art within the 
context of parity and may be misconstrued when reviewing the regulation 
text in Sec.  438.920(b).
    Response: We appreciate that ``scope of services'' may have 
different meanings in different contexts, but we believe that for the 
purposes of this regulation, it is sufficiently clear that we mean the 
full set of benefits available to the Medicaid beneficiary.
    Comment: We received several comments that requested that CMS 
require states to publicly report on the progress of compliance during 
the 18-month period between the publication date of the final rule and 
date of compliance, and to make sure states engage the public on the 
progress towards compliance with the requirements of this rule. Several 
commenters urged CMS to develop a common methodology for federal and 
state regulators to provide identifiable transparent information on 
parity compliance investigations to encourage uniform compliance 
practices. Commenters requested that CMS post the compliance plans on 
Medicaid.gov and on state Medicaid Web sites, and to closely monitor 
states on their progress.
    Response: To make compliance information available to the public 
more quickly, and to simplify compliance deadlines across requirements 
for MCOs, ABPs, and CHIP, we have changed the date by which states must 
provide such information from 18 months from the effective date of the 
final rule to 18 months from the publication date of the final rule. 
Because the provisions of the final rule do not become effective until 
60 days after publication, this change will ensure that information 
regarding states' compliance with this subpart becomes available to the 
public in a timely manner.
    As specified in Sec.  438.920(b)(1) of this final rule, states must 
make documentation available to the public within 18 months after the 
publication of this final rule about compliance with these rules; this 
means that states must report how they are complying in order to 
document compliance. We have clarified in the final regulation at Sec.  
438.920(b)(1) that this documentation must be updated when benefits 
change.
    We do not require through regulation that states consult with 
stakeholders on how to comply with these rules because in doing so we 
believe we would have needed to specify how and when that public input 
process occurred which could create further delays in the 
implementation timeline, making it longer than 18 months. Although we 
are not requiring states to work with stakeholders and other public 
interests to determine the best way to comply with these rules, we 
believe that states will need to discuss options with stakeholders in 
their current delivery systems to be able to ascertain the best 
delivery system for any additional benefits that may be required. We 
also encourage states to have discussions with stakeholders other than 
their providers and plans to ensure they achieve compliance in the best 
way for their beneficiaries. We do not believe we also need to post the 
materials on Medicaid.gov, as states will be posting their 
documentation on their own Web sites. Posting on state Web sites is 
more targeted and would be more effective in facilitating discussions 
with the stakeholders in that state. We are not mandating the use of a 
common methodology for state oversight of parity compliance, given the 
diversity of approaches that states use to structure their treatment 
delivery systems, and given our desire to provide states flexibility to 
tailor their administrative processes to the context and needs in their 
state. However, as noted in other sections, we will make technical

[[Page 18416]]

assistance available to states that wish to discuss compliance 
strategies.
    Comment: We received comments about the use of a Web site for the 
location of where states make the documentation of compliance available 
to the public. One commenter noted that the use of a Web site would be 
too administratively burdensome on states and questioned why this 
particular provision would be called out when others do not require to 
be posted on a state's Web site. Another commenter requested that CMS 
clarify in the text of the regulation that the state must use a Web 
site, noting that the proposed language only indicates that the state 
must make the documentation available but did not specify the location.
    Response: We believe that the use of a Web site operated by the 
state is consistent with other managed care proposed rules and in line 
with other requirements. Therefore, we are modifying the regulation in 
this final rule to require, in Sec.  438.920(b)(1), that the documents 
demonstrating compliance must be made available to the general public 
through the state's Web site.
    As indicated in the response to comments here and in other 
sections, we are finalizing these provisions in Sec.  438.920(a) and 
(b), Sec.  440.395(e), and Sec.  457.496(f)(1) as proposed with several 
revisions. We revised Sec.  438.920(b)(1) to clarify that the state 
must review both medical/surgical and MH/SUD services delivered to MCO 
enrollees to determine compliance with the final rules and we revised 
Sec.  438.920(b)(2) to clarify that the state needs to complete 
oversight to ensure enrollees receive services in compliance with these 
rules in every instance that there is an enrollee of an MCO. The 
requirements of Sec.  457.496(f)(1) were also modified to require 
states to indicate in their state plan the standard used, such as state 
guidelines or the most current versions of the DSM or ICD, when 
classifying benefits into their respective category as a medical/
surgical, mental health, or substance abuse disorder benefit. The 
intent of this requirement is to capture this information within the 
state plan in order to increase transparency and facilitate our 
understanding of the state's parity analysis during our review of their 
compliance SPA. Furthermore, the collection of this standard is 
consistent with the approach taken in CHIP to describe other required 
benefits provided in separate CHIPs. We are also finalizing Sec.  
438.920(b)(1) with a change in the date by which the state must publish 
the documentation of its compliance with part 438, subpart K and a 
requirement for the state to update its analysis and documentation.

M. Scope of Services (Sec.  438.920(c), Sec.  440.395(e)(2), Sec.  
457.496(f)(2))

    In the proposed rule, we included provisions relating to the scope 
of the parity requirements for Medicaid MCOs and CHIP state plans that 
were similar to the provisions set forth in the MHPAEA final 
regulations (Sec.  146.136(e)(3)). Specifically, the proposed 
regulations did not require a MCO, PIHP, or PAHP to provide any MH/SUD 
benefits for conditions or disorders beyond the conditions or disorders 
that are covered as required by their contract with the state. For 
MCOs, PIHPs, or PAHPs that provide benefits for one or more specific MH 
conditions or SUDs under their contracts, the proposed regulations did 
not require the MCO, PIHP, or PAHP to provide benefits for additional 
MH conditions or SUDs. The proposed regulations did not affect the 
terms and conditions relating to the amount, duration, or scope of MH/
SUD benefits under the MCO, PIHP or PAHP contract except as 
specifically provided in Sec.  438.905 and Sec.  438.910 of part K. For 
states providing benefits through ABPs, we clarified in proposed Sec.  
440.395(d)(2) (which is being re-designated as Sec.  440.395(e)(2) in 
this final rule), that Sec.  440.395 does not require a state to 
provide any specific MH/SUD benefits; however in providing coverage 
through an ABP, the state must include EHBs based on the applicable EHB 
reference benchmark plan, including the ten EHBs specifically required 
in Sec.  440.347.
    Comment: We received comments requesting that CMS strengthen its 
requirements around prescription drug coverage for MH/SUD conditions 
and require that the full range of mental health and addiction 
medications approved by the FDA must be covered.
    Response: Under Federal Medicaid law, states are required to comply 
with the requirements of section 1927(g)(1) of the Act to the extent 
that they provide assistance for covered outpatient drugs under their 
Medicaid FFS programs or Medicaid managed care plans. Therefore, states 
are required to provide coverage of all drugs that meet the definition 
of covered outpatient drugs as outlined in section 1927 of the Act, 
when such drugs are prescribed for medically accepted indications, 
including those indicated for the treatment of mental health conditions 
and substance use disorders. Consistent with section 1927(d) of the 
Act, state Medicaid FFS programs and Medicaid managed care plans have 
the discretion to establish certain utilization management techniques 
that include preferred drug lists and prior authorization processes for 
the coverage of covered outpatient drugs.
    However, under the requirements of this rule, a regulated entity 
may not impose NQTLs (including prior authorization or other 
utilization management strategies) for drugs used to treat MH/SUD 
conditions unless any processes, strategies, evidentiary standards, or 
other factors used in applying the NQTL to the MH/SUD benefit are 
comparable to, and are applied no more stringently than, the processes, 
strategies, evidentiary standards, or other factors used in applying 
the limitation for medical/surgical benefits in the same 
classification. Similarly, under certain circumstances, regulated 
entities may apply different levels of financial requirements and 
treatment limitations to different tiers of prescription drugs and 
still satisfy the parity requirements. Regulated entities may subdivide 
the prescription drug classification into tiers based on reasonable 
factors as described in this rule and without regard to whether a drug 
is generally prescribed for medical/surgical benefits or for MH/SUD 
benefits.
    Comment: We received a few comments that wanted CMS to encourage 
states to cover MH/SUD services through a broad range of providers as a 
way to ensure adequate access to services.
    Response: Although we believe that this comment is outside the 
scope of this rule, we have issued guidance over the past several years 
and provided states with information to encourage access to mental 
health and substance use services, including clarifications regarding 
additional agencies and practitioners that can render MH/SUD services.
    Comment: One commenter expressed concern with language at Sec.  
438.920(c)(1) that stated that MCOs are not required to provide any 
services beyond what is described in their contract. This commenter 
believed that this could provide a loophole for MCOs looking to reduce 
benefits.
    Response: We included this provision based on the ability of the 
state to determine compliance with the requirements in Subpart K of 42 
CFR part 438 across multiple delivery systems. If a state is using a 
PIHP, PAHP, or FFS benefits to comply with these rules, the MCO should 
not also have to provide additional benefits on the basis that its 
contract, on its own, does not comply with the requirements in this 
subpart. We believe that other areas of 42 CFR part 438 protect against

[[Page 18417]]

the MCO arbitrarily reducing benefits, most notably Sec.  438.210, 
which provides that the MCO may not arbitrarily deny or reduce the 
amount, duration or scope of a required service solely because of the 
diagnosis of a beneficiary.
    As indicated in the response to comments, we are finalizing the 
provisions regarding scope of services at Sec.  438.920(c), Sec.  
440.395(e)(2), and Sec.  457.496(f)(2) as proposed.

N. Increased Cost Exemption

    The proposed rule did not include an increased cost exemption for 
MCOs, PIHPs, or PAHPs. However, the proposed rule did include changes 
to payment provisions in part 438 to allow states to include the cost 
of providing additional services or removing or aligning treatment 
limitations in their actuarially sound rate methodology where such 
costs are necessary to comply with the MHPAEA parity provisions. These 
proposed changes to the managed care rate setting process would give 
states and MCOs the ability to fully comply with these mental health 
parity requirements by giving them flexibility to provide services 
compliant with this regulation or remove or align service limits. We 
stated that the Medicaid program rather than the plan should bear the 
costs of these changes, and proposed to provide up to 18 months after 
the date of the publication of the final rule for states to establish 
compliance with the provisions of this final rule (see discussion in 
section P: ``Applicability and Compliance''). This would allow states 
to take the actions to make the policy and budgetary changes needed for 
compliance. The proposed rule also excluded permission for states 
delivering services through an ABP or CHIP State plan to apply for a 
cost exemption due to the mandatory delivery of EHB and the requirement 
that ABPs be compliant with MHPAEA.
    Comment: Many commenters agreed that an increased cost exemption 
for parity was not needed. The commenters supported building in 
increased costs associated with parity into the state's rate setting 
structure. In addition, the commenters recommended that the regulation 
require a behavioral health medical loss ratio of 90 percent for 
clinical services, MH/SUD services and activities that improve health 
care quality in their MCO contracts. One commenter recommended that CMS 
allow cost exemptions for administrative expenses to MCOs in instances 
where states may not develop rates that adequately support the 
additional care management and coordination required to ensure 
compliance with parity requirements.
    Response: We affirm that this rule does not include an increased 
cost exemption for MCOs, PIHPs, or PAHPs. We do not expect Medicaid 
managed care entities to incur any net increase in costs because we are 
finalizing a provision stating that the costs of complying with parity 
requirements may be taken into account within an actuarially sound 
payment methodology. However, recommendations regarding requirements 
for medical loss ratios or reimbursement rates are beyond the scope of 
this final regulation.
    Comment: Many commenters disagreed with denying states access to a 
cost exemption. The commenters maintained that MHPAEA allows group 
health plans and insurance issuers to seek a cost exemption, and the 
Medicaid statute specifies that the mental health requirements apply to 
Medicaid MCOs, ABPs, and CHIP ``insofar as such requirements apply and 
are effective with respect to a health insurance issuer that offers 
group health insurance coverage,'' or ``in the same manner as such 
requirements apply to a group health plan.'' The commenters explained 
that there was no basis for CMS to apply MHPAEA to Medicaid and CHIP, 
but then for CMS to refuse to apply MHPAEA's cost exemption provision.
    The commenters suggested that although MCOs may receive increased 
capitation payments to comply with the parity requirements in this 
final rule, there is still an increased cost for the state (and the 
federal government). In addition, the commenters indicated that it does 
not make sense to prevent ABPs from accessing the cost exemption simply 
because they must cover EHBs and must comply with parity requirements. 
The commenters reasoned that Federal law also requires commercial group 
plans to comply with MHPAEA, and it requires commercial small group and 
individual plans to cover EHBs, but that does not exclude them from 
seeking for a cost exemption under MHPAEA. The commenters applied the 
same logic to CHIP.
    Response: As we proposed, we are not extending the cost exemption 
provision to MCOs, PIHPs, PAHPs, or states. We require MCOs to be paid 
on an actuarially sound basis, which would include the cost of adding 
services or removing or aligning treatment limitations in managed care 
benefits so long as those additional benefits are necessary to comply 
with mental health parity requirements. States have the ability to make 
changes to their capitation payments during the course of the contract 
year to account for unexpected changes in benefits, costs, and 
utilization if they find that the assumptions included in the initial 
rate development are different than actual experience. This final rule 
authorizes states, in instances where they choose not to change their 
state plan, to include the cost of services that are necessary to 
comply with this rule but are beyond what is specified in the state 
plan into the development of actuarially sound rates. This is different 
from the circumstances of the commercial market and removes the 
rationale for an increased cost exemption for Medicaid MCOs, PIHPs, and 
PAHPs. States may also choose to use a risk mitigation strategy in 
their rates the first year(s) that the additional benefits are added to 
a MCO, PIHP, or PAHP contract. This would ensure that any over- or 
under-payments are reconciled at the end of the year and give the state 
a more accurate sense of the utilization of services for future years 
of rate setting.
    As indicated in the response to comments, as proposed, we do not 
include provisions in the final rule for an increased cost exemption.

O. Enforcement, Managed Care Rate Setting (Sec.  438.6(e)) and Contract 
Review and Approval (Sec.  438.6(n))

    Proposed Sec.  438.6(e) allowed a state's rate-setting structure to 
account for services covered by an MCO, PIHP, or PAHP in excess of 
services and/or treatment limits that are listed in the State plan if 
such services are necessary for the MCO, PIHP or PAHP to comply with 
this rule. However, the proposed rule only allowed the state to adjust 
its capitation rates to provide for additional services to the extent 
that these services would not be included but for the requirements of 
this rule.
    Proposed Sec.  438.6(n) required states to include contract 
provisions requiring compliance with parity requirements in all 
applicable MCO, PIHP, and PAHP contracts. We noted that we expected 
states, in order to comply with the proposal, to include a methodology 
for the MCO, PIHP, or PAHP to establish and demonstrate compliance with 
parity requirements within the contracts. This methodology would have 
to provide a mechanism for all MCOs, PIHPs, or PAHPs included in the 
delivery system to work together to ensure that any MCO enrollee in a 
state is provided access to a set of benefits that meets the 
requirements of this rule regardless of the MH/SUD benefits provided by 
the MCO. If it was not shown through the MCO contract itself that an 
enrollee has access to parity-compliant MH/SUD

[[Page 18418]]

services in each classification in which medical and surgical services 
are provided, the state would be asked to provide supplemental 
materials to the MCO contract or an amendment to the contract to 
demonstrate that the standards provided here are met.
    If a state did not adequately demonstrate that an MCO's contract 
and practices are in compliance with the proposed rule, CMS proposed to 
defer federal financial participation (FFP) on expenditures for the MCO 
contract because compliance with section 1932 is a requirement for FFP 
payment under section 1903(m)(2)(A)(xii) of the Act. Where there are 
services outside of the MCO contract that are needed to demonstrate 
compliance, the state would be required to show how the MCO enrollees 
are provided all the services needed to comply with the requirements in 
this rule.
    Comment: We received a number of comments in support of CMS's 
proposal to allow states to include the costs of coming into compliance 
with the requirements of this rule into the actuarially sound 
capitation rates paid to the MCO, PIHP or PAHP providing MH/SUD 
services under Sec.  438.6(e). One commenter noted that CMS can use its 
review and approval of managed care contracts to ensure FFP is being 
used solely for state plan items and services and those services 
necessary to satisfy the parity requirements. Commenters further stated 
that they believe the costs of coming into compliance will be minimal, 
and over time may save money as timely access to MH/SUD services may 
reduce the need for costly emergency and crisis care. One commenter 
added that this was an opportunity for plans to enhance care 
coordination, to the extent that these requirements ensure access to a 
wider range of specialists than previously covered. Some commenters 
requested that CMS require states to include the cost of any additional 
services in Sec.  438.6(e)(3) rather than providing states the option 
to adjust these rates. Other commenters believed that the language was 
too broad and CMS should follow the guidance issued in the 2013 State 
Health Official letter which encouraged states to make changes to their 
state plan. Finally, others thought that the language was sufficiently 
clear and strongly requested that CMS refrain from adopting more 
prescriptive language regarding what additional benefits may be 
included because it is clear that the services need to be included to 
ensure parity.
    Response: We believe that allowing capitation rates to reflect 
additional compliance costs related to non-state plan services was 
necessary for plans and states to meet the requirements of Subpart K 
when changes to the Medicaid state plan are not required by federal 
law. We do not agree that it is necessary to explicitly amend Sec.  
438.6(e)(3) as suggested by the commenter to achieve this result, 
because we believe it will be inherent in 438.6(n). If services are 
necessary beyond what is included in the state plan to ensure 
compliance with this rule, states and their actuaries must take the 
expected reasonable and appropriate cost of those additional services 
into consideration while setting actuarially sound rates. In addition, 
as noted in other areas of the rule, states have the flexibility to 
include those additional services either through the MCO, PIHP, or PAHP 
benefit package, or they can add them to the state plan by completing a 
state plan amendment. To make the payment rate adjustment under Sec.  
438.6(e)(3) a requirement could prohibit states from making changes to 
their state plan which could allow for a broader application of parity 
than is required through this rule.
    Comment: We received several comments requesting model contract 
language that states can use to be able to demonstrate compliance with 
these rules. Contract language is requested to clarify which additional 
MH/SUD services plans would be required to provide when a carve-out 
approach is used, and to require states to reimburse the plan in an 
actuarially sound manner.
    Response: Considering there are a number of different models the 
states can choose to demonstrate compliance, we would not be able to 
provide model contract language for every situation. However, we are 
working with a contractor to develop technical assistance materials, 
and we are available to states during the transition period if states 
would like to discuss their plans for compliance and possible contract 
language.
    Comment: We received a number of comments requesting CMS to provide 
more clarity on what documentation it expects states to provide to show 
that it complies with the regulations when submitting MCO contracts.
    Response: We will release subregulatory guidance around 
documentation that will be required to show compliance with these 
regulations. Additionally, we are working with a contractor to develop 
tools and provide technical assistance to states in completing the 
analysis of their delivery systems to ensure the benefit design and 
medical management techniques meet the requirements of these rules.
    Comment: We received some comments requesting CMS clarify its role 
in oversight of these regulations and urged CMS to improve enforcement 
in the commercial market, as well as for Medicaid and CHIP.
    Response: Oversight of commercial products and compliance with the 
tri-Department MHPAEA final rules are outside the scope of this final 
rule.
    As with other Medicaid MCO contracts and state plan amendments, we 
will review associated and relevant documents submitted by the state. 
This will include the review of the MCO contracts and SPA documents, as 
well as any documentation of the parity analysis the state has done to 
determine that their system and/or benefit design meet the requirements 
of this rule. States will be the primary oversight entity to ensure 
that services are delivered in compliance with these rules. 
Beneficiaries and/or stakeholders should first direct any issues 
related to compliance with this rule to the state. We are willing to 
accept complaints around compliance with this rule and we may discuss 
these issues with states to determine if any corrective actions need to 
take place.
    Comment: There were several comments that CMS should specify that 
CMS, states, MCOs, PIHPs, and PAHPs pay particular attention to MH/SUD 
parity requirements for children and adolescents as a distinct 
population group. The commenters encouraged CMS and states, when 
assessing compliance with these rules, to obtain input on delivery of 
services from child and adolescent MH/SUD providers, including 
pediatric medical providers. In addition, the commenters strongly 
suggested CMS regularly monitor pediatric MH/SUD network adequacy, 
access standards for children and adolescents (including inpatient 
admission), EPSDT service coverage mandate and prior authorization 
criteria, data showing the number of reasons for child and adolescent 
denials, and pre- and post-utilization patterns by children of 
intensive home and community based services, and inpatient MH/SUD 
services.
    Response: This final rule does not create specific oversight 
requirements for distinct population groups, nor does it provide for 
access reviews to needed services. States are required to ensure 
compliance with the requirements of this rule for all enrollees whose 
benefits are subject to this rule. However, we will provide technical 
assistance to states upon request to assist with the implementation of 
this rule. If questions

[[Page 18419]]

or confusion persist about the requirements of this rule for pediatric 
populations, we may provide tools or guidance to respond to those 
questions. CHIP and ABP programs that include full coverage of EPSDT, 
in the same manner as in regular Medicaid coverage, will be deemed 
compliant with this rule in accordance with the statutory authority. 
However, we will review a state's assurance carefully as a part of the 
CHIP or ABP SPA review process to ensure compliance with all EPSDT 
requirements, including the methods and procedures for implementing the 
EPSDT benefit. We also anticipate providing clarification through 
subregulatory guidance to states about the proper implementation of the 
EPSDT benefit. With regard to the comments on the issue of monitoring 
access to services that issue is outside the scope of this final rule. 
We are engaged in separate rulemaking to strengthen state and federal 
reviews of beneficiary access to needed services.
    Comment: We received a number of comments that requested CMS 
strengthen its oversight role of the rate setting process to ensure 
that rates are set on an actuarially sound basis when services beyond 
the state plan are included. These comments included a variety of 
suggested approaches and requirements, including: Not requiring MCOs to 
cover additional services until actuarially sound rates are in place; 
greater transparency about how states will accommodate the additional 
costs of compliance in their rate setting approaches; requirements that 
rates be set based on the specific benefit set instead of a historical 
look-back; development of a template that translates service changes 
into rate-setting formulations; annual end-of-year reconciliations of 
the increased costs associated with the additional benefits added to be 
in compliance with this rule compared to capitation rates; requiring 
states to consult with MCOs to select appropriate proxy data prior to 
development of the capitation rates; or requiring a robust analysis of 
past and projected claims experience.
    Response: We believe that these comments stem from a perceived lack 
of transparency on the rate setting process in general, and that the 
majority of these concerns are not specific to this rule. These issues 
are beyond the scope of this rule; we note that we are working to 
increase the transparency and oversight of Medicaid managed care rate 
setting. We believe that the suggestions included in the comments are 
all helpful, but that no single approach will be appropriate for all 
states, and therefore, decline to require a specific methodology for 
including additional services required by parity into the capitation 
rates. States should work with their MCOs, PIHPs and PAHP as well as 
their actuaries when they develop their rates, which are required to be 
actuarially sound.
    Comment: One commenter expressed concern that the rate setting 
provisions in this rule may limit states' ability to pursue innovation, 
and stated that states should remain free to continue to allow MCOs to 
provide additional non-covered services, in-lieu of covered benefits, 
or value added additional benefits with their savings.
    Response: We do not believe that this rule limits a state's ability 
to pursue innovation by allowing MCOs to offer additional services not 
specified under the state plan or contract, commonly referred to as in-
lieu of benefits or value added benefits. States and MCOs are still 
permitted to provide these benefits under this rule. This final rule 
only specifies that states must include the cost of additional benefits 
necessary for compliance with parity in the capitation rate development 
process. Comments about the rate setting process in general are outside 
the scope of this final rule.
    Comment: CMS should articulate penalties for violations of parity 
and publish announcements about the remedies implemented and sanctions 
imposed to deter parity non-compliance.
    Response: In the proposed rule and as remains in the final rule, 
where there are services outside of the MCO contract that are needed to 
demonstrate compliance, the state is required to show how the MCO 
enrollees are expected to receive all the services needed to comply 
with the requirements in this rule. States would be able to do this by 
providing evidence of the other services provided through a FFS system, 
or included in contracts with other types of managed care entities such 
as through a PIHP or a PAHP. We would also expect that the state 
provide the analysis that shows services provided through the MCO meet 
the requirements of this final rule. We clarify our intent that this 
demonstration would be a precondition to CMS approval of the MCO 
contract under Sec.  438.6. If the state cannot provide evidence of 
this compliance outside of the MCO contract, then the state has not 
demonstrated that the contract complies with parity requirements and we 
will not approve the contract until evidence of compliance is provided. 
We may defer claims for FFP in expenditures for capitation rates paid 
based on unapproved MCO contracts in this circumstance.
    Comment: Some commenters expressed concern about the potential to 
defer FFP on MCO contracts when a carve-out delivery system is in place 
and the MCO is not the party that is determined to be out of 
compliance. These commenters requested that in these cases states be 
required to continue to pay the contracting plan actuarially sound 
capitation payments.
    Response: Payment obligations under contracts between the state and 
the MCO are governed by state law, and contracts are subject to CMS 
approval. States and plans will want to discuss payment arrangements to 
ensure both parties understand if and when payments to the MCOs may or 
may not be paid which could include instances where a compliance issue 
with these rules is discovered either in the MCO contract or another 
delivery system that the MCO enrollee receives services from.
    Comment: Several commenters recommend that CMS instruct states to 
establish specific capitation rates for children and adolescents due to 
concerns about assuring network participation for appropriate providers 
for that age range, recognizing other pediatric providers not typically 
considered MH/SUD providers, and accounting for appropriate utilization 
of MH/SUD services through EPSDT in those specific rate cells.
    Response: Current rules, at Sec.  438.6(c)(3)(iii), require that 
when states set actuarially sound rates they must apply rate cells by 
eligibility category, age, gender, locality and risk adjustment or 
explain why they are not applicable. We do not require states to use a 
specific rate cell structure when developing their rates for MCOs, 
PIHPs, and PAHPs. States will want to consider all factors of their 
program when determining their rate cell structure and ensure that it 
is done in compliance with the managed care rules and in consideration 
of anticipated utilization of a benefit package in compliance with this 
final rule.
    Comment: We received several comments about care coordination when 
states are using a carve-out system. This includes ensuring there is 
appropriate care coordination with providers of all types, including 
pediatric primary care providers, other managed care entities, and MH/
SUD providers. Commenters urged CMS to consider care coordination as 
service costs to ensure they are included in the costs when developing 
actuarially sound capitation rates.
    Response: Care coordination is typically considered part of the 
non-benefit costs when developing

[[Page 18420]]

actuarially sound capitation payments, though states have some ability 
to include care coordination as a service if they include targeted case 
management in the benefit package. When states develop their non-
benefit costs, including care coordination, states should consider the 
costs directly related to providing the services covered by the 
contract. Additionally, when states include targeted case management as 
a benefit, they must adequately price the service. Requiring states to 
account for care coordination as a service is outside the scope of this 
regulation.
    Comment: Some commenters requested that CMS provide additional 
guidance on care coordination with pediatric primary care providers and 
how states should require their plans to coordinate with these provider 
types.
    Response: We do not believe there is any one way to provide 
appropriate care coordination for individuals with MH/SUD conditions. 
However, we do agree that when services are better coordinated and all 
providers caring for the individual are informed of treatment planning, 
the beneficiary is likely to have better outcomes. Therefore, we 
encourage states to include contract provisions to ensure that MCOs, 
PIHPs and PAHPs work to coordinate among themselves and with providers 
to deliver an integrated set of benefits to enrollees. For more detail 
regarding care coordination in a Medicaid managed care environment, 
please refer to Sec.  438.208.
    Comment: We received several comments requesting that CMS 
prioritize oversight and transparency in the delivery of services, 
including pharmacy services and formulary design/benefit tiering. 
Commenters requested that CMS carefully monitor claims data to quickly 
identify and remedy any problems.
    Response: States provide the first level of oversight under this 
rule, and we expect states to monitor all aspects of service delivery 
to ensure compliance with this rule. We are always available for 
technical assistance to states for assistance in monitoring and if 
necessary to develop corrective action plans if issues are identified. 
In addition, we will review all areas of compliance with this rule, 
including whether the delivery of pharmacy services is compliant with 
parity requirements. As with other service classifications under this 
rule, states will be required to provide evidence that covered pharmacy 
benefits meet the requirements of this rule. We may consider using data 
reported through CMS claims and encounter data reporting systems to 
monitor service delivery, and we will work with states if any issues 
are identified.
    Comment: Some commenters expressed concern that plans and states 
may put in place additional administrative measures or limits on 
medical/surgical benefits as a way to comply with these rules. 
Commenters requested that we put in place a maintenance-of-effort 
provision, or a requirement that states and plans can only comply with 
this rule by reducing restrictions on MH/SUD services to ensure that 
plans are not able to use administrative processes to deny access to 
services.
    Response: MCOs must provide benefits in the same amount, duration, 
and scope as the benefits offered under the state plan. States may have 
some restrictions on services provided under their state plan, 
particularly services that are optional. If a state chooses to reduce 
or restrict the amount, duration or scope of covered medical/surgical 
services it must do so through an amendment to its state plan. When 
reducing benefits in the state plan, a state must meet sufficiency 
requirements, so any reduction in medical/surgical benefits must be 
reviewed and approved by CMS. Consistent with the experience we have 
seen in the commercial market around reductions of benefits, we believe 
that states will not typically choose to go through the state plan 
amendment process to reduce medical/surgical benefits in order to make 
it easier for MCO coverage to meet the requirements of this rule. As 
some commenters noted previously, states may also realize savings over 
time because of increased access to MH/SUD services.
    Comment: One commenter requested that CMS undertake an annual 
state-by-state analysis of benefit packages to determine that states 
and MCOs are in compliance with the requirements of this rule.
    Response: Although we agree that regular monitoring of the 
provisions of this rule is important, we do not agree that this needs 
to be done on an annual basis. All managed care contracts must be 
reviewed and approved to be in compliance with these rules. However, 
mature programs do not make frequent changes in their operation that 
would cause them to come out of compliance with this final rule. We may 
ask a state to affirm that the delivery system is still in compliance 
at any time, including during the state plan amendment process and 
annual contract reviews; further we will undertake reviews as needed. 
However, states will be permitted to attest that there are no changes 
in benefit design or requirements that affect parity compliance.
    Comment: A few commenters requested that additional reporting 
requirements be included to increase health plan transparency and 
enhance enforcement for NQTLs.
    Response: We believe that sufficient guidance exists regarding the 
recording of NQTLs in plan materials to provide transparency to 
beneficiaries and the public. We will make technical assistance 
available to states to help them develop strategies for providing 
proper oversight of parity requirements regarding the application of 
NQTLs to MH/SUD benefits.
    Comment: One commenter requested that CMS require states to share 
with MCOs the methodology the state used to determine that the delivery 
system was in compliance with this rule.
    Response: As states will be required to report publicly, under 
Sec.  438.920(b)(1), how they are complying with the requirements in 
this final rule in cases where not all benefits are provided through 
the MCO, we believe that MCOs will be able to see the information just 
as other stakeholders do. As plans in that delivery system (such as 
MCOs, PIHPs and PAHPs) will be reporting information to the state for 
the state to complete the analysis, the plans will have an opportunity 
to discuss the methodology with the state to report information; we 
anticipate that discussions will occur as the nature and extent of the 
analysis will determine the nature and scope of the underlying data 
needed from plans. We do not believe our regulation should require 
states to share the methodology with the plans just as we are not 
requiring the MCOs to share their methodology with the state in 
instances where all benefits are provided through the MCO through this 
rule.
    Comment: One commenter was concerned that CMS did not propose to 
include additional administrative funding within the capitated rate 
setting process to cover the costs of providing the additional services 
through the MCO, PIHP or PAHP.
    Response: As part of an actuarially sound rate setting process, 
states should cover the costs of providing what is included in the 
contract. If a state believes that additional administrative funding is 
necessary on the part of the MCO, PIHP or PAHP to provide any 
additional services necessary to comply with this rule, those costs 
should be included as part of their regular rate setting process.
    Comment: One commenter requested that CMS revise Sec.  438.6(n) to 
state that contracts must ``specify that services

[[Page 18421]]

must be provided in compliance with Subpart K'' as opposed to requiring 
that they ``ensure that enrollees receive services that are compliant 
with subpart K.''
    Response: We agree that the use of ``ensure'' when discussing 
contract provisions is not consistent with other provisions in Sec.  
438.6 and that it is more appropriate to target the requirement on the 
provision, rather than the receipt, of services. To be consistent with 
the phrasing throughout Sec.  438.6 and to address the commenter's 
concern that a contract cannot ensure that appropriate services are 
received, we are finalizing Sec.  438.6(n) with modifications to state 
that contracts must provide for services to be delivered in compliance 
with subpart K.
    Comment: One commenter encouraged state departments of insurance to 
take a stronger role in monitoring parity compliance. For example, the 
commenter requested that a report be made to the state department of 
insurance when a plan has medical necessity criteria that are more 
stringent than generally accepted medical standards.
    Response: We believe that states may choose to use a number of ways 
to monitor compliance with these rules. A state Medicaid agency may 
choose to use the state department of insurance to help monitor 
compliance, but we are not requiring this approach. It is not within 
the scope of this final rule to address how state departments of 
insurance may have a role in monitoring compliance by private insurers 
or group health plans with the tri-Department MHPAEA rules.
    Comment: One commenter requested CMS postpone the application of 
these rules until there is an opportunity for stakeholders to comment 
on the combined impact of these changes with the proposed changes to 
rate setting requirements included in the proposed rule titled 
``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'' (80 FR 31098 through 31297).
    Response: We do not believe that an opportunity for states and 
stakeholders to comment on the combination of these two proposed rules 
is needed. The changes proposed to Medicaid managed care rate setting 
in the proposed rule entitled ``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'' (80 FR 
31098 through 31297) are intended to increase the overall transparency 
of the rate setting process and should not impact the specific 
provisions of this rule. We have included the rate setting provisions 
that are specific to compliance with parity standards in this final 
rule.
    Comment: One commenter requested that CMS broaden the scope of the 
payment for services to MCOs so that it also includes payment to 
providers.
    Response: We believe that payment to providers is addressed through 
our discussion of NQTLs in this rule. Payments for services are 
negotiated between the health care provider and the MCO, PIHP, or PAHP, 
and plans and providers have the autonomy to negotiate payment rates so 
long as they are adequate to cover services in an amount, duration and 
scope that is at least equal to what is provided in the state plan 
which is consistent with Sec.  438.210.
    As indicated in the response to comments, we are finalizing the 
provisions regarding enforcement and managed care rate setting at Sec.  
438.6(e) and the provisions regarding contract review and approval at 
Sec.  438.6(n) as proposed, with the exception of the revision in Sec.  
438.6(n) to target contract requirements on the provision, rather than 
the receipt, of services.

P. Applicability and Compliance (Sec.  438.930, Sec.  440.395(d), Sec.  
457.496(f))

    The proposed rule noted that MCOs, PIHPs, PAHPs, and states would 
have up to 18 months after publication of the final rule to establish 
compliance with the provisions of the final rule before we would take 
enforcement action. Specifically, we proposed as follows:
     Managed care: Although the requirements of MHPAEA have 
applied to Medicaid MCOs through section 1932(b)(8) of the Act since 
2008, for Medicaid MCOs, PIHPs, or PAHPs with existing contracts, 
states would have to establish compliance with the specific provisions 
in this final rule no later than the beginning of the contract year 
starting 18 months after the publication of the final rule. New managed 
care contracts, or amendments, would be required to be compliant.
     ABPs: Although the requirements of MHPAEA have applied 
since January 1, 2014, states would have up to 18 months after the 
publication of the final rule to establish that its ABPs are compliant 
with provisions in the final rule.
     CHIP: The requirements of MHPAEA have applied to CHIP 
since October 1, 2009, however, states would have up to 18 months after 
the publication date of the final rule for CHIP plans to establish 
compliance with provisions in the final rule.
    Comment: Commenters recommended a range of timeframes for states to 
come into compliance with these final regulations from 6 months to 24 
months. Many of these commenters suggested that states that illustrate 
that they are making a good faith effort at compliance should be 
granted an extension no matter what the final rule states in terms of 
timeline for compliance. Several commenters noted that they believed 
the 18-month timeline would be sufficient to come into compliance. One 
commenter noted that the rules lacked a timeline for CMS to complete 
its review and approval process for state compliance. Depending on 
policies and structures, states will need to conduct thorough policy 
analysis and may need state plan amendments, systems changes and 
contract revisions.
    An overwhelming number of commenters urged CMS to shorten the 
timeframe for states to come into compliance with the parity rules. 
Many referenced the fact that the proposed rule comes more than 5 years 
after the MHPAEA parity protections were applied to MCOs in 2008. 
States have been aware since passage of MHPAEA that its requirements 
apply to Medicaid MCOs and CHIP programs. Additionally states have 
known that these requirements apply to Medicaid ABPs since the passage 
of the Affordable Care Act in 2010. Recommendations to CMS from these 
commenters proposed a range of 6 to 12 months for states to come into 
compliance with this final regulation.
    Several commenters recommended to CMS that health plans and their 
subcontractors not be penalized as a result of a state Medicaid agency 
experiencing delays in implementing the final rule in the required 
timeline. Additionally, it was requested that CMS allow plans an 
additional six months after a state has completed the parity analysis 
and developed the necessary standards to come into compliance.
    Response: We are finalizing Sec.  438.930 with a modification from 
the proposed text; Sec.  438.930, as finalized, states that contracts 
with MCOs, PIHPs, and PAHPs offering Medicaid state plan services to 
enrollees, and those entities, must comply with the requirements of 
this subpart no later than 18 months after the date of publication of 
this final rule. The proposed rule required such compliance no later 
than the beginning of the contract year starting 18 months after the 
date of publication of this final

[[Page 18422]]

rule. Because a contract year could begin just before the date of 
publication of this final rule, the proposed rule could potentially 
have allowed a plan an additional period of up to 12 months beyond 
expected compliance date (that is, roughly 18 months after the 
publication date of this final rule) before being subject to any CMS 
enforcement action. Therefore, this change responds to commenter 
concerns about delays in implementation by ensuring that necessary 
changes are implemented no more than 18 months after the date of 
publication of this final rule. This change also aligns the compliance 
date for MCOs, PIHPs, and PAHPs with the compliance dates proposed for 
ABPs and CHIP, finalized here in Sec.  440.395(e)(4) and Sec.  
457.496(g). We note that it is common practice for states to amend MCO 
contracts mid-year, so we do not anticipate that it will cause an undue 
burden to states to make any needed changes to their MCO, PIHP, or PAHP 
contracts by the stated compliance date.
    For ABPs and CHIP, we will finalize the proposed policy to allow 18 
months from the publication date of this final rule for states to 
establish compliance with the provisions of this final rule. While we 
understand that many commenters believe that states and MCOs should be 
complying with parity given the statute and subregulatory guidance, we 
believe that the regulations will require states and plans to make 
additional changes to their benefits and how they manage these 
benefits. In addition, the major reasons for allowing states 18 months 
to establish compliance with these rules are still relevant, including 
states' ability to get the necessary information to perform the parity 
analysis across delivery systems. As noted in other sections of the 
preamble, we may decline to approve MCO contracts and defer FFP if the 
state cannot establish that the benefits and delivery system are 
compliant with these rules. States may want to consider including 
penalties in their contracts if it is found that one of the managed 
care plans is the reason for the non-compliance.
    Comment: Many commenters suggested that CMS include in the final 
rule language describing the CMS process for review and oversight of 
state attestations of compliance including benchmarks for states to 
follow for complying with this final regulation. The commenters 
recommended that benchmarks include the state's actions to bring 
coverage into compliance with the final regulation. Recommended actions 
included having all MCO contracts implemented or renewed prior to the 
deadline in order to fully comply, ensuring that all FFS CHIP and ABP 
coverage meets parity and that states have taken all steps for 
compliance except some of the more time consuming steps such as 
renegotiating MCO contracts or passing authorizing legislation.
    Response: We understand the utility of providing states with 
guidance about the states' role in ensuring that compliance is achieved 
in a timely manner. We have procured a contractor to provide technical 
assistance as requested by the states that may include toolkits or 
guidance regarding the creation of a parity implementation plan.
    As indicated in the response to comments, we are finalizing the 
provisions regarding applicability and compliance at Sec.  438.930, 
Sec.  440.395(d), Sec.  457.496(f) as proposed, with two exceptions. 
First, we are finalizing the ABP compliance provision with a different 
paragraph designation, Sec.  440.395(e). Second, we are modifying the 
MCO compliance provision to align with the timing in final Sec.  
440.395(e) and Sec.  457.496(g), applicable to ABPs and CHIP 
respectively.

Q. Utilization Control

    Current Medicaid regulations concerning utilization control include 
requirements for the review of need for admission into mental hospitals 
(Sec.  456.171). These regulations specifically require medical and 
other professionals within the Medicaid agency (or its designee) to 
evaluate each beneficiary's need for admission into inpatient services 
in a mental hospital. There is not a similar requirement for the 
Medicaid agency to review each beneficiary's medical/surgical admission 
to other hospitals. States have indicated that this regulation presents 
challenges to achieving parity for inpatient services rendered in a 
mental hospital. We proposed to eliminate Sec.  456.171 (namely, the 
current regulatory language that requires Medicaid agencies to evaluate 
each applicant's or beneficiary's need for admission into inpatient 
services in a mental hospital by reviewing and assessing the hospital's 
medical, psychiatric and social evaluations). A state could continue 
these evaluations, but would have to ensure that the standards and 
processes are consistent with the provisions in this regulation 
regarding nonquantitative treatment limits when parity requirements 
under this rule are applicable.
    Comment: Several commenters supported the elimination of the 
requirement at Sec.  456.171 regarding the Medicaid agency review of 
the need for admission to a mental hospital. The commenters supported 
the elimination of required review for inpatient admissions because the 
requirement would be inconsistent with the proposed rule's provisions 
that utilization management techniques need to be applied in a 
comparable and no more restrictive manner with respect to mental health 
and substance use services as compared to medical/surgical services.
    Response: This final rule removes the Medicaid regulation at Sec.  
456.171 which prescribed requirements for medical and other 
professionals within the Medicaid agency (or its designee) evaluating 
the need for admission of each applicant or beneficiary into inpatient 
services in a mental hospital. The Medicaid agency (or its designee) 
was required to review and assess the hospital's medical, psychiatric, 
and social evaluations. There was not a similar requirement for the 
Medicaid agency to review the hospital's evaluation of each applicant's 
or beneficiary's need for medical/surgical admissions. As a result, 
this requirement presented a challenge to achieving parity for 
inpatient services rendered in a mental hospital.
    Comment: Some commenters opposed the elimination of the requirement 
at Sec.  456.171. Specifically, the commenters believed in the 
importance of this pre-admission evaluation to protect individual 
rights, which is also required under state law. The commenters 
recognized that the proposed rule allowed states to continue these 
evaluations as long as the standards and processes for nonquantitative 
treatment limitations are also met, but were concerned that this may 
prove difficult to impossible to do. The commenters were concerned that 
removing the ability for appropriate evaluation of inpatient admissions 
could remove a certain level of protection for the individual that the 
regulation currently provides.
    Another commenter recommended against the elimination of 
evaluations of medical necessity of inpatient psychiatric hospital 
admissions proposed within the proposed regulations. The commenter 
maintained that the elimination of these evaluations could compromise 
states' and MCOs' ability to ensure that the services provided are 
necessary and appropriate within the context of the entire spectrum of 
behavioral health care provided within the state.
    Response: This final rule eliminates the requirement at Sec.  
456.171. Eliminating this requirement will still allow states to 
evaluate individuals

[[Page 18423]]

need for admission to inpatient psychiatric facilities. However the 
factors used in states' reviews of the inpatient hospital evaluations 
for admission must be comparable to and applied no more stringently 
than factors used in applying the limitation for medical surgical/
benefits in the classification. As stated in this final regulation, 
factors mean the processes, strategies, evidentiary standards, or other 
considerations used in determining limitations on coverage of services. 
The phrase ``applied no more stringently'' requires that any processes, 
strategies, evidentiary standards, or other factors that are comparable 
on their face be applied in the same manner to medical/surgical 
benefits and MH/SUD benefits.
    Comment: One commenter recommended removing the federal 
preadmission requirement from 42 CFR part 441 Subpart D, Inpatient 
Psychiatric Services for Individuals Under Age 21 in Psychiatric 
Facilities or Programs. In addition, this commenter requested CMS use 
precise language to avoid confusion and misperceptions that Institution 
for Mental Disease (IMD) exclusion does not apply to children under 21.
    Response: To clarify, the final rule does not make changes to the 
certification of need and other requirements applicable to the 
Inpatient Psychiatric Services for Individuals under Age 21 benefit 
described at Sec.  440.160 and Subpart D Sec.  441.150 through 441.182. 
The Inpatient Psychiatric Services for Individuals under Age 21 benefit 
remains an exception to the IMD exclusion.
    As indicated in the response to comments, we are finalizing the 
removal of Sec.  456.171 as proposed.

R. Institutions for Mental Disease

    The IMD exclusion is a statutory prohibition on providing Medicaid 
matching funds for services provided to individuals aged 21 to 64 who 
are inpatients in IMDs. IMDs are defined in statute as any hospital, 
nursing facility, or other institution of more than 16 beds, that is 
primarily engaged in providing diagnosis, treatment, or care of persons 
with mental diseases, including medical attention, nursing care, and 
related services. This exclusion has been in place since Medicaid was 
established in 1965 and was based on amendments to the statute that 
predated Medicaid and prohibited cash assistance payments for services 
for individuals in IMDs. The proposed regulation did not address the 
IMD payment exclusion. We received several comments on the 
applicability of this regulation on our IMD payment policy. While we 
understand commenters' concerns, we are not making changes to this rule 
on this topic for the reasons set forth below.
    Comment: Many commenters suggested that CMS revisit IMD policies. 
The commenters stated that the Medicaid payment exclusion for services 
in IMDs is a barrier to equitable access to inpatient behavioral health 
services. The commenters indicated that federal action is needed to 
remove this obstacle to parity and ensure Medicaid programs can meet 
the needs of beneficiaries with mental health and substance use 
disorders across the continuum of care. Several commenters recommended 
that CMS pursue congressional action to repeal or grant exceptions to 
the IMD exclusion for psychiatric patients admitted emergently to 
acute, short-stay psychiatric hospitals regardless of their bed size. A 
few commenters recommended that the final rule should clearly state 
that the IMD exclusion does not or should not apply to SUD residential 
or detoxification services or psychiatric patients admitted to crisis 
stabilization or other short-term residential rehabilitation services 
regardless of bed size. Another commenter indicated that the IMD 
exclusion precludes providers from creating specialized, centers of 
excellence for treating mental health and substance use disorders when 
24-hour care is needed.
    Response: The text following section 1905(a)(29) of the Act 
provides that FFP 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, FFP is 
generally unavailable for the cost of services (regardless of whether 
the services address physical or mental health) provided either inside 
or outside the IMD while the individual is a patient in the facility.
    Comment: Several commenters were concerned about the IMD exclusion 
from a parity standpoint because there is no comparable restriction for 
medical/surgical benefits, and therefore, the exclusion unnecessarily 
serves to limit access to services based upon a quantitative 
restriction. Other commenters requested guidance about how to apply the 
IMD exclusion alongside this rule's guidance that restrictions based on 
facility type are a NQTL. Commenters also requested information about 
how parity protections apply to the full range of MH/SUD services 
typically provided in facilities that fall under the IMD exclusion.
    Response: The payment exclusion for Medicaid services provided to 
beneficiaries in IMDs is a statutory requirement established by the 
Congress in 1965 and therefore beyond the scope of this regulation. The 
full range of covered services, including MH/SUD services, could be 
provided to beneficiaries when they are in facilities that are not 
IMDs.
    Comment: Several commenters recommended reconciling the IMD 
exclusion with the parity rules in the ABP context by interpreting the 
Medicaid statute as not applying the IMD exclusion to ABPs. The 
commenters maintained that CMS's current position is inconsistent with 
section 1937 of the Act, which provides that ABP coverage is provided 
notwithstanding * * * any other provision of Title XIX that ``would be 
directly contrary to [section 1937].'' These commenters also state that 
section 1937 of the Act requires that ABPs cover EHBs, which must 
include MH/SUD services based on the benefits in a commercial benchmark 
plan that is likely to cover some services in psychiatric hospitals or 
other facilities that would be considered IMDs.
    Response: States must offer services under ABPs that reflect the 
ten EHB categories, including MH/SUD services (42 CFR 440.347). As this 
final rule states, we did not intend to require states to include 
specific services within EHB categories offered through an ABP. Nor did 
we specifically require coverage of any particular inpatient or 
residential mental health services or treatment settings as part of 
``inpatient services'' provided that the coverage complies with MHPAEA 
parity requirements. States may, however, be required to provide 
inpatient or residential mental health services that are included in 
the section 1937 coverage plan that is the basis for the ABP, or that 
are included in the base-benchmark plan selected by states to define 
EHBs for Medicaid. We clarified in the preamble of the final rule 42 
CFR part 440 published in the Federal Register on July 15, 2013 (78 FR 
42197) and we clarify for this rule that the IMD payment exclusion 
applies to all medical assistance, even medical assistance furnished 
through an ABP. To provide required coverage, a state may thus have to 
demonstrate that the coverage of inpatient (residential) mental health 
services is provided in integrated environments that include treatment 
of both physical and mental health conditions and patients. Finally, we 
clarify that the requirement that all ABPs comply with MHPAEA parity

[[Page 18424]]

requirements includes compliance with MHPAEA requirements regarding 
treatment limits.
    Comment: Many commenters requested that CMS clarify how parity 
could be achieved given the coverage and payment exclusion for services 
to individuals in IMDs. The commenters requested clarification on 
access to out-of-network benefits where networks are inadequate.
    Response: To clarify, in a Medicaid managed care environment, if a 
provider network is unable to provide necessary services covered under 
the contract to a particular enrollee, the MCO, PIHP, or PAHP must 
adequately (and on a timely basis) cover these services out-of-network 
for the enrollee as long as the MCO, PIHP, or PAHP is unable to provide 
them in-network. Therefore if a beneficiary needs a specific service 
covered under the contract but the service or provider is not available 
in the current network, such as inpatient mental health services, the 
MCO, PIHP, or PAHP will need to cover such services in a non-network 
hospital that provides inpatient mental health services. However, the 
IMD payment exclusion would apply regardless of whether the facility 
that provides inpatient mental health services is in network or out-of-
network.
    Comment: Several commenters requested guidance about how to align 
parity requirements with policies that will be finalized regarding IMDs 
in the Medicaid managed care proposed rule.
    Response: Because the proposed rule, 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 (80 FR 31098 
through 31297) has not yet been finalized, we are unable to comment on 
the alignment of those requirements with this final rule at this time. 
When the Medicaid managed care rule is finalized, CMS will provide 
guidance and technical assistance as needed to help states understand 
the interplay between the requirements of these rules.
    Comment: A few commenters urged CMS to continue to examine, through 
the Medicaid Emergency Psychiatric Demonstration project, whether 
eliminating or restricting the scope of the IMD exclusion can improve 
access to care and help reduce costs.
    Response: In December 2013, we provided an interim Report to 
Congress on the Medicaid Emergency Psychiatric Demonstration 
project,\9\ and we will submit a final report in 2016. This report will 
provide information on the impact that this demonstration project had 
on access to care and the cost of these services.
---------------------------------------------------------------------------

    \9\ This interim report can be accessed online at http://innovation.cms.gov/files/reports/mepd_rtc.pdf.
---------------------------------------------------------------------------

    For the reasons indicated in the response to comments, we do not 
include provisions in the final rule that are specific to IMDs.

S. Medicare-Medicaid Dual Eligible Beneficiaries

    We received a number of comments about individuals who are dually 
eligible for both Medicaid and Medicare and the provision of both 
Medicaid and Medicare benefits to such beneficiaries. Mental health 
parity requirements under section 2726 of the PHS Act do not apply to 
Medicare Parts A, B, or D services covered by Medicaid MCOs, such as 
those covered by integrated plans for Medicare-Medicaid beneficiaries. 
The proposed rule noted that Medicare benefits are controlled by the 
Medicare statute and regulations, which are not within the scope of 
this rule.
    Comment: Several commenters stated that it would be impractical, if 
not impossible, to isolate Medicare benefits from Medicaid benefits for 
the purposes of determining which aspects of a Medicare-Medicaid 
integrated care model must comply with MHPAEA. Other commenters noted 
that administrative difficulties that could arise under the proposed 
policy, including the complexity of applying NQTL standards to drugs 
covered by Medicaid but not covered by Medicare Part D. The commenters 
raised concerns that situations like this could result in increased 
fragmentation at a time when CMS has taken steps to better integrate 
coverage for Medicare-Medicaid beneficiaries. The commenters encouraged 
CMS to ensure that a beneficiary's entire benefit package of items and 
services meets parity standards, regardless of the entity or program 
that is responsible for financing the care, stating that this approach 
would ensure equitable access to MH/SUD by beneficiaries across all 
programs, and would also support issuers and states in meeting 
compliance standards.
    Response: The MHPAEA statute does not apply to Medicare, and we 
lack the statutory authority to apply this rule to Medicare benefits. 
In states participating in the CMS Financial Alignment Initiative that 
are implementing a capitated model in which beneficiaries are enrolled 
in managed care plans, we will provide technical assistance as needed 
about how to structure and assess those plans for compliance with 
MHPAEA.
    For the reasons indicated in the response to comments, we do not 
include provisions in the final rule that are specific to coverage 
provided to Medicare-Medicaid beneficiaries.

IV. Summary of Changes

    For the most part, this rule finalizes the provisions of the 
proposed rule. Those provisions of this final rule that differ from the 
proposed rule are as follows:
     We have revised the definitions in Sec.  438.900, Sec.  
440.395(a) and Sec.  457.496(a) so that long term services are included 
in the definition of medical/surgical benefits, mental health benefits, 
and substance use disorder benefits and that the provisions of this 
final regulation apply to these services.
     We are finalizing Sec.  438.910(b)(2), Sec.  
440.395(b)(2)(ii) and Sec.  457.496(d)(2)(ii) with a modification that 
requires the standards used to assign mental health/substance use 
disorder benefits to a classification be reasonable as well as the same 
as the standards used for medical/surgical benefits.
     We have revised Sec.  438.910(d)(3) and Sec.  
457.496(d)(5) to eliminate the deeming provision; as finalized these 
rules do not provide that MCOs or CHIP state plans will be deemed in 
compliance with parity solely based on adherence to Sec.  
438.206(b)(4); this revision clarifies that the requirements of these 
two provisions are complementary.
     We have also revised the language in Sec.  438.910(d)(3) 
and Sec.  457.496(d)(5), as proposed it included a requirement to use 
the ``same'' standards regarding access to out-of-network providers, to 
more closely align with the general requirement for NQTLs; the rule is 
finalized to require the use of ``comparable'' standards.
     We have revised Sec.  438.6(n) to require MCO contracts to 
provide for services to be delivered in compliance with this rule and 
new subpart K, rather than requiring those contracts to ensure that 
enrollees actually receive such services.
     We have modified Sec.  438.905(a) to change the heading 
and delete designation of (a)(1).
     We have revised Sec.  438.920(b)(1) to clarify that states 
have to review both medical/surgical benefits and MH/SUD benefits when 
completing the parity analysis. We have also specified in Sec.  
438.920(b)(1) that information on compliance with the rule must be made

[[Page 18425]]

available on a state's Web site, that such documentation must be 
provided within 18 months of the date of publication of this final 
rule, and that the documentation must be updated with any change in 
MCO, PIHP, PAHP or Medicaid state plan benefits. Minor revisions have 
also been made to the wording of this provision.
     We have revised Sec.  438.920(b)(2) to require the state 
to ensure that all services be delivered to the enrollees of the MCO in 
compliance with this rule, regardless of whether the MCO covers all 
services or only a portion of the services.
     We have modified Sec.  438.930 to provide that contracts 
with MCOs, PIHPs, and PAHPs offering Medicaid state plan services to 
enrollees, and those entities, must comply with the requirements of 
this subpart no later than 18 months after the date of publication of 
this final rule, regardless whether that date is the start or middle of 
a contract year.
     Consistent with the statute, we have added a new provision 
at Sec.  440.395(c) to state that when ABPs are offering EPSDT 
services, they will be deemed in compliance with parity. We have also 
redesignated the remaining paragraphs and references accordingly.
     We have modified Sec.  440.935(d)(1) to replace 
``Alternative Benefit Plans'' with ``ABPs'' in the heading.
     We have revised 440.395(e)(2) to reflect that Essential 
Health Benefits are defined to potentially include more than the 
minimum 10 EHBs.
     We have modified Sec.  457.496 throughout to replace 
``CHIP state plans'' with ``state plan.''
     We have added clarifying language to the definition of 
EPSDT benefits within Sec.  457.496(a) to indicate that states must 
provide services described in section 1905(r) of the Act in manner that 
is compliant with section 1902(a)(43) of the Act.
     We have modified Sec.  457.496(b) to specify the 
requirements states must follow in order for their separate CHIP to be 
deemed compliant with the MHPAEA parity requirements. These 
modifications include not excluding benefits on the basis of condition 
or diagnosis, and including a description of their efforts to comply 
with the deeming requirements within the state plan.. We also provide 
that if a state has elected in its state child health plan to cover 
EPSDT benefits only for certain children eligible under the state child 
health plan, the state is deemed compliant with this section only with 
respect to such children.
     We have modified Sec.  457.496(d)(5) to refer to 
``providers for mental health or substance use disorder benefits'' 
instead of ``providers for mental health and substance use disorder 
benefits.''
     We have modified Sec.  457.496(f)(1) to specify that 
states must describe the standard being used to define medical/
surgical, MH, and SUD benefits in their state plan.
     We have modified Sec.  457.496(f)(1) to replace ``State 
Medicaid agency'' with ``State.''
     We have added a new Sec.  457.496(f)(1)(i) and (ii) and 
redesignated the remaining provisions of this section.
     We have revised the regulatory text as applicable 
throughout to replace the acronym ``MH/SUD'' with the full phrase 
``mental health and substance use disorder'' or ``mental health or 
substance use disorder

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. To 
fairly evaluate whether an information collection should be approved by 
OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment 
on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In our April 10, 2015, proposed rule (80 FR 19418) we solicited 
public comment on each of the section 3506(c)(2)(A) required issues for 
the following information collection requirements. PRA-related comments 
were received as indicated below in section V.D. under ``Comments 
Associated with the Proposed Collection of Information Requirements.'' 
While the changes that were made as a result of these comments did not 
revise the majority of the proposed requirements and burden estimates, 
burden for the requirements under Sec.  438.920 (specific to performing 
and posting the parity analysis on the state's Web site) have been 
added to this final rule based on the comments received. Commenters 
raised concerns that the cost analysis of the proposed rule fails to 
consider the administrative cost to the states of providing MH/SUD 
services through MCOs and through FFS delivery systems. The proposed 
rule did not set forth such burden since we requested comments on our 
proposed approach.

A. Wage Estimates

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' (BLS) May 2014 National Occupational Employment and Wage 
Estimates for all salary estimates (www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 2 presents the mean hourly wage, 
the cost of fringe benefits, and the adjusted hourly wage.

                                        Table 2--Hourly Wage Estimates *
----------------------------------------------------------------------------------------------------------------
                                                                                  Fringe benefit
                Occupation title                    Occupation      Mean hourly   (at 100%) (per     Adjusted
                                                       code            wage            hour)        hourly wage
----------------------------------------------------------------------------------------------------------------
Business Operations Specialists.................         13-1000          $33.69          $33.69          $67.38
Medical Secretaries.............................         43-6013           16.12           16.12           32.24
Social Scientists and Related Workers...........         19-3099           38.48           38.48           76.96
----------------------------------------------------------------------------------------------------------------
* The wage estimates from the proposed rule have been revised to account for more recent BLS data.

    We have adjusted all 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

[[Page 18426]]

a reasonably accurate estimation method.

B. Information Collection Requirements (ICRs)

1. ICRs Regarding the Availability of Information and the Criteria for 
Medical Necessity Determinations (Sec.  438.915(a), Sec.  
440.395(c)(1), and Sec.  457.496(e)(1))
    Sections 438.915(a), 440.395(c)(1), and 457.496(e)(1) require that 
the medical necessity determination criteria used by regulated entities 
for MH/SUD benefits be made available to potential participants, 
beneficiaries, or contracting providers upon request.
    In the tri-Department MHPAEA final rule, the regulatory impact 
analysis (78 FR 68253 through 68266) quantified the costs for health 
insurance issuers and group health plans to disclose medical necessity 
criteria. For consistency and comparability, we are using the same 
method for determining this rule's disclosure costs, with adjustments 
to account for Medicaid MCOs, PIHPs and PAHPs, ABPs and CHIP, and the 
population covered.
    Labor Costs for Medical Necessity Disclosures. Consistent with our 
proposed rule, we are unable to estimate with certainty the number of 
requests for medical necessity criteria disclosures that will be 
received by regulated entities. While we did not receive any public 
comments on this point, the MHPAEA final rule's impact analysis set 
forth assumptions that we believe are relevant for calculating costs 
for the Medicaid and CHIP program. The impact analysis assumed that 
each plan would receive 3 medical necessity criteria disclosure 
requests for every 1,000 beneficiaries. This assumption equated to 
0.003 requests per enrollee which was applied to the number of 
beneficiaries enrolled in Medicaid MCOs (33.1 million), ABP (8.7 
million) and CHIP (5.7 million) to project 142,403 expected requests 
(99,328 for MCOs + 26,100 for ABPs +16,975 for CHIP).
    To estimate the time it will take medical staff to respond to each 
request, we used the assumption in the MHPAEA final rule's impact 
analysis. Specifically, we assumed that it took a staff member (in this 
case, a medical secretary) 5 minutes to respond to the request. In this 
rule, this results in a total annual burden of 11,867 hours (142,403 
requests x 5 min/60) at a cost of $382,592.08 (11,867 hours x $32.24/
hour) for all Medicaid and CHIP programs. The state costs for this 
burden is $153,037 (state match is 40 percent of costs).
    Mailing and Supply Costs. The MHPAEA final rule's impact analysis 
estimated that 38 percent of the requests would be delivered 
electronically with de minimis cost. The remaining requests would 
require materials, printing, and postage amounting to approximately 66 
cents per request. We believe that the same mailing and supply costs 
per request will apply to the disclosure requirements of this rule. As 
shown in Table 3, mailing and supply costs are $58,272 (88,291 
responses x $.66). State share for this cost is $23,309. Total state 
share costs are $176,346 ($153,037 in labor costs and $23,309 in 
mailing costs)
    Table 3 also displays the added burden estimates, nationally and 
per program, for Medicaid MCOs and CHIP to comply with the medical 
necessity determination criteria's disclosure procedures. These 
estimates reflect the requests for medical necessity determination 
criteria's disclosure procedures by beneficiaries or contracting 
providers. The number of enrollees for MCOs/HIOs is based on the CMS 
national breakout as of July 2012 while the number for ABPs is based on 
the estimated enrollment growth due to Medicaid expansion (``National 
Health Expenditure Projections 2012-2022,'' CMS).\10\ CHIP enrollment 
is based on Medicaid and CHIP Payment and Access Commission's 2014 
estimates.
---------------------------------------------------------------------------

    \10\ Estimates are based on the most recent data available at 
the time of the analysis.

                   Table 3--National and per Program Burden for the Medical Necessity Determination Criteria's Disclosure Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                              expected                                   Mailed
                                                              requests     Time (@5                    responses   Mailing and
                  Plan type                     Number of      (0.003        min/       Labor cost      (62% of    supply cost   Total cost  State costs
                                                enrollees     requests    response)    ($)@$32.24/hr    expected    ($)@$0.66/                    *
                                                                per        (hours)                     enrollees)    mailing
                                                             enrollee)
--------------------------------------------------------------------------------------------------------------------------------------------------------
MCO/HIO......................................   33,109,462       99,328        8,277     $266,850.48       61,584      $40,645     $307,496     $122,998
ABP..........................................    8,700,000       26,100        2,175       70,122.00       16,182       10,680       80,802       32,321
CHIP.........................................    5,658,460       16,975        1,415       45,619.60       10,525        6,947       52,567       21,027
                                              ----------------------------------------------------------------------------------------------------------
    Total....................................   47,467,922      142,403       11,867      382,592.08       88,291       58,272      440,865      176,346
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Submitting Requests for Medical Necessity Disclosures (Potential 
Participants, Beneficiaries, and Contracting Providers). Table 4 
displays the added burden estimates, nationally and per program, for 
Medicaid and CHIP potential participants, beneficiaries and providers 
to request the medical necessity determination criteria. It is 
difficult to determine the financial impact on providers since the 
proportion of providers that would submit this request is unknown and 
the staff costs in these agencies would vary based on the level of 
professional (physician, licensed clinician, or medical claims staff) 
that may request this information.

[[Page 18427]]



  Table 4--National and per Potential Participant, Beneficiaries and Provider Burden for the Medical Necessity
                                Determination Criteria's Disclosure Requirements
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                                                                                     expected
                                                                     Number of       requests     Time (@15 min/
                            Plan type                                enrollees        (0.003         request)
                                                                                   requests per       (hours)
                                                                                     enrollee)
----------------------------------------------------------------------------------------------------------------
MCO/HIO.........................................................      33,109,462          99,328          24,832
ABP.............................................................       8,700,000          26,100           6,525
CHIP............................................................       5,658,460          16,975           4,244
    Total.......................................................      47,467,922         142,403          35,601
----------------------------------------------------------------------------------------------------------------

    The aforementioned requirements and burden will be submitted to OMB 
for approval under control number 0938-1280 (CMS-10556).
2. ICRs Regarding the Availability of Information and Reason for Any 
Denial (Sec. Sec.  438.915(b), 440.395(c)(2), and 457.496(e)(2))
    MHPAEA requires that the reason for any denial--under a group 
health plan or health insurance coverage--of reimbursement or payment 
for MH/SUD benefits must be made available (upon request or as 
otherwise required) by the plan administrator (or the health insurance 
issuer) to the beneficiary in accordance with MHPAEA regulations (45 
CFR 146.136(d)(2)).
    This final rule only addresses disclosure of information concerning 
the denial of reimbursement or payment for MH/SUD benefits. We believe 
that these requirements are already met by complying with existing 
disclosure requirements in parts 438 and 431, and therefore, do not 
create any new or revised requirements or burden beyond what is 
currently approved by OMB under control number 0938-1080 (CMS-10307). 
We also believe that these requirements are already met for CHIP by 
complying with existing notification and disclosure requirements in 
Sec.  457.110 and Sec.  457.1130, and therefore, do not create any 
requirements or burden beyond what is currently approved by OMB under 
control number 0938-1148 (CMS-10398 #34) (formerly, CMS-R-211, control 
number 0938-0707). For ABPs, these provisions do not create any new or 
revised third-party disclosure requirements beyond what is currently 
approved by OMB under control number 0938-1188 (CMS-10434).
3. ICRs Regarding Parity in Mental Health and Substance Use Disorder 
Benefits in Alternative Benefit Plans (Sec.  440.395)
    When a state plan provides for an ABP, the state must provide 
sufficient information in an ABP state plan amendment (Sec.  440.300) 
request to assure compliance with the requirements of (Sec.  
440.395(e)(3)), including the application of parity to treatment 
limitations as addressed in this rule. The ABP state Plan Application 
is employed by states to identify benefits offered to Medicaid 
beneficiaries receiving services under section 1937 of the Act. The 
application requires that states identify the MH/SUD services that will 
be offered under the plan. The plan also collects information on any 
limitations (quantitative and nonquantitative treatment limitations) 
and financial requirements across all benefit categories (including all 
medical/surgical services).
    The parity requirements in Sec.  440.395 do not impose any new or 
revised reporting, recordkeeping, or third-party disclosure 
requirements for 10 or more states since only one state and three 
territories operates their ABP state plan in FFS, and therefore, do not 
require additional OMB review under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). These states that 
operate the ABP programs in a fee-for-service only delivery system 
would not have to perform an additional parity analysis across the 
various delivery systems. States that operate their ABP programs 
through a managed care arrangement would be required to attest that 
they are compliant with parity, and to solicit comments on their ABP 
state plan (which includes requests for comments on this attestation), 
but that attestation is in an existing PRA: OMB under control number 
0938-1188 (CMS-10434). While states are required to solicit public 
comment, we maintain that the information collection requirement is 
exempt from the requirements of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501 et seq.) since we estimate fewer than ten annual 
respondents (5 CFR 1320.3(c)). As ABPs are most often used by states to 
expand Medicaid to the adult population, we project that this would 
apply to no more than 1 to 2 states per year.
4. ICRs Regarding State Plan Amendments (SPAs)
    This rule does not impose any new or revised SPA-specific 
reporting, recordkeeping, or third-party disclosure requirements and 
therefore does not require additional OMB review under the authority of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The rule 
does not require a state to amend its current non-ABP SPA since states 
have the option of including additional services necessary to meet 
parity requirements in the MCO, PIHP or PAHP contracts. The burden for 
amending such contracts is set out below under Sec.  438.6(n).
    The currently approved ABP SPA template was designed to capture the 
MHPAEA final rule classifications and identify if there are specific 
treatment limitations or financial requirements. The ABP SPA template's 
information collection requirements and burden are not affected by this 
rule and are approved by OMB under control number 0938-1188 (CMS-
10434).
    States are required to review their respective CHIP state plans to 
determine if they are in compliance with federal law, and states must 
submit a CHIP SPA to make the necessary changes to the state plan to 
comply with changes in federal law as described in Sec.  457.60(a). 
Section 502 of the CHIPRA amended section 2103(c) of the Act, which was 
described in SHO letters #09-014 and #13-001. Many states have 
performed parity analyses based on that guidance and submitted SPAs to 
come into compliance with MHPAEA.
    However, as described in section III. G of this final rule, we plan 
on developing state plan pages specific to MHPAEA, so all states with a 
separate CHIP must submit a SPA to update their state plan. We 
anticipate that up to 42 states will need to submit a SPA, which may 
add up to 160 hrs. of additional burden on states based on the 
estimated burden of submitting a SPA (80 hrs.)

[[Page 18428]]

approved by OMB under control number 0938-1148 (CMS-10398 #34) 
(formerly CMS-R-211, control number 0938-0707). This additional SPA 
burden is estimated to cost $12,313.60 (160 hrs x $76.96/hr.) for a 
social science analyst to submit a complete SPA package; however, the 
final costs for the states will be much lower because in CHIP it is 
important to take into account the Federal government's contribution to 
the cost of administering CHIP. States receive an enhanced FMAP for 
administering their CHIP program that now includes a 23 percentage 
increase beginning in FFY 2016, which was maintained through the 
passage of the Medicare Access and CHIP Reauthorization Act of 2015 
(MACRA). The average enhanced FMAP has increased to 92.7 percent, 
decreasing the state's share of this additional burden to a nominal 
cost of $898.89 ($12,313.60 x 0.073). When ready, the SPA template 
along with the associated requirements and burden will be submitted to 
OMB for approval under control number 0938-1148 (CMS-10398 #34). This 
is a preliminary estimate that is based on our experience with existing 
SPA templates.
5. ICRs Regarding State Health Official (SHO) Letters SHO #09-014 
(November 4, 2009) and SHO #13-001 (January 16, 2013)
    The January 2013 SHO letter addressed the application of the MHPAEA 
requirements in Medicaid and expanded upon the CHIP guidance that was 
provided in the November 2009 letter regarding section 502 of CHIPRA. 
Since the letters are discussed in section II.A. of this final rule (as 
background), we wish to clarify that this rule does not include any new 
or revised reporting, recordkeeping, or third-party disclosure 
requirements pertaining to either of the letters. Consequently, the PRA 
does not apply.
6. ICRs Regarding Contract Requirements (Sec.  438.6(n))
    In Sec.  438.6(n), states are now required to include contract 
provisions in all applicable MCO, PIHP, and PAHP contracts to comply 
with part 438, subpart K. We estimate a one-time state burden of 30 
minutes at $67.38/hour for a business operations specialist to amend 
each contract with provisions that implement the requirements outlined 
in part 438, subpart K. Applicable to 36 states (which is the number of 
states that have an MCO model), and to a total of 602 contracts in 
those states, in aggregate we estimate 301 hours (602 contracts x 0.5 
hours) and $20,281 (301 hours x $67.38/hr.). State costs for this 
burden is $8,112 (40 percent of costs are state match). The 
requirements and burden will be submitted to OMB for approval under 
control number 0938-1280 (CMS-10556).
7. ICRs for State Responsibilities (Sec.  438.920)
    In any instance where the full scope of medical/surgical and MH/SUD 
services are not provided through the MCO, Sec.  438.920 specifies that 
the state must review the MH/SUD and medical/surgical benefits provided 
through the MCO, PIHP, PAHP, and fee-for service (FFS) coverage to 
ensure that the full scope of services available to all enrollees of 
the MCO complies with the requirements in this subpart K. The state is 
also expected to review the parity analysis provided by an MCO that is 
responsible for delivering all MH/SUD Medicaid services. The state must 
provide documentation of compliance with the requirements under this 
subpart to the general public and post this information on the state's 
Medicaid Web site. The 36 states that have an MCO model would be 
responsible for developing or reviewing the benefits offered by MCOs, 
PIHPs, PAHPs and FFS to ensure the benefits offered to enrollees of the 
MCO comply with requirements in this subpart. We estimate a state 
burden of 8 hours at $67.38/hour for a business operations specialist 
to perform this analysis and document compliance and, on an ongoing 
basis, update the documentation. In aggregate, we estimate 384 hours 
(36 states x 8 hours) and $19,405 (288 hours x $67.38/hr.). State costs 
for this burden is $7,762. The requirements and burden will be 
submitted to OMB for approval under control number 0938-1280 (CMS-
10556).

C. Summary of Burden Estimates

                                                                    Table 5--Annual Recordkeeping and Reporting Requirements
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Total     Hourly labor     Total       Total
                                                     OMB      Potential      Total                                         annual       cost of    labor cost    mailing      Total      State
Regulation section(s) under title 42 of the CFR    control   respondents   responses        Burden per  response           burden    reporting ($/     of      and supply     cost       share
                                                     No.                                                                  (hours)         hr)       reporting    costs *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
438.915(a), 440.395(c)(1), and 457.496(e)(1)      0938-1280          602     142,403  5 min...........................       11,867         32.24    $382,592     $58,272    $440,864    176,346
 (States and Plans).
438.915(a), 440.395(c)(1), and 457.496(e)(1)      0938-1280   47,467,922     142,403  15 min..........................       35,601           N/A         N/A         N/A         N/A  .........
 (Potential participants, beneficiaries and
 providers).
438.6(n) (States)..............................   0938-1280           36         602  30 min..........................          301         67.38      20,281           0      20,281      8,112
438.920 (States)...............................   0938-1280           36          36  8 hours.........................          288         67.38      19,405           0      19,405      7,762
457.496 (State Plan Amendments.................   0938-1148           42           2  80 hours........................          160         76.96      12,314           0      12,314        899
                                                ------------------------------------------------------------------------------------------------------------------------------------------------
    Total......................................  ..........   47,468,638     285,446  88 hrs 50 min...................       48,217  ............     434,592      58,272     492,864    193,119
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This rule does not set forth any capital/maintenance costs.

D. Comments Associated With the Proposed Collection of Information 
Requirements

    Comment: Two commenters expressed concerns that the cost analysis 
of the proposed rule fails to consider the administrative cost to the 
states of providing MH/SUD services through MCOs and through FFS 
delivery systems. They stated that significant administrative costs 
would be associated with creating new ongoing reporting mechanisms for 
states and MCOs to provide detailed information on their quantitative 
and nonquantitative limits across multiple MCOs and the FFS structure, 
perform

[[Page 18429]]

the parity analysis, post on the states Web site and report to CMS. 
Commenters also stated that these requirements would require state 
staff to review the rule, review each contract, develop appropriate 
language needed in each contract, and process the amended contract 
through the administrative channels. The actual time needed to address 
this would be many times greater than the proposed estimate.
    Response: We recognize that the administrative burden of 
implementing this rule will vary across states and MCOs, and intend for 
the numbers cited above are a national estimate of burden across all 
impacted entities. We note that efficiencies can be achieved regarding 
implementation of this rule through the use of standardized processes, 
and that technical assistance provided to states is intended to help to 
reduce the administrative burden. However, we do agree with the 
commenters that there will be an additional burden to states to perform 
and/or review the parity analysis, document compliance and post it to 
the state's Web site. We have included the projections of this 
additional burden in section V.B.7 of this final rule.

E. Submission of PRA-Related Comments

    We submitted a copy of this final rule's information collection and 
recordkeeping requirements to OMB for review and approval. The 
requirements are not effective until they have been formally approved 
by the 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 identify the rule (CMS-
2333-F) and submit your comments to the OMB desk officer via one of the 
following transmissions:
    Mail: OMB, Office of Information and Regulatory Affairs; Attention: 
CMS Desk Officer.
    Fax Number: 202-395-5806 OR
    Email: [email protected].
    ICR-related comments are due April 29, 2016.

VI. Regulatory Impact Analysis

A. Statement of Need

    This final rule addresses the applicability of the requirements 
under the MHPAEA to Medicaid non-managed care benchmark and benchmark-
equivalent plans (referred to in this final rule as Medicaid ABPs) as 
described in section 1937 of the Act, CHIP under title XXI of the Act, 
and Medicaid MCOs as described in section 1932 of the Act.
    In 2013, we released a SHO letter that provided guidance to states 
regarding the implementation of requirements under MHPAEA to Medicaid 
benchmark and benchmark-equivalent plans (referred to in this letter as 
ABPs), CHIP, and Medicaid MCOs.
    Final regulations implementing MHPAEA were published in the tri-
Department MHPAEA final regulations that do not apply to Medicaid MCOs, 
ABPs, or CHIP state plans.
    We believe that in absence of a regulation specific to the 
application of the parity requirements under MHPAEA to Medicaid and 
CHIP, states would not be compelled to implement the necessary changes 
to these programs, resulting in an inequity between beneficiaries who 
have MH/SUD conditions in the commercial market (including the state 
and federal marketplace) and Medicaid and CHIP. Even for states that 
are attempting to comply with parity requirements under MHPAEA, the 
absence of regulation could lead to inconsistent state-specific 
policies.
    This final rule provides the specificity and clarity needed to 
effectively implement the policies set forth by MHPAEA and prevent the 
use of prohibited limits on coverage, including nonquantitative 
treatment limitations that disproportionately limit coverage of 
treatment for MH/SUD conditions. The Department's assessment of the 
expected economic effects of this final rule is discussed in detail 
below.

B. Overall Impact

    We have examined the impacts of this final 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 
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 final 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, which to the best of our ability presents the costs and benefits 
of the rulemaking.
    Because the application of parity requirements to ABPs; MCOs and 
PIHPs and PAHPs providing services to MCO enrollees; and the CHIP is 
likely to have an effect on the economy of $100 million or more in any 
given year, this final rule is economically significant within the 
meaning of section 3(f)(1) of the Executive Order as elaborated below, 
we believe the benefits of the rule justify the costs.

C. Anticipated Effects

    This final rule would benefit approximately 22.3 million Medicaid 
beneficiaries and 880,000 CHIP beneficiaries in 2016, based on service 
utilization estimates from 2012 Medicaid and CHIP enrollment. We expect 
that a significant benefit associated with the application of the 
parity requirements under MHPAEA and these final regulations will be 
derived from applying parity requirements to the quantitative treatment 
limits such as annual or lifetime day or visit limits. Applying parity 
requirements to visit or stay limits will help ensure that vulnerable 
populations--those accessing substantial amounts of MH/SUD

[[Page 18430]]

services--have better access to appropriate care. Among adults aged 18 
through 64 with Medicaid coverage, approximately 9.6 percent have a 
serious mental illness, 30.5 percent have any mental illness, and 11.9 
percent have a substance use disorder.\11\ Among CHIP beneficiaries, 
approximately 8 percent of children experience serious behavioral or 
emotional difficulties.\12\
---------------------------------------------------------------------------

    \11\ Calculations were based on the Substance Abuse and Mental 
Health Services Administration (SAMHSA) National Survey of Drug Use 
and Health.
    \12\ Pastor P.N., Reuben C.A., Duran C.R. Identifying Emotional 
And Behavioral Problems in Children Aged 4-17 Years: United States, 
2001-2007. National Health Statistics Report No. 48. Hyattsville, 
MD: National Center for Health Statistics; 2012.
---------------------------------------------------------------------------

    Evidence-based treatment for severe and persistent mental illness, 
and for substance use disorders, often requires prolonged (possibly 
lifetime) treatment that consists of pharmacotherapy, supportive 
counseling, and often rehabilitative services. Individuals with severe 
MH/SUD conditions often quickly exhaust their benefits under Medicaid 
managed care. In addition, CHIP programs may restrict coverage, such as 
covering only 40 hours of psychotherapy or 5 days of detoxification per 
year. These coverage restrictions often result in people forgoing 
outpatient treatment and a higher likelihood of non-adherence to 
treatment regimes, which produce poor health and welfare outcomes and 
create the potential for increased hospitalization 
costs.13 14 For those with substance use disorders, 
treatment retention is of key importance when assessing outcomes, where 
those who stayed in treatment longer had more success in decreasing 
their substance use.15 16 In 2011, approximately 8 percent 
of adults with Medicaid coverage reported at least one occurrence in 
the past 12 months of feeling the need for MH/SUD treatment or 
counseling but not receiving it.\17\ Between 2007 and 2009, 
approximately 72 percent of children in Medicaid with a potential 
mental health need did not receive mental health services.\18\ The most 
frequently cited reasons for not seeking MH/SUD treatment are cost and/
or a lack of health insurance coverage, low perceived need, stigma, or 
structural barriers (for example, no transportation, did not know where 
to go).19 20 Removing quantitative limits on treatment may 
be particularly beneficial for individuals with severe mental illness 
and substance use disorders who may need to receive more services than 
the average individual.21 22 Improved coverage may also 
reduce the financial burden on individuals and families, particularly 
those families of children with mental health service needs.\23\ 
Finally, improving coverage of MH/SUD treatment may also improve 
employment, productivity, and earnings among those with these 
conditions.\24\ Wang, et al, found that implementing a care program for 
those identified with depression yielded not only enhanced clinical 
outcomes relative to depression, but also produced positive outcomes 
relative to decreased sick leave and increased productivity.\25\ 
Similarly, the State of Washington implemented a substance abuse 
treatment program for those receiving Aid to Families with Dependent 
Children (AFDC), and found that access to treatment increased earnings 
for those with jobs, as well as increased rates of employment.\26\
---------------------------------------------------------------------------

    \13\ Medication-Assisted Treatment for Opioid Addiction in 
Opioid Treatment Programs. Rockville (MD): Substance Abuse and 
Mental Health Services Administration (US); 2005. Treatment 
Improvement Protocol (TIP) Series, No. 43.
    \14\ Trivedi A.N., Swaminathan S, Mor V. Insurance parity and 
the use of outpatient mental health care following a psychiatric 
hospitalization. JAMA. 2008 Dec 24;300(24):2879-85.
    \15\ Simpson D, Joe G.W., Rowan-Szal G. Drug abuse treatment 
retention and process effects on follow-up outcomes. Drug and 
Alcohol Dependence. 1997b;47(3):227-235.
    \16\ Hartel D.M., Schoenbaum E.E. Methadone treatment protects 
against HIV infection: Two decades of experience in the Bronx, New 
York City. Public Health Reports. 1998;113(Suppl. 1):107-115.
    \17\ Substance Abuse and Mental Health Services Administration 
(SAMHSA). Behavioral Health United States 2012. HHS Publication No. 
(SMA)13-4797. Rockville, MD: SAMHSA; 2013.
    \18\ GAO. Children's Mental Health: Concerns Remain about 
Appropriate Services for Children in Medicaid and Foster Care. 
December 2012. http://www.gao.gov/assets/660/650716.pdf. Accessed 
June 27, 2014.
    \19\ Affordability Most Frequent Reason for Not Receiving Mental 
Health Services. Rockville (MD): Substance Abuse and Mental Health 
Services Administration (US); 2013. The NSDUH Report Data Spotlight.
    \20\ Results from the 2012 National Survey on Drug Use and 
Health: Summary of National Findings and Detailed Tables. Rockville 
(MD): Substance Abuse and Mental Health Services Administration 
(US); 2013.
    \21\ Zuvekas S.H., Banthin J.S, Selden T.M. How would mental 
health parity affect the marginal price of care? Health Serv Res. 
2001 Feb;35(6):1207-27. Review.
    \22\ McConnell K.J. The effect of parity on expenditures for 
individuals with severe mental illness. Health Serv Res. 2013 
Oct;48(5):1634-52. doi: 10.1111/1475-6773.12058. Epub 2013 Apr 5.
    \23\ Barry C.L., Busch S.H. Do state parity laws reduce the 
financial burden on families of children with mental health care 
needs? Health Serv Res. 2007 Jun;42(3 Pt 1):1061-84.
    \24\ Dunigan R, Acevedo A, Campbell K, Garnick D.W., Horgan 
C.M., Huber A, Lee M.T., Panas L, Ritter G.A. Engagement in 
outpatient substance abuse treatment and employment outcomes. J 
Behav Health Serv Res. 2014 Jan;41(1):20-36. doi: 10.1007/s11414-
013-9334-2.
    \25\ Wang P, Simon G.E., Avorn J, Azocar F, Ludman E.J., 
McCulloch J, Petukhova M.Z., Kessler R.C. Telephone screening, 
outreach and care management for depressed workers and impact on 
clinical and work productivity outcomes. JAMA 2007;298(12):1401-11.
    \26\ Wickizer TM, Campbell K, Krupski A, Stark K. Employment 
outcomes among AFDC recipients treated for substance abuse in 
Washington State. Milbank Q. 2000;78(4):585-608, iv. PubMed PMID: 
11191450.
---------------------------------------------------------------------------

    Application of parity requirements may also result in changes to 
payers' utilization management approaches, specifically when requiring 
preauthorization of mental health services. It was found that even when 
approval for continued access to mental health services was in essence 
guaranteed, patients required to obtain prior approval sought out less 
treatment, perhaps believing they ``should not'' access further needed 
treatment.\27\ Hodgkin, et al, found that removal of utilization 
management approaches (including preauthorization for the first set of 
mental health visits) increased use of mental health services.\28\ 
Cuffel, et al, note that there are various reasons for why an approach 
like preauthorization can impact provider behavior relative to mental 
health service. Providers may believe that the preauthorization process 
is too laborious and not worth their time; they may fear that those 
reviewing the request will penalize them for submitting a 
preauthorization request; they may assume that the set limits on 
services preclude additional requests for services; providers may 
believe that the initial limits are in place as an implied 
recommendation towards shorter treatment cycles; and some may believe 
requests for preauthorization simply will not be approved at all.\29\ 
Liu, et al, found a significant correlation between preauthorization 
processes and the probability of ending mental health treatment 
prematurely.\30\
---------------------------------------------------------------------------

    \27\ Liu, X., R. Sturm, and B.J. Cuffel. 2000. ``The Impact of 
Prior Authorization on Outpatient Utilization in Managed Behavioral 
Health Plans.'' Medical Care Research Review 57: 182-95.
    \28\ Hodgkin D., Merrick E.L., Horgan C.M., Garnick D.W., 
McLaughlin T.J. ``Does Type of Gatekeeping Model Affect Access to 
Outpatient Specialty Mental Health Services?.'' Health Services 
Research 42. 1 (2007): 104-123.
    \29\ Cuffel, B., McCulloch, J., Wade, R., Tam, L., Brown-
Mitchell, R., & Goldman, W. (2000). Patients' and providers' 
perceptions of outpatient treatment termination in a managed 
behavioral health organization. Psychiatric Services, 51(4), 469-
473.
    \30\ Liu, X., Sturm, R., Cuffel, B. (2000) The impact of prior 
authorization on outpatient utilization in managed behavioral health 
plans. Med Care Res Rev. Jun;57(2):182-95.
---------------------------------------------------------------------------

    Application of parity requirements under MHPAEA may also have 
benefits in terms of reduced medical costs. Mental health and physical 
health are interrelated, and individuals with poor mental health are 
likely to have physical

[[Page 18431]]

health problems as well.31 32 33 Increased access to and 
utilization of MH/SUD benefits may result in a reduction of medical and 
surgical costs for individuals with mental health conditions and 
substance use disorders (so called ``medical cost offsets''). For 
example, after receiving treatment, individuals with substance use 
disorders may experience fewer hospitalizations and emergency room 
visits stemming from unintended injuries such as accidents and drug 
overdose. The evidence that treatment results in medical care offsets 
is stronger for substance abuse treatment than for mental health 
treatment. For example, an evaluation on the expansion of substance 
abuse treatment in Washington State's Medicaid program found per member 
per month savings of $160 to $385 depending on the welfare cohort.\34\ 
Another study done on welfare clients in Washington State found that 
those accessing substance use disorder treatment had on average $2500 
less in medical costs than those who did not access treatment. This 
estimated savings equaled the cost of SUD treatment for individuals 
accessing SUD treatment.\35\ While a similar reduction in medical costs 
may be expected from mental health treatment, most empirical studies 
have not found a significant medical cost offset from mental health 
treatment.36 37
---------------------------------------------------------------------------

    \31\ Druss BG, Walker ER. Mental disorders and medical 
comorbidity. Synth Proj Res Synth Rep. 2011 Feb;(21):1-26. Review.
    \32\ National Institute on Drug Abuse. (December 2012). Medical 
Consequences of Drug Abuse. Retrieved from http://www.drugabuse.gov/related-topics/medical-consequences-drug-abuse.
    \33\ Bouchery, E.E., Harwood, H.J., Sacks, J.J., Simon, C.J., & 
Brewer, R.D. (2011). Economic costs of excessive alcohol consumption 
in the US, 2006. American Journal of Preventive Medicine, 41(5), 
516-524.
    \34\ Wickizer, T.M., Mancuso, D., & Huber, A. (2012). Evaluation 
of an innovative Medicaid health policy initiative to expand 
substance abuse treatment in Washington State. Medical Care Research 
and Review, 69(5), 540-559.
    \35\ Wickizer, T.M., Krupski, A., Stark, K.D., Mancuso, D., & 
Campbell, K. (2006). The effect of substance abuse treatment on 
Medicaid expenditures among general assistance welfare clients in 
Washington State. Milbank Quarterly,84(3), 555-576.
    \36\ Simon GE, Katzelnick DJ. Depression, use of medical 
services and cost-offset effects. J Psychosom Res. 1997 
Apr;42(4):333-44. Review.
    \37\ Sturm R. Economic grand rounds: The myth of medical cost 
offset. PsychiatryServ. 2001 Jun;52(6):738-40.
---------------------------------------------------------------------------

1. Costs
a. Cost Associated With Increased Utilization of MH/SUD Benefits
    A primary objective of Congress in enacting MHPAEA was to eliminate 
barriers that impeded access to and utilization of MH/SUD benefits. 
Cost increases and increases in capitated rates may occur as a result 
of increased access and utilization from the application of parity 
requirements and these regulations, but the evidence suggests that any 
increases will not be large. The impact of parity requirements will 
depend on the extent to which MCOs, ABPs, and CHIP plans lack benefits 
in some classifications or manage these benefits inconsistent with such 
parity requirements.
    In the April 30, 2010 final rule on State Flexibility for Medicaid 
Benefit Packages (75 FR 23068), the assumptions utilized in modeling 
the estimated economic impact of the associated provisions took into 
account the costs of the benefit package for the new adult group served 
through ABPs. Coverage of these benefits was already accounted for in 
the April 30, 2010 final rule, and therefore, does not need to be 
repeated here. Because we approved ABPs only after ensuring compliance 
with MHPAEA, we project that this regulation will result in no 
additional costs to ABPs.
(1) Effect of Removing Non-Compliant Quantitative Treatment Limitations
    A review of Medicaid managed care benefits in all 50 states and the 
District of Columbia revealed that a subset of states (18 states) had 
Medicaid managed care plans that imposed quantitative treatment limits 
on outpatient visits, inpatient stays, and intermediate services (for 
example, intensive outpatient treatment). As indicated in the preamble, 
some of these quantitative treatment limits are a result of what is 
currently in a state's Medicaid plan.
    A review of CHIP plans indicated that most are already compliant 
with MHPAEA. CHIP plans that include Medicaid EPSDT are already 
required to cover mental health and substance abuse services as needed 
and they are deemed compliant with MHPAEA parity requirements for 
financial requirements and treatment limitations. It is not permissible 
to apply annual or lifetime limits to the EPSDT benefit. CHIP stand-
alone programs are also already compliant with MHPAEA because of 
changes to treatment limitations for both MH/SUD benefits and medical 
and surgical benefits required under the Affordable Care Act.\38\ Among 
CHIP plans that are Medicaid expansion plans, we found only one to have 
an explicit quantitative limit.\39\
---------------------------------------------------------------------------

    \38\ Sarata AK. Mental health parity and the Patient Protection 
and Affordable Care Act of 2010. Washington, DC: Congressional 
Research Service; 2011.
    \39\ McConnell KJ, Gast SH, Ridgely MS, Wallace N, Jacuzzi N, 
Rieckmann T, McFarland BH, McCarty D. Behavioral health insurance 
parity: does Oregon's experience presage the national experience 
with the Mental Health Parity and Addiction Equity Act? Am J 
Psychiatry 2012 Jan;169(1):31-8.
---------------------------------------------------------------------------

    We conducted an analysis to determine how the use of services might 
increase if quantitative limits on Medicaid MCO and CHIP programs were 
eliminated. Where quantitative limits exist that are non-compliant with 
parity requirements, states also have the option to align these limits 
for MH/SUD and medical/surgical benefits consistent with the provisions 
of this final rule. However, to estimate the highest possible cost 
impact that could be expected, we simulated the effect of removing 
visit and day limits in states with limits for treatment users by 
anticipating that utilization would increase for beneficiaries who were 
near or exceeded current limits to equal utilization patterns observed 
in states without limits for Medicaid managed care beneficiaries. This 
simulation indicated the maximum impact of removing quantitative day 
and visit limits on MH/SUD services by Medicaid MCOs to be $109.0 
million nationwide (including federal and state costs) in undiscounted 
dollars in 2016. Using a similar approach, we estimated the maximum 
impact of removing quantitative limits on CHIP expenditures to be $42.1 
million in undiscounted dollars in 2016.
    However, these estimates are the largest possible cost impacts and 
the actual impact is likely to be lower. One reason is that some states 
with quantitative limits may have mechanisms in place for beneficiaries 
to obtain hospital days or outpatient visits beyond the state's limit 
if such care is determined to be medically necessary. In practice, we 
anticipate a potentially lower impact than estimated currently, given 
that quantitative limits may already be routinely exceeded. We found 
that in most of the 18 states with visit limits, a number of recipients 
(ranging from 5 to 20 percent) used services beyond the treatment 
limit, suggesting that exceptions to the quantitative limits may occur 
in these states. This does not appear to be the case in all states, 
because in a few states with visit limits ranging from approximately 24 
to 40 visits, only 1 or 2 percent of recipients exceeded the limit.
    There are no studies to date on how the application of federal 
parity requirements affects Medicaid spending.

[[Page 18432]]

However information from states that have passed state-specific parity 
legislation (which includes application to Medicaid) provides 
additional support for the projected impact of these regulations on 
service utilization and spending. For instance, an evaluation of the 
Oregon parity law found no significant increases in aggregate 
behavioral health spending or in the percent of individuals using 
behavioral health services associated with its implementation.\40\ The 
evaluators surmised that the flexibility in quantitative limits prior 
to the parity law may be one reason that the implementation of parity 
did not lead to large increases in spending. Specifically, they found 
that prior to the implementation of the state parity law; approximately 
5 percent of beneficiaries with any behavioral health visits exceeded 
the specified limits of that plan.
---------------------------------------------------------------------------

    \40\ McConnell KJ, Gast SH, Ridgely MS, Wallace N, Jacuzzi N, 
Rieckmann T, McFarland BH, McCarty D. Behavioral health insurance 
parity: does Oregon's experience presage the national experience 
with the Mental Health Parity and Addiction Equity Act? Am J 
Psychiatry 2012 Jan;169(1):31-8.
---------------------------------------------------------------------------

    Vermont's parity law is also very similar to MHPAEA. A study of 
Vermont's parity law found that the share of spending on mental and 
substance use disorders increased from 2.30 percent to 2.47 percent of 
total spending for one health plan.\41\
---------------------------------------------------------------------------

    \41\ Rosenbach M, Lake T, Young C, et al. Effects of the Vermont 
Mental Health and Substance Abuse Parity Law. DHHS Pub. No. SMA 03-
3822, Rockville, MD: Substance Abuse and Mental Health Services 
Administration; 2003.
---------------------------------------------------------------------------

    Finally, a recent evaluation of the effect of MHPAEA on the 
commercial market revealed a modest increase in spending on substance 
use disorder treatment per enrollee ($9.99, 95 percent CI: 2.54, 
18.21), but no significant change in the percent of individuals using 
substance use disorder services.\42\
---------------------------------------------------------------------------

    \42\ Busch SH, Epstein AJ, Harhay MO, Fiellin DA, Un H, Leader D 
Jr, Barry CL. The effects of federal parity on substance use 
disorder treatment. Am J Manag Care. 2014 Jan;20(1):76-82.
---------------------------------------------------------------------------

(2) Effect of Classification of Services Requirements
    This final rule requires that if the state provides for MH/SUD 
services under the state plan, MH/SUD services must be provided to MCO 
enrollees in every classification in which medical/surgical benefits 
are provided. After reviewing the MH/SUD services provided under 
Medicaid managed care plans, we identified only two states providing 
for MH/SUD services under the state plan in which MH/SUD services were 
excluded from a classification in which medical/surgical benefits are 
provided. In both states, the excluded services were substance abuse 
inpatient services. For the purposes of this analysis, we assumed that 
substance abuse inpatient services would need to be included to the 
extent that they were provided in a distinct part or unit of a general 
hospital or facility with 16 or fewer beds. Using data on current use 
of Medicaid substance use disorder inpatient services and the cost of 
those services from Medicaid claims data, we estimated that the 
additional coverage for these services would have led to an increase of 
$11.7 million nationwide in undiscounted dollars in 2012.
    Table 6 displays the total costs of removing non-compliant QTLs by 
service and meeting classification of services requirements in 2012.

     Table 6--Details of Estimated Costs of Meeting QTL and Classification of Services Requirements in 2012
----------------------------------------------------------------------------------------------------------------
      Inpatient              Outpatient            Intermediate          Administrative             Total
----------------------------------------------------------------------------------------------------------------
                                     Mental Health--Medicaid ($million/year)
----------------------------------------------------------------------------------------------------------------
            $19.8                  $62.3                     $0                   $0.3                  $82.4
----------------------------------------------------------------------------------------------------------------
                                       Mental Health--CHIP ($million/year)
----------------------------------------------------------------------------------------------------------------
               $0                   30.8                    0.4                   0.04                   31.2
----------------------------------------------------------------------------------------------------------------
                                Substance Use Disorder--Medicaid ($million/year)
----------------------------------------------------------------------------------------------------------------
            $11.7                      0                      0                      0                   11.7
----------------------------------------------------------------------------------------------------------------
                                  Substance Use Disorder--CHIP ($million/year)
----------------------------------------------------------------------------------------------------------------
               $0                      0                      0                      0                      0
----------------------------------------------------------------------------------------------------------------
                                              Total Costs of Removing Quantitative Limits in 2012 ($mill125.3ear)
----------------------------------------------------------------------------------------------------------------
Note: Administrative costs are listed once for Medicaid and CHIP because the expense is all-inclusive for each
  program; costs are not broken down by service.

    Costs for complying with parity rules for each service category 
were estimated based on a simulation of additional utilization states 
may incur as a result of removing quantitative treatment limits.\43\ 
For the analysis of intermediate services, we examined limits on 
partial hospitalization and intensive outpatient care.
---------------------------------------------------------------------------

    \43\ We chose to estimate the cost of removing these limits 
rather than the cost of aligning these limits with the predominant 
level of the quantitative limit that applies to substantially all 
medical/surgical benefits in the classification for simplicity, 
given the complexity of applying the full analysis to every benefit 
in every state, and because in most cases, less than two-thirds of 
the medical/surgical benefits in that classification are subject to 
a quantitative limit.
---------------------------------------------------------------------------

    These figures are calculated based on 2012 Medicaid and CHIP 
expenditures, which equate to approximately $125.3 million in 
additional costs as a result of parity compliance. Given that total 
Medicaid and CHIP expenditures in 2012 were $552.6 billion, the impact 
of this rule would increase Medicaid and CHIP spending by about 0.02 
percent each year. As total Medicaid and CHIP expenditures increase 
over time, the cost impact of mental health parity is expected to rise 
proportionally. Accordingly, to determine the anticipated impact of 
mental health parity in cost in future years, we applied growth in 
Medicaid and CHIP expenditures from the mid-session review of the 
President's FY 2016 budget to this cost.\44\ Due to the

[[Page 18433]]

complexity and uncertainty of predicting changes to Medicaid enrollment 
and spending if CHIP authorization expires, our estimate assumes that 
CHIP will be reauthorized in its present form through FY2020. Costs for 
2016 through 2020 are displayed in Table 7.
---------------------------------------------------------------------------

    \44\ President's Budget for Fiscal Year 2016, available at 
http://www.whitehouse.gov/omb/budget.

                                Table 7--Estimated Costs of CMS-2333 FY 2016-2020
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                      FY 2016         FY2017          FY 2018         FY 2019         FY 2020
----------------------------------------------------------------------------------------------------------------
Federal.........................           116.0           121.9           128.7           137.1           131.8
State...........................            50.5            53.3            56.5            59.7            76.5
                                 -------------------------------------------------------------------------------
    Total.......................           166.5           175.2           185.3           196.8           208.3
----------------------------------------------------------------------------------------------------------------

(3) Effect of Medical Cost Offsets
    As described above, the cost of improving access to MH/SUD 
treatment may be offset by a decline in the expenditures on treatments 
for medical conditions resulting from substance use disorders. There is 
strong evidence from Medicaid programs to assume a cost offset 
resulting from improved access to substance use disorder benefits. In 
contrast, the evidence for cost offset resulting from improved access 
to mental health benefits is weaker. We anticipate that, on balance, 
costs stemming from increased utilization of substance use disorder 
services resulting from application of parity requirements will be 
largely offset by the savings from reduced medical costs, yielding very 
little increase in overall costs from increased utilization of 
substance use disorder services. However, given the difficulty of 
quantifying the precise cost impact of this reduced use of medical 
services that is expected to result from enhanced access to substance 
use disorder services, we have not included any cost offset in our 
estimates.
    Comment: One commenter believed that proper implementation of 
parity may save money as more beneficiaries will be able to access 
appropriate care for their conditions, resulting in fewer emergency 
department visits and hospitalizations as well as improved physical 
health.
    Response: As noted above, we agree that in many cases, additional 
spending on MH/SUD services may result in savings from reduced medical/
surgical costs.
b. Effect of Aligning NQTLs
    Under the MHPAEA final rules, medical management can be applied to 
MH/SUD benefits if the processes, strategies, evidentiary standards, or 
other factors used in applying medical management are comparable to, 
and are applied no more stringently than, the processes, strategies, 
evidentiary standards, or other factors used in applying medical 
management to medical and surgical benefits. It is difficult to 
determine whether, at baseline, Medicaid MCOs, PIHPs, PAHPs, ABPs and 
CHIP programs are applying medical management more stringently to MH/
SUD benefits than to medical and surgical benefits. A state-by-state 
search of available Medicaid documents indicated that most states that 
use inpatient utilization management techniques for MH/SUD services, 
such as prior approval or continuing utilization review for inpatient 
stays, have similar restrictions for medical and surgical conditions. 
Surveys of commercial plans have also found that inpatient managed care 
restrictions, such as pre-admission prior approval, are common for 
medical and surgical admissions.45 46 There may be important 
distinctions in the processes, strategies, evidentiary standards, or 
other factors between MH/SUD services and medical and surgical 
services, but current data do not indicate that this is the case in a 
way that would lead to a clear cost impact.
---------------------------------------------------------------------------

    \45\ Baker C.A., Diaz IS. Managed care plans and managed care 
features: data from the EBS to the NCS. Compensation and Working 
Conditions Spring 2011:30-6.
    \46\ Claxton, G., DiJulio, B., Whitmore, H., Pickreign, J., 
McHugh, M., Finder, B., & Osei-Anto, A. (2009). Job-based health 
insurance: costs climb at a moderate pace. Health Aff 
2009;28(6):w1002-12.
---------------------------------------------------------------------------

    Moreover, if some Medicaid plans have stricter management controls 
for MH/SUD services than for medical services, there is scant evidence 
at this time as to how utilization management will evolve with the 
application of parity requirements and whether stricter controls would 
result in higher costs.\47\ For example, stricter controls may lead to 
underutilization of sub-acute levels of care for MH/SUD conditions, 
leading to the worsening of both MH/SUD conditions and medical or 
surgical conditions that ultimately require more costly acute levels of 
care. Studies of the effect of utilization review and prior approval on 
MH/SUD inpatient services have revealed mixed results, with some 
studies showing that these managed care techniques result in lower 
costs, quantities of treatment, or both, and other studies finding only 
weak or no effects, or effects that are short 
term.48 49 50 51 As noted above, the studies of Oregon and 
Vermont, whose parity laws include similar restrictions on medical 
management, have not shown increases in costs resulting from 
application of these laws. There is uncertainty regarding the level of 
increased costs that will result from application of the parity 
requirement for NQTLs, but there is evidence that any increases may be 
small.
---------------------------------------------------------------------------

    \47\ Hodgkin D. The impact of private utilization management and 
psychiatric care: a review of the literature. Journal of Mental 
Health Administration 1992;19(2):143-57.
    \48\ Dickey B, Azeni H. Impact of managed care on mental health 
services. Health Aff 1992 Fall;11(3):197-204.
    \49\ Frank R.G., Brookmeyer R. Managed mental health care and 
patterns of inpatient utilization for treatment of affective 
disorders. Soc Psychiatry Psychiatric Epidemiol 1995 Aug;30(5):220-
3.
    \50\ Wickizer T.M., Lessler D, Travis K.M. Controlling inpatient 
psychiatric utilization through managed care. Am J Psychiatry 
1996;153:339-45.
    \51\ Wickizer T.M., Lessler D. Do treatment restrictions imposed 
by utilization management increase the likelihood of readmission for 
psychiatric patients? Med Care 1998;36(6):844-50.
---------------------------------------------------------------------------

2. Transfers Resulting From Increased Access Under Medicaid
    Transfer payments are monetary payments from one group to another 
that do not affect total resources available to society. There is a 
potential that application of parity requirements under MHPAEA will 
result in transfers among different government entities. MH/SUD 
services receive greater funding from public sources, such as Medicaid, 
federal government block grants, state government general funds, and 
local government funding, than do medical and surgical services.\52\ 
Over time, MH/SUD spending has been shifting away from state and local

[[Page 18434]]

funding, toward federal financing, especially Medicaid.\53\ The 
potential increase in the availability of MH/SUD services under 
Medicaid and CHIP as a result of the MHPAEA parity requirements may 
result in a reduction in use of, and spending on, services financed by 
other public sources such as state and local governments and federal 
block grants.\54\ Limited sound evidence exists about the size of this 
effect on states.
---------------------------------------------------------------------------

    \52\ Levit KR, Mark TL, Coffey RM, Frankel S, Santora P, 
Vandivort-Warren R, Malone K. Federal spending on behavioral health 
accelerated during recession as individuals lost employer insurance. 
Health Aff 2013 May;32(5):952-62.
    \53\ Levit KR, Mark TL, Coffey RM, Frankel S, Santora P, 
Vandivort-Warren R, Malone K. Federal spending on behavioral health 
accelerated during recession as individuals lost employer insurance. 
Health Aff 2013 May;32(5):952-62.
    \54\ Frank RG, Goldman HH, Hogan M. Medicaid and mental health: 
be careful what you ask for. Health Aff 2003 Jan-Feb;22(1):101-13.
---------------------------------------------------------------------------

D. Alternatives Considered

    We considered several other approaches for providing guidance to 
states regarding the application of the MHPAEA to Medicaid MCOs, ABPs, 
and CHIP. As stated in the preamble of this final rule, under our 
current policies, there is no way to ensure that MCO enrollees receive 
state plan benefits in a way that fully complies with MHPAEA. This is 
because section 1932(b)(8) of the Act does not apply to the design of 
the traditional Medicaid state plan, and state plans thus may be 
designed in a way that does not comply with MHPAEA requirements. Under 
current guidance, we have said that if an MCO is simply properly 
applying state plan benefits, there is no violation of section 
1932(b)(8) of the Act even if that benefit design does not conform to 
MHPAEA, because the MCO did not adopt that benefit design and thus was 
not at fault in its non-compliance. As explained above, we do not 
believe that this policy effectuates Congressional intent in enacting 
section 1932(b)(8) of the Act. Further, we believe that implementation 
of the statute requires that MCO enrollees receive benefits in a manner 
that complies with MHPAEA.
    We considered requiring that all state plan MH/SUD services be 
included under MCO contracts as the way to ensure that MCO enrollees 
receive the full protections of MHPAEA. However, we believe that this 
final rule allows states the most flexibility when applying mental 
health parity requirements to their Medicaid services across delivery 
systems. Given that there are many different delivery system 
configurations that carve out MH/SUD services, this approach allows 
states to comport with parity requirements for MCO enrollees without 
completely carving out MH/SUD services from their MCO or dropping MH/
SUD coverage altogether.
    Also, under current statutes, regulations and policies, states 
would not be required under federal law to apply MHPAEA provisions to 
PIHPs and PAHPs (many of which provide MH/SUD services) since these 
arrangements were not specifically addressed in section 1932(b)(8) of 
the Act, and MHPAEA does not directly apply to such contracts. 
Consideration of these unique state MH/SUD delivery systems is an 
important distinction in Medicaid when compared to the commercial 
market. Further, because the statutory provisions making mental health 
parity requirements applicable to MCOs do not explicitly address these 
situations, additional interpretation is needed.
    In addition to the delivery system issues, states would not be 
required to remove or align limits on services that were in the state 
plan for individuals enrolled in an MCO. As stated previously in this 
regulation, these limits are carried through in the development of 
rates, and cost of services outside of the state plan or a waiver of 
the state plan cannot be included. Without the change in this rule, 
individuals enrolled in an MCO could still be subject to treatment 
limitations that are not compliant with parity requirements, which we 
believe is inconsistent with the intent of Congress in requiring in 
section 1932(b)(8) of the Act that MCOs deliver services in a manner 
consistent with MHPAEA requirements and the policies regarding 
application of MHPAEA to ABPs and CHIP that operate in a FFS 
arrangement. In addition, without these changes to the managed care 
rate setting process, it will be difficult for MCOs to comply with 
statutory requirements regarding financial requirements and treatment 
limitations.
    Finally, there are mental health parity provisions that are not 
applicable to the FFS delivery systems for Medicaid ABP benefits; these 
include annual and lifetime dollar limits, availability of plan 
information, and access to out-of-network providers.
    In addition, we considered the ability to provide guidance and 
enforce the provisions of MHPAEA's application to Medicaid and CHIP 
through sub-regulatory guidance. Over the past 6 years, we have used 
two SHO letters to provide guidance to states regarding MHPAEA and 
Medicaid and CHIP. While states and other stakeholders found this 
guidance useful, there were many questions or concerns regarding the 
lack of specificity regarding application of MHPAEA parity requirements 
to Medicaid and CHIP. There were several issues that states raised 
regarding this sub-regulatory guidance. One issue was the actuarial 
soundness requirements, which mandate that MCO payments be based on 
services as covered under state plans. Another was additional 
clarification of NQTLs and states' concerns regarding existing federal 
and state policies that required utilization management strategies that 
were inconsistent with the intent of MHPAEA. States also raised 
additional questions regarding application of MHPAEA parity 
requirements to other delivery systems including PIHPs, PAHPs, and FFS. 
We do not believe that additional subregulatory guidance would provide 
the necessary authority for MCOs and states to implement or enforce 
MHPAEA parity requirements for Medicaid beneficiaries enrolled in an 
MCO.

E. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/), in Table 8 we have 
prepared an accounting statement showing the classification of the 
impacts associated with implementation of this final rule.
    The projected impact on costs in 2016 was calculated by multiplying 
the percent anticipated increase in cost due to the application of 
parity requirements by expected Medicaid expenditures in 2016. Based on 
our analysis, the parity rule will lead to an increase of approximately 
0.03 percent in total Medicaid spending each year over 10 years. In 
2016, Medicaid expenditures overall are projected to equal 
approximately $540.3 billion.\55\ Thus, the undiscounted cost of the 
rule is estimated to be $178.1 million in 2016, and to rise 
proportionate to the growth in overall Medicaid spending in future 
years. These costs are split between the federal and state governments 
based on the population covered and the statutory matching rate.
---------------------------------------------------------------------------

    \55\ Centers for Medicare & Medicaid Services. National Health 
Expenditure Projections 2012-2022. Forecast Summary. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf. 
Accessed June 25, 2014.

[[Page 18435]]



            TABLE 8--Accounting Statement: Classification of Estimated Benefit, Costs, and Transfers
----------------------------------------------------------------------------------------------------------------
                                                                                       Units
                                                                 -----------------------------------------------
                    Category                         Estimates                     Discount rate      Period
                                                                    Year dollar         (%)           covered
----------------------------------------------------------------------------------------------------------------
                                 Transfers From Federal Government to Providers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year)............           126.5            2016               7       2016-2020
                                                           126.8            2016               3       2016-2020
----------------------------------------------------------------------------------------------------------------
                                  Transfers From State Government to Providers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year)............            58.5            2016               7       2016-2020
                                                            59.0            2016               3       2016-2020
----------------------------------------------------------------------------------------------------------------
Note. The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

F. Regulatory Flexibility Act (RFA)

    The RFA requires agencies to analyze options for regulatory relief 
for small entities, if a rule has a significant impact on a substantial 
number of small entities. The great majority of hospitals and most 
other health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.5 million to $38.5 
million in any 1 year). States are not included in the definition of a 
small entity. This final rule does not change the rates at which 
providers would be reimbursed for any additional treatments and 
services that may be required, and MCOs, PIHPs, and PAHPs will be paid 
on an actuarially sound basis for any additional coverage that they 
will be required to provide. As indicated previously in this final 
rule, the increased costs will be borne by states and the federal 
government, which are not considered small entities. Therefore, the 
Secretary has determined that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as that term is used in the RFA.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule 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 604 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 of a metropolitan 
statistical area and has fewer than 100 beds. The Secretary has 
determined that this final rule will not have a significant impact on 
the operations of a substantial number of small rural hospitals.

G. Unfunded Mandates Reform Act (UMRA)

    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. Currently, 
that is approximately $144 million. UMRA does not address the total 
cost of a rule. Rather, it focuses on certain categories of cost, 
mainly those ``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. The average state share of total Medicaid 
spending in 2016 is projected to be 38.2 percent. The total cost impact 
of this rule is estimated to be $178.1 million in 2016. Therefore, the 
total cost to states is projected to be approximately $68.0 million. 
Therefore, this final rule is not subject to UMRA.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct requirement costs on state and local governments, preempts state 
law, or otherwise has federalism implications.
    In the Secretary's view, this final rule has Federalism 
implications, because it has direct effects on the states, the 
relationship between the federal government and states, or on the 
distribution of power and responsibilities among various levels of 
government. However, in the Secretary's view, the Federalism 
implications of this final rule are substantially mitigated because, 
with regards to MCOs, ABPs, and CHIP, the Secretary expects that many 
states already offer benefits under their state plan and MCO contracts 
that meet or exceed the Federal mental health parity standards that 
would be implemented in this rule.
    Throughout the process of developing these regulations, to the 
extent feasible within the relevant provisions of the Act, PHS Act and 
MHPAEA, the Secretary has attempted to balance the latitude for states 
to structure their state plan services and MCO contracts according to 
the needs and preferences of the state, and the Congress' intent to 
provide uniform minimum protections to Medicaid and CHIP beneficiaries 
in every state. By doing so, it is the Secretary's view that this final 
rule complies with the requirements of Executive Order 13132.

I. Conclusion

    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 438

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

42 CFR Part 440

    Grant programs-health, Medicaid reporting.

42 CFR Part 456

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

42 CFR Part 457

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

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

[[Page 18436]]

PART 438--MANAGED CARE

0
1. The authority citation for part 438 continues to read as follows:

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


0
2. Section 438.6 is amended by revising paragraph (e) and adding 
paragraph (n) to read as follows:


Sec.  438.6  Contract requirements.

* * * * *
    (e) Additional services that may be covered by a MCO, PIHP, or 
PAHP. A 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 necessary for compliance by the MCO, PIHP, or PAHP 
with the requirements of subpart K of this part and only to the extent 
such services are necessary for the MCO, PIHP, or PAHP to comply with 
Sec.  438.910; and
    (2) Any services that the MCO, PIHP, or PAHP voluntarily agrees to 
provide.
    (3) Only the costs associated with services in paragraph (e)(1) of 
this section may be included when determining the payment rates under 
paragraph (c) of this section.
* * * * *
    (n) Parity in mental health and substance use disorder benefits. 
(1) All MCO contracts, and any PIHP and PAHP contracts providing 
services to MCO enrollees, must provide for services to be delivered in 
compliance with the requirements of subpart K of this part insofar as 
those requirements are applicable.
    (2) Any State providing any services to MCO enrollees using a 
delivery system other than the MCO delivery system must provide 
documentation of how the requirements of subpart K of this part are met 
with the submission of the MCO contract for review and approval under 
paragraph (a) of this section.

0
3. Subpart K is added to part 438 to read as follows:
Subpart K--Parity in Mental Health and Substance Use Disorder Benefits
Sec.
438.900 Meaning of terms.
438.905 Parity requirements for aggregate lifetime and annual dollar 
limits.
438.910 Parity requirements for financial requirements and treatment 
limitations.
438.915 Availability of information.
438.920 Applicability.
438.930 Compliance dates.

Subpart K--Parity in Mental Health and Substance Use Disorder 
Benefits


Sec.  438.900  Meaning of terms.

    For purposes of this subpart, except where the context clearly 
indicates otherwise, the following terms have the meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a MCO, PIHP, 
or PAHP.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
MCO, PIHP, or PAHP.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Early and Periodic Screening, Diagnostic and Treatment (EPSDT) 
benefits are benefits defined in section 1905(r) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as defined by the State and 
in accordance with applicable Federal and State law, but do not include 
mental health or substance use disorder benefits. Any condition defined 
by the State as being or as not being a medical/surgical condition must 
be defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the International Classification of Diseases (ICD) or State 
guidelines). Medical/surgical benefits include long term care services.
    Mental health benefits means benefits for items or services for 
mental health conditions, as defined by the State and in accordance 
with applicable Federal and State law. Any condition defined by the 
State as being or as not being a mental health condition must be 
defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the Diagnostic and Statistical Manual of Mental Disorders 
(DSM), the most current version of the ICD, or State guidelines). 
Mental health benefits include long term care services.
    Substance use disorder benefits means benefits for items or 
services for substance use disorders, as defined by the State and in 
accordance with applicable Federal and State law. Any disorder defined 
by the State as being or as not being a substance use disorder must be 
defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the DSM, the most current version of the ICD, or State 
guidelines). Substance use disorder benefits include long term care 
services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan or coverage. (See Sec.  438.910(d)(2) for an illustrative list of 
nonquantitative treatment limitations.) A permanent exclusion of all 
benefits for a particular condition or disorder, however, is not a 
treatment limitation for purposes of this definition.


Sec.  438.905  Parity requirements for aggregate lifetime and annual 
dollar limits.

    (a) General parity requirement. Each MCO, PIHP, and PAHP providing 
services to MCO enrollees must comply with paragraphs (b), (c), or (e) 
of this section for all enrollees of a MCO in States that cover both 
medical/surgical benefits and mental health or substance use disorder 
benefits under the State plan. This section details the application of 
the parity requirements for aggregate lifetime and annual dollar 
limits.
    (b) MCOs, PIHPs, or PAHPs with no limit or limits on less than one-
third of all medical/surgical benefits. If a MCO, PIHP, or PAHP does 
not include an aggregate lifetime or annual dollar limit on any 
medical/surgical benefits or includes an aggregate lifetime or annual 
dollar limit that applies to less than one-third of all medical/
surgical benefits provided to enrollees through a contract with the 
State, it may not impose an aggregate lifetime or annual dollar limit, 
respectively, on mental health or substance use disorder benefits.
    (c) MCOs, PIHPs, or PAHPs with a limit on at least two-thirds of 
all medical/surgical benefits. If a MCO,

[[Page 18437]]

PIHP, or PAHP includes an aggregate lifetime or annual dollar limit on 
at least two-thirds of all medical/surgical benefits provided to 
enrollees through a contract with the State, it must either--
    (1) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or
    (2) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is more 
restrictive than the aggregate lifetime or annual dollar limit, 
respectively, on medical/surgical benefits.
    (d) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this section, the determination of whether 
the portion of medical/surgical benefits subject to an aggregate 
lifetime or annual dollar limit represents one-third or two-thirds of 
all medical/surgical benefits is based on the total dollar amount of 
all combinations of MCO, PIHP, and PAHP payments for medical/surgical 
benefits expected to be paid under the MCO, PIHP, or PAHP for a 
contract year (or for the portion of a contract year after a change in 
benefits that affects the applicability of the aggregate lifetime or 
annual dollar limits). Any reasonable method may be used to determine 
whether the dollar amount expected to be paid under the MCOs, PIHPs, 
and PAHPs will constitute one-third or two-thirds of the dollar amount 
of all payments for medical/surgical benefits.
    (e) MCO, PIHP, or PAHP not described in this section--(1) In 
general. A MCO, PIHP, or PAHP that is not described in paragraph (b) or 
(c) of this section for aggregate lifetime or annual dollar limits on 
medical/surgical benefits, must either--
    (i) Impose no aggregate lifetime or annual dollar limit, on mental 
health or substance use disorder benefits; or
    (ii) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no more restrictive 
than an average limit calculated for medical/surgical benefits in the 
following manner. The average limit is calculated by taking into 
account the weighted average of the aggregate lifetime or annual dollar 
limits, as appropriate, that are applicable to the categories of 
medical/surgical benefits. Limits based on delivery mechanisms, such as 
inpatient/outpatient treatment or normal treatment of common, low-cost 
conditions (such as treatment of normal births), do not constitute 
categories for purposes of this paragraph (e)(1)(ii). In addition, for 
purposes of determining weighted averages, any benefits that are not 
within a category that is subject to a separately-designated dollar 
limit under the contract are taken into account as a single separate 
category by using an estimate of the upper limit on the dollar amount 
that a MCO, PIHP, or PAHP may reasonably be expected to incur for such 
benefits, taking into account any other applicable restrictions.
    (2) Weighting. For purposes of this paragraph (e), the weighting 
applicable to any category of medical/surgical benefits is determined 
in the manner set forth in paragraph (d) of this section for 
determining one-third or two-thirds of all medical/surgical benefits.


Sec.  438.910  Parity requirements for financial requirements and 
treatment limitations.

    (a) Clarification of terms--(1) Classification of benefits. When 
reference is made in this section to a classification of benefits, the 
term ``classification'' means a classification as described in 
paragraph (b)(2) of this section.
    (2) Type of financial requirement or treatment limitation. When 
reference is made in this section to a type of financial requirement or 
treatment limitation, the reference to type means its nature. Different 
types of financial requirements include deductibles, copayments, 
coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (d)(2) of this section for 
an illustrative list of nonquantitative treatment limitations.
    (3) Level of a type of financial requirement or treatment 
limitation. When reference is made in this section to a level of a type 
of financial requirement or treatment limitation, level refers to the 
magnitude of the type of financial requirement or treatment limitation.
    (b) General parity requirement--(1) General rule and scope. Each 
MCO, PIHP and PAHP providing services to MCO enrollees in a State that 
covers both medical/surgical benefits and mental health or substance 
use disorder benefits under the State plan, must not apply any 
financial requirement or treatment limitation to mental health or 
substance use disorder benefits in any classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation of that type applied to substantially all medical/surgical 
benefits in the same classification furnished to enrollees (whether or 
not the benefits are furnished by the same MCO, PIHP, or PAHP). Whether 
a financial requirement or treatment limitation is a predominant 
financial requirement or treatment limitation that applies to 
substantially all medical/surgical benefits in a classification is 
determined separately for each type of financial requirement or 
treatment limitation. The application of the rules of this paragraph 
(b) to financial requirements and quantitative treatment limitations is 
addressed in paragraph (c) of this section; the application of the 
rules of this paragraph (b) to nonquantitative treatment limitations is 
addressed in paragraph (d) of this section.
    (2) Classifications of benefits used for applying rules. If an MCO 
enrollee is provided mental health or substance use disorder benefits 
in any classification of benefits described in this paragraph (b)(2), 
mental health or substance use disorder benefits must be provided to 
the enrollee in every classification in which medical/surgical benefits 
are provided. In determining the classification in which a particular 
benefit belongs, a MCO, PIHP, or PAHP must apply the same reasonable 
standards to medical/surgical benefits and to mental health or 
substance use disorder benefits. To the extent that a MCO, PIHP, or 
PAHP provides benefits in a classification and imposes any separate 
financial requirement or treatment limitation (or separate level of a 
financial requirement or treatment limitation) for benefits in the 
classification, the rules of this section apply separately for that 
classification for all financial requirements or treatment limitations. 
The following classifications of benefits are the only classifications 
used in applying the rules of this section:
    (i) Inpatient. Benefits furnished on an inpatient basis.
    (ii) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (c)(2) of this section.
    (iii) Emergency care. Benefits for emergency care.
    (iv) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(c)(2) of this section.
    (c) Financial requirements and quantitative treatment limitations--
(1) Determining ``substantially all'' and ``predominant''--(i) 
Substantially all. For purposes of this section, a type of financial 
requirement or quantitative treatment limitation is considered to

[[Page 18438]]

apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. If a type of 
financial requirement or quantitative treatment limitation does not 
apply to at least two-thirds of all medical/surgical benefits in a 
classification, then that type cannot be applied to mental health or 
substance use disorder benefits in that classification.
    (ii) Predominant. (A) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (c)(1)(i) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (B) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment limitation, the MCO, PIHP, or PAHP may combine levels until 
the combination of levels applies to more than one-half of medical/
surgical benefits subject to the financial requirement or quantitative 
treatment limitation in the classification. The least restrictive level 
within the combination is considered the predominant level of that type 
in the classification. (For this purpose, a MCO, PIHP, or PAHP may 
combine the most restrictive levels first, with each less restrictive 
level added to the combination until the combination applies to more 
than one-half of the benefits subject to the financial requirement or 
treatment limitation.)
    (iii) Portion based on MCO, PIHP or PAHP payments. For purposes of 
this section, the determination of the portion of medical/surgical 
benefits in a classification of benefits subject to a financial 
requirement or quantitative treatment limitation (or subject to any 
level of a financial requirement or quantitative treatment limitation) 
is based on the total dollar amount of all combinations of MCO, PIHP, 
and PAHP payments for medical/surgical benefits in the classification 
expected to be paid under the MCOs, PIHPs, and PAHPs for a contract 
year (or for the portion of a contract year after a change in benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (iv) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of MCO, PIHP, or PAHP payments includes 
all payments for claims that would be subject to the deductible if it 
had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of MCO, PIHP, or PAHP payments includes all payments associated 
with out-of-pocket payments that are taken into account towards the 
out-of-pocket maximum as well as all payments associated with out-of-
pocket payments that would have been made towards the out-of-pocket 
maximum if it had not been satisfied. Similar rules apply for any other 
thresholds at which the rate of MCO, PIHP, or PAHP payment changes.
    (v) Determining the dollar amount of MCO, PIHP, or PAHP payments. 
Subject to paragraph (c)(1)(iv) of this section, any reasonable method 
may be used to determine the dollar amount expected to be paid under a 
MCO, PIHP, or PAHP for medical/surgical benefits subject to a financial 
requirement or quantitative treatment limitation (or subject to any 
level of a financial requirement or quantitative treatment limitation).
    (2) Special rules--(i) Multi-tiered prescription drug benefits. If 
a MCO, PIHP, or PAHP applies different levels of financial requirements 
to different tiers of prescription drug benefits based on reasonable 
factors determined in accordance with the rules in paragraph (d)(1) of 
this section (relating to requirements for nonquantitative treatment 
limitations) and without regard to whether a drug is generally 
prescribed for medical/surgical benefits or for mental health or 
substance use disorder benefits, the MCO, PIHP, or PAHP satisfies the 
parity requirements of this section for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (ii) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this section, a MCO, 
PIHP, or PAHP may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(c)(2)(ii). After the sub-classifications are established, the MCO, 
PIHP or PAHP may not impose any financial requirement or quantitative 
treatment limitation on mental health or substance use disorder 
benefits in any sub-classification that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (c)(1) of 
this section. Sub-classifications other than these special rules, such 
as separate sub-classifications for generalists and specialists, are 
not permitted. The two sub-classifications permitted under this 
paragraph (c)(2)(ii) are:
    (A) Office visits (such as physician visits); and
    (B) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (3) No separate cumulative financial requirements. A MCO, PIHP, or 
PAHP may not apply any cumulative financial requirement for mental 
health or substance use disorder benefits in a classification that 
accumulates separately from any established for medical/surgical 
benefits in the same classification.
    (4) Compliance with other cost-sharing rules. Each MCO, PIHP, and 
PAHP must meet the cost-sharing requirements in Sec.  438.108 when 
applying Medicaid cost-sharing.
    (d) Nonquantitative treatment limitations--(1) General rule. A MCO, 
PIHP, or PAHP may not impose a nonquantitative treatment limitation for 
mental health or substance use disorder benefits in any classification 
unless, under the policies and procedures of the MCO, PIHP, or PAHP as 
written and in operation, any processes, strategies, evidentiary 
standards, or other factors used in applying the nonquantitative 
treatment limitation to mental health or substance use disorder 
benefits in the classification are comparable to, and are applied no 
more stringently than, the processes, strategies, evidentiary 
standards, or other factors used in applying the limitation for 
medical/surgical benefits in the classification.
    (2) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include -
    (i) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (ii) Formulary design for prescription drugs;
    (iii) For MCOs, PIHPs, or PAHPs with multiple network tiers (such 
as preferred providers and participating providers), network tier 
design;

[[Page 18439]]

    (iv) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (v) MCO, PIHP, or PAHP methods for determining usual, customary, 
and reasonable charges;
    (vi) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (vii) Exclusions based on failure to complete a course of 
treatment;
    (viii) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the MCO, PIHP, or PAHP; and
    (ix) Standards for providing access to out-of-network providers.
    (3) Application to out-of-network providers. Any MCO, PIHP or PAHP 
providing access to out-of-network providers for medical/surgical 
benefits within a classification, must use processes, strategies, 
evidentiary standards, or other factors in determining access to out-
of-network providers for mental health or substance use disorder 
benefits that are comparable to, and applied no more stringently than, 
the processes, strategies, evidentiary standards, or other factors in 
determining access to out-of-network providers for medical/surgical 
benefits.


Sec.  438.915  Availability of information.

    (a) Criteria for medical necessity determinations. The criteria for 
medical necessity determinations, made by a MCO or by a PIHP or PAHP 
providing services to an MCO enrollee, for mental health or substance 
use disorder benefits must be made available by the MCO, PIHP, or PAHP 
administrator to any enrollee, potential enrollee, or contracting 
provider upon request. MCOs, PIHPs, and PAHPs operating in compliance 
with Sec.  438.236(c) will be deemed compliant with the requirements in 
this paragraph (a).
    (b) Reason for any denial. The reason for any denial by a MCO, 
PIHP, or PAHP of reimbursement or payment for services for mental 
health or substance use disorder benefits in the case of any enrollee 
must be made available by the MCO, PIHP, or PAHP administrator to the 
enrollee.
    (c) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (a) and (b) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law.


Sec.  438.920  Applicability.

    (a) MCOs, PIHPs, and PAHPs. The requirements of this subpart apply 
to each MCO, PIHP, and PAHP offering services to enrollees of a MCO, in 
States covering medical/surgical and mental health or substance use 
disorder services under the State plan. These requirements regarding 
coverage for services that must be provided to enrollees of an MCO 
apply regardless of the delivery system of the medical/surgical, mental 
health, or substance use disorder services under the State plan.
    (b) State responsibilities. (1) In any instance where the full 
scope of medical/surgical and mental health and substance use disorder 
services are not provided through the MCO, the State must review the 
mental health and substance use disorder and medical/surgical benefits 
provided through the MCO, PIHP, PAHP, and fee-for service (FFS) 
coverage to ensure the full scope of services available to all 
enrollees of the MCO complies with the requirements in this subpart. 
The State must provide documentation of compliance with requirements in 
this subpart to the general public and post this information on the 
State Medicaid Web site by October 2, 2017. Such documentation must be 
updated prior to any change in MCO, PIHP, PAHP or FFS State plan 
benefits.
    (2) The State must ensure that all services are delivered to the 
enrollees of the MCO in compliance with this subpart.
    (c) Scope. This subpart does not--
    (1) Require a MCO, PIHP, or PAHP to provide any mental health 
benefits or substance use disorder benefits beyond what is specified in 
its contract, and the provision of benefits by a MCO, PIHP, or PAHP for 
one or more mental health conditions or substance use disorders does 
not require the MCO, PIHP or PAHP to provide benefits for any other 
mental health condition or substance use disorder;
    (2) Require a MCO, PIHP, or PAHP that provides coverage for mental 
health or substance use disorder benefits only to the extent required 
under 1905(a)(4)(D) of the Act to provide additional mental health or 
substance use disorder benefits in any classification in accordance 
with this section; or
    (3) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the Medicaid MCO, PIHP, or PAHP contract except as specifically 
provided in Sec. Sec.  438.905 and 438.910.


Sec.  438.930  Compliance dates.

    In general, contracts with MCOs, PIHPs, and PAHPs offering Medicaid 
State plan services to enrollees, and those entities, must comply with 
the requirements of this subpart no later than October 2, 2017.

PART 440--SERVICES: GENERAL PROVISIONS

0
4. 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
5. Section 440.395 is added to read as follows:


Sec.  440.395  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under an ABP.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under an 
ABP.
    Alternative Benefit Plans (ABPs) mean benefit packages in one or 
more of the benchmark coverage packages described in Sec. Sec.  
440.330(a) through (c) and 440.335. Benefits may be delivered through 
managed care and non-managed care delivery systems. Consistent with the 
requirements of Sec.  440.385, States must comply with the managed care 
provisions at section 1932 of the Act and part 438 of this chapter, if 
benchmark and benchmark-equivalent benefits are provided through a 
managed care entity.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    EPSDT means benefits defined in section 1905(r) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as

[[Page 18440]]

defined by the State under the terms of the ABP and in accordance with 
applicable Federal and State law, but does not include mental health or 
substance use disorder benefits. Any condition defined by the state as 
being or as not being a medical/surgical condition must be defined to 
be consistent with generally recognized independent standards of 
current medical practice (for example, the most current version of the 
International Classification of Diseases (ICD) or State guidelines). 
Medical/surgical benefits include long term services.
    Mental health benefits means benefits for items or services for 
mental health conditions, as defined by the State under the terms of 
the ABP and in accordance with applicable Federal and State law. Any 
condition defined by the State as being or as not being a mental health 
condition must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the Diagnostic and Statistical Manual of Mental 
Disorders (DSM), the most current version of the ICD, or State 
guidelines. Mental health benefits include long term care services.
    Substance use disorder benefits means benefits for items or 
services for substance use disorder, as defined by the State under the 
terms of the ABP and in accordance with applicable Federal and State 
law. Any disorder defined by the State as being or as not being a 
substance use disorder must be defined to be consistent with generally 
recognized independent standards of current medical practice (for 
example, the most current version of the DSM, the most current version 
of the ICD, or State guidelines). Substance use disorder benefits 
include long term care services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under 
an ABP. (See paragraph (b)(4)(ii) of this section for an illustrative 
list of nonquantitative treatment limitations.) A permanent exclusion 
of all benefits for a particular condition or disorder, however, is not 
a treatment limitation for purposes of this definition.
    (b) Parity requirements for financial requirements and treatment 
limitations--(1) Clarification of terms--(i) Classification of 
benefits. When reference is made in this paragraph (b) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (b)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (b) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (b)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (b) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation.
    (2) General parity requirement--(i) General rule. A State may not 
apply within an ABP any financial requirement or treatment limitation 
to mental health or substance use disorder benefits in any 
classification that is more restrictive than the predominant financial 
requirement or treatment limitation of that type applied to 
substantially all medical/surgical benefits in the same classification. 
Whether a financial requirement or treatment limitation is a 
predominant financial requirement or treatment limitation that applies 
to substantially all medical/surgical benefits in a classification is 
determined separately for each type of financial requirement or 
treatment limitation. The application of the rules of this paragraph 
(b)(2) to financial requirements and quantitative treatment limitations 
is addressed in paragraph (b)(3) of this section; the application of 
the rules of this paragraph (b)(2) to nonquantitative treatment 
limitations is addressed in paragraph (b)(4) of this section.
    (ii) Classifications of benefits used for applying rules. ABPs must 
include mental health or substance use disorder benefits in every 
classification of benefits described in this paragraph (b)(2)(ii) in 
which medical/surgical benefits are provided. In determining the 
classification in which a particular benefit belongs, the State must 
apply the same reasonable standards to medical/surgical benefits and to 
mental health or substance use disorder benefits. To the extent that a 
State provides ABP benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in the classification, the rules of this paragraph (b) apply separately 
for that classification for all financial requirements or treatment 
limitations. The following classifications of benefits are the only 
classifications used in applying the rules of this paragraph (b):
    (A) Inpatient. Benefits furnished on an inpatient basis.
    (B) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (b)(3)(ii)(B)(1) of this 
section.
    (C) Emergency care. Benefits for emergency care.
    (D) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(b)(3)(ii) of this section.
    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (b), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. If a type of 
financial requirement or quantitative treatment limitation does not 
apply to at least two-thirds of all medical/surgical benefits in a 
classification, then that type cannot be applied to mental health or 
substance use disorder benefits in that classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (b)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (2) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment

[[Page 18441]]

limitation, the State may combine levels until the combination of 
levels applies to more than one-half of medical/surgical benefits 
subject to the financial requirement or quantitative treatment 
limitation in the classification. The least restrictive level within 
the combination is considered the predominant level of that type in the 
classification. (For this purpose, a State may combine the most 
restrictive levels first, with each less restrictive level added to the 
combination until the combination applies to more than one-half of the 
benefits subject to the financial requirement or treatment limitation.)
    (C) Portion based on ABP payments. For purposes of this paragraph 
(b), the determination of the portion of medical/surgical benefits in a 
classification of benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation) is based on 
the dollar amount of all ABP payments for medical/surgical benefits in 
the classification expected to be paid under the ABP for the plan year 
(or for the portion of the plan year after a change in ABP benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of ABP payments includes all payments for 
claims that would be subject to the deductible if it had not been 
satisfied. For any out-of-pocket maximum, the dollar amount of ABP 
payments includes all payments associated with out-of-pocket payments 
that are taken into account towards the out-of-pocket maximum as well 
as all payments associated with out-of-pocket payments that would have 
been made towards the out-of-pocket maximum if it had not been 
satisfied. Similar rules apply for any other thresholds at which the 
rate of payment changes.
    (E) Determining the dollar amount of ABP payments. Subject to 
paragraph (b)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid for medical/
surgical benefits subject to a financial requirement or quantitative 
treatment limitation (or subject to any level of a financial 
requirement or quantitative treatment limitation).
    (ii) Special rules--(A) Multi-tiered prescription drug benefits. If 
a State or plan administrator applies different levels of financial 
requirements to different tiers of prescription drug benefits based on 
reasonable factors determined in accordance with the rules in paragraph 
(b)(4)(i) of this section (relating to requirements for nonquantitative 
treatment limitations) and without regard to whether a drug is 
generally prescribed for medical/surgical benefits or for mental health 
or substance use disorder benefits, the ABP satisfies the parity 
requirements of this paragraph (b) for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (B) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (b), a 
State may divide its benefits furnished on an outpatient basis into the 
two sub-classifications described in this paragraph (b)(3)(ii)(B). 
After the sub-classifications are established, the State may not impose 
any financial requirement or quantitative treatment limitation on 
mental health or substance use disorder benefits in any sub-
classification that is more restrictive than the predominant financial 
requirement or quantitative treatment limitation that applies to 
substantially all medical/surgical benefits in the sub-classification 
using the methodology set forth in paragraph (b)(3)(i) of this section. 
Sub-classifications other than these special rules, such as separate 
sub-classifications for generalists and specialists, are not permitted. 
The two sub-classifications permitted under this paragraph 
(b)(3)(ii)(B) are:
    (1) Office visits (such as physician visits); and
    (2) All other outpatient items and services (such as outpatient 
surgery, laboratory services, or other medical items).
    (iii) No separate cumulative financial requirements. A State may 
not apply any cumulative financial requirement for mental health or 
substance use disorder benefits in a classification that accumulates 
separately from any established for medical/surgical benefits in the 
same classification.
    (iv) Compliance with other cost-sharing rules. States must meet the 
requirements of Sec. Sec.  447.50 through 447.57 of this chapter when 
applying Medicaid cost-sharing.
    (4) Nonquantitative treatment limitations--(i) General rule. A 
State may not impose a nonquantitative treatment limitation for mental 
health or substance use disorder benefits in any classification unless, 
under the terms of the ABP as written and in operation, any processes, 
strategies, evidentiary standards, or other factors used in applying 
the nonquantitative treatment limitation to mental health or substance 
use disorder benefits in the classification are comparable to, and are 
applied no more stringently than, the processes, strategies, 
evidentiary standards, or other factors used in applying the limitation 
for medical/surgical benefits in the classification.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (D) Methods for determining usual, customary, and reasonable 
charges;
    (E) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (F) Exclusions based on failure to complete a course of treatment; 
and
    (G) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits or services provided under the ABP.
    (c) ABP providing EPSDT benefits. An ABP that provides EPSDT 
benefits is deemed to be compliant with the parity requirements for 
financial requirements and treatment limitations with respect to 
individuals entitled to such benefits. Annual or lifetime limits are 
not permissible in EPSDT benefits.
    (d) Availability of information--(1) Criteria for medical necessity 
determinations. The criteria for medical necessity determinations made 
by the State for beneficiaries served through the ABP for mental health 
or substance use disorder benefits must be made available by the State 
to any beneficiary or Medicaid provider upon request.
    (2) Reason for any denial. The reason for any denial made by the 
State in the case of a beneficiary served through an ABP of 
reimbursement or payment for services for mental health or substance 
use disorder benefits must be made available by the State to the 
beneficiary.
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (d)(1) and (2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law.
    (e) Applicability--(1) ABPs. The requirements of this section apply 
to

[[Page 18442]]

States providing benefits through ABPs. For those States providing ABPs 
through an MCO, PIHP, or PAHP, the rules of 42 CFR part 438, subpart K 
also apply, and approved contracts will be viewed as evidence of 
compliance with the requirements of this section.
    (2) Scope. This section does not--
    (i) Require a State to provide any specific mental health benefits 
or substance use disorder benefits; however, in providing coverage 
through an ABP, the State must include EHBs, including the ten EHBs as 
required in Sec.  440.347, which include mental health and substance 
use disorder benefits; or
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the ABP except as specifically provided in paragraph (b) of this 
section.
    (3) State plan requirement. If a State plan provides for an ABP, 
the State must provide sufficient information in ABP State plan 
amendment requests to assure compliance with the requirements of this 
subpart.
    (4) Compliance dates--(i) In general. ABP coverage offered by 
States must comply with the requirements of this section no later than 
October 2, 2017.
    (ii) [Reserved]

PART 456--UTILIZATION CONTROL

0
6. The authority citation for part 456 continues to read as follows:

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


Sec.  456.171  [Removed and Reserved]

0
7. Section 456.171 is removed and reserved.

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
8. 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
9. Section 457.496 is added to subpart D to read as follows:


Sec.  457.496  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a State plan 
or a Managed Care Entity (MCE) (as defined at Sec.  457.10) that 
contracts with the State plan. State plans must meet the requirements 
of Sec.  457.480.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
State plan or a MCE that contracts with a State plan. State plans must 
meet the requirements at Sec.  457.480.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Early and Periodic Screening, Diagnostic and Treatment (EPSDT) 
benefits has the meaning defined in section 1905(r) of the Act and must 
be provided in accordance with section 1902(a)(43) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as defined under the terms 
of the State plan in accordance with applicable Federal and State law, 
but does not include mental health or substance use disorder benefits. 
Any condition defined by the State plan as being or not being a 
medical/surgical condition must be defined to be consistent with 
generally recognized independent standards of current medical practice 
(for example, the most current version of the International 
Classification of Diseases (ICD) or generally applicable State 
guidelines). Medical/surgical benefits include long term care services.
    Mental health benefits means benefits for items or services that 
treat or otherwise address mental health conditions, as defined under 
the terms of the State plan in accordance with applicable Federal and 
State law, and consistent with generally recognized independent 
standards of current medical practice. Standards of current medical 
practice can be based on the most current version of the DSM, the most 
current version of the ICD, or generally applicable State guidelines. 
The term includes long term care services.
    State Plan has the meaning assigned at Sec.  457.10 and Sec.  
457.50.
    Substance use disorder benefits means benefits for items or 
services for substance use disorder, as defined under the terms of the 
State plan in accordance with applicable Federal and State law, and 
consistent with generally recognized independent standards of current 
medical practice. Standards of current medical practice can be based on 
the most current version of the DSM, the most current version of the 
ICD, or generally applicable State guidelines. The term includes long 
term care services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under 
the State plan. (See paragraph (d)(4)(ii) of this section for an 
illustrative list of nonquantitative treatment limitations.) A 
permanent exclusion of all benefits for a particular condition or 
disorder, however, is not a treatment limitation for purposes of this 
definition.
    (b) State plan providing EPSDT benefits. (1) A State child health 
plan is deemed to be in compliance with this section if--
    (i) The State elects in the State child health plan to cover 
Secretary-approved coverage defined in Sec.  457.450(a) that includes 
all EPSDT benefits, as defined in section 1905(r) of the Act, in 
accordance with the requirement applied under section 1905(r)(5) of the 
Act to provide necessary health care, diagnostic services, treatment, 
and other measures described in section 1905(a) of the Act to correct 
or ameliorate defects and physical and mental illnesses and conditions 
discovered by the screening services, as well as the informing and 
administrative requirements under 1902(a)(43) of the Act and the 
approved State Medicaid plan; and
    (ii) The State child health plan does not exclude EPSDT benefits 
for any particular condition, disorder, or diagnosis.
    (2) The child health plan must include a description of how the 
State will comply with paragraph (b)(1)(i) of this section.
    (3) If a State has elected in its state plan to cover EPSDT 
benefits only for certain populations enrolled in the state child 
health plan, the State is deemed compliant with this section only with 
respect to such children.
    (c) Parity requirements for aggregate lifetime and annual dollar 
limits. This paragraph (c) details the application of the parity 
requirements for aggregate

[[Page 18443]]

lifetime and annual dollar limits. A State plan that provides both 
medical/surgical benefits and mental health or substance use disorder 
benefits must comply with paragraph (c)(1), (2), or (4) of this 
section.
    (1) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a State plan does not include an 
aggregate lifetime or annual dollar limit on any medical/surgical 
benefits or includes an aggregate lifetime or annual dollar limit that 
applies to less than one-third of all medical/surgical benefits, it may 
not impose an aggregate lifetime or annual dollar limit, respectively, 
on mental health or substance use disorder benefits.
    (2) State plans with a limit on at least two-thirds of all medical/
surgical benefits. If a State plan includes an aggregate lifetime or 
annual dollar limit on at least two-thirds of all medical/surgical 
benefits, it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or
    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is more 
restrictive than the aggregate lifetime or annual dollar limit, 
respectively, on medical/surgical benefits. (For cumulative limits 
other than aggregate lifetime or annual dollar limits, see paragraph 
(d)(3)(iii) of this section prohibiting separately accumulating 
cumulative financial requirements.)
    (3) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (c), the determination of 
whether the portion of medical/surgical benefits subject to an 
aggregate lifetime or annual dollar limit represents one-third or two-
thirds of all medical/surgical benefits is based on the dollar amount 
of all plan payments for medical/surgical benefits expected to be paid 
under the State plan for the State plan year (or for the portion of the 
plan year after a change in plan benefits that affects the 
applicability of the aggregate lifetime or annual dollar limits). Any 
reasonable method may be used to determine whether the dollar amount 
expected to be paid under the State plan will constitute one-third or 
two-thirds of the dollar amount of all plan payments for medical/
surgical benefits.
    (4) Plan not described in this section--(i) In general. A State 
plan that is not described in paragraph (c)(1) or (2) of this section 
for aggregate lifetime or annual dollar limits on medical/surgical 
benefits, must either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no more restrictive 
than an average limit calculated for medical/surgical benefits in the 
following manner. The average limit is calculated by taking into 
account the weighted average of the aggregate lifetime or annual dollar 
limits, as appropriate, that are applicable to the categories of 
medical/surgical benefits. Limits based on delivery systems, such as 
inpatient/outpatient treatment or normal treatment of common, low-cost 
conditions (such as treatment of normal births), do not constitute 
categories for purposes of this paragraph (c)(4)(i)(B). In addition, 
for purposes of determining weighted averages, any benefits that are 
not within a category that is subject to a separately-designated dollar 
limit under the plan are taken into account as a single separate 
category by using an estimate of the upper limit on the dollar amount 
that a plan may reasonably be expected to incur for such benefits, 
taking into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (c)(4), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (c)(3) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (d) Parity requirements for financial requirements and treatment 
limitations--(1) Clarification of terms--(i) Classification of 
benefits. When reference is made in this paragraph (d) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (d)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (d) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (d)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (d) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation.
    (2) General parity requirement--(i) General rule. A State plan or a 
MCE that contracts with CHIP through its State plan that provides both 
medical/surgical benefits and mental health or substance use disorder 
benefits, including when such benefits are delivered through an MCE, 
may not apply any financial requirement or treatment limitation to 
mental health or substance use disorder benefits in any classification 
that is more restrictive than the predominant financial requirement or 
treatment limitation of that type applied to substantially all medical/
surgical benefits in the same classification. Whether a financial 
requirement or treatment limitation is a predominant financial 
requirement or treatment limitation that applies to substantially all 
medical/surgical benefits in a classification is determined separately 
for each type of financial requirement or treatment limitation. The 
application of the rules of this paragraph (d)(2) to financial 
requirements and quantitative treatment limitations is addressed in 
paragraph (d)(3) of this section; the application of the rules of this 
paragraph (d)(2) to nonquantitative treatment limitations is addressed 
in paragraph (d)(4) of this section.
    (ii) Classifications of benefits used for applying rules. If a 
State plan provides mental health or substance use disorder benefits in 
any classification of benefits described in this paragraph (d)(2)(ii), 
mental health or substance use disorder benefits must be provided in 
every classification in which medical/surgical benefits are provided. 
In determining the classification in which a particular benefit 
belongs, the same reasonable standards must apply to medical/surgical 
benefits and to mental health or substance use disorder benefits. To 
the extent that a State plan provides benefits in a classification and 
imposes any separate financial requirement or treatment limitation (or 
separate level of a financial requirement or treatment limitation) for 
benefits in the classification, the rules of this paragraph (d) apply 
separately for that classification for all financial requirements or 
treatment limitations. The following classifications of benefits are 
the only classifications used in applying the rules of this paragraph 
(d):
    (A) Inpatient. Benefits furnished on an inpatient basis.

[[Page 18444]]

    (B) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (d)(3)(iii) of this 
section.
    (C) Emergency care. Benefits for emergency care.
    (D) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(d)(3)(iii) of this section.
    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (d), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. If a type of 
financial requirement or quantitative treatment limitation does not 
apply to at least two-thirds of all medical/surgical benefits in a 
classification, then that type cannot be applied to mental health or 
substance use disorder benefits in that classification.
    (B) Predominant. (1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (d)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (2) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment limitation, the State plan (or health insurance issuer) may 
combine levels until the combination of levels applies to more than 
one-half of medical/surgical benefits subject to the financial 
requirement or quantitative treatment limitation in the classification. 
The least restrictive level within the combination is considered the 
predominant level of that type in the classification. (For this 
purpose, a State plan may combine the most restrictive levels first, 
with each less restrictive level added to the combination until the 
combination applies to more than one-half of the benefits subject to 
the financial requirement or treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(d), the determination of the portion of medical/surgical benefits in a 
classification of benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation) is based on 
the dollar amount of all State plan payments and combinations of MCE 
payments for medical/surgical benefits in the classification expected 
to be paid under the plan or MCE or combination that contracts with the 
State plan for the plan year (or for the portion of the plan year after 
a change in plan benefits that affects the applicability of the 
financial requirement or quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of a State plan payments includes all 
plan payments for claims that would be subject to the deductible if it 
had not been satisfied. In accordance with the cumulative cost-sharing 
maximum in Sec.  457.560, or any other out-of-pocket maximum in the 
State plan, the dollar amount of plan payments includes all State plan 
payments associated with out-of-pocket payments that are taken into 
account towards the out-of-pocket maximum as well as all plan payments 
associated with out-of-pocket payments that would have been made 
towards the out-of-pocket maximum if it had not been satisfied. Similar 
rules apply for any other thresholds at which the rate of health plan 
payment changes.
    (E) Determining the dollar amount of State plan payments. Subject 
to paragraph (d)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid under a State 
plan for medical/surgical benefits subject to a financial requirement 
or quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation).
    (ii) Special rules--(A) Multi-tiered prescription drug benefits. If 
a State plan applies different levels of financial requirements to 
different tiers of prescription drug benefits based on reasonable 
factors determined in accordance with the rules in paragraph (d)(4)(i) 
of this section (relating to requirements for nonquantitative treatment 
limitations) and without regard to whether a drug is generally 
prescribed for medical/surgical benefits or for mental health or 
substance use disorder benefits, the health plan satisfies the parity 
requirements of this paragraph (d) for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (B) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (d), a 
State plan may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(d)(3)(ii)(B). After the sub-classifications are established, the State 
plan may not impose any financial requirement or quantitative treatment 
limitation on mental health or substance use disorder benefits in any 
sub-classification that is more restrictive than the predominant 
financial requirement or quantitative treatment limitation that applies 
to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (d)(3)(i) 
of this section. Sub-classifications other than these special rules, 
such as separate sub-classifications for generalists and specialists, 
are not permitted. The two sub-classifications permitted under this 
paragraph (d)(3)(ii)(B) are:
    (1) Office visits (such as physician visits); and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (iii) No separate cumulative financial requirements. A State plan 
may not apply any cumulative financial requirement for mental health or 
substance use disorder benefits in a classification that accumulates 
separately from any established for medical/surgical benefits in the 
same classification.
    (4) Nonquantitative treatment limitations--(i) General rule. A 
State plan may not impose a nonquantitative treatment limitation for 
mental health or substance use disorder benefits in any classification 
unless, under the terms of the CHIP State plan as written and in 
operation, any processes, strategies, evidentiary standards, or other 
factors used in applying the nonquantitative treatment limitation to 
mental health or substance use disorder benefits in the classification 
are comparable to, and are applied no more stringently than, the 
processes, strategies, evidentiary standards, or other factors used in 
applying the limitation for medical/surgical benefits in the 
classification.

[[Page 18445]]

    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (G) Exclusions based on failure to complete a course of treatment;
    (H) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the plan or coverage; and
    (I) Standards for providing access to out-of-network providers.
    (5) Application to out-of-network providers. Any State plan 
providing access to out-of-network providers for medical/surgical 
benefits within a classification must use processes, strategies, 
evidentiary standards, or other factors in determining access to out-
of-network providers for mental health or substance use disorder 
benefits that are comparable to, and applied no more stringently than, 
the processes, strategies, evidentiary standards, or other factors in 
determining access to out-of-network providers for medical/surgical 
benefits.
    (e) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical necessity 
determinations made under a State plan including when benefits are 
furnished through a MCE contractor for mental health or substance use 
disorder benefits must be made available by the plan administrator (or 
the State offering the coverage) to any current enrollee or potential 
enrollee or contracting provider upon request. Health plans operating 
in compliance with Sec.  438.236(c) of this chapter will be deemed 
compliant with the requirements in this paragraph (e).
    (2) Reason for any denial. The reason for any denial under a health 
plan of reimbursement or payment for services for mental health or 
substance use disorder benefits in the case of any enrollee must be 
made available by the plan administrator or the State to the enrollee.
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (e)(1) and (2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law.
    (f) Applicability--(1) State plans. The requirements of this 
section apply to State plans offering medical/surgical benefits and 
mental health or substance use disorder benefits to their enrollees 
including when benefits are furnished under a contract with MCEs. If, 
under an arrangement or arrangements to provide State plan benefits any 
enrollee can simultaneously receive coverage for medical/surgical 
benefits and coverage for mental health or substance use disorder 
benefits, then the requirements of this section apply separately for 
each combination of medical/surgical benefits and of mental health or 
substance use disorder benefits that any enrollee can simultaneously 
receive from the State.
    (i) Standard for defining benefits. States must indicate the 
standard used for defining the following benefits in the State plan:
    (A) Medical/surgical benefits.
    (B) Mental health benefits.
    (C) Substance use disorder benefits.
    (ii) [Reserved]
    (2) Scope. This section does not--
    (i) Require a State plan or a MCE that contracts with a State plan 
to provide any mental health benefits or substance use disorder 
benefits, and the provision of benefits by a State plan or a MCE that 
contracts with a State plan for one or more mental health conditions or 
substance use disorders does not require the plan or health insurance 
coverage under this section to provide benefits for any other mental 
health condition or substance use disorder;
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the State plan or a MCE that contracts with a CHIP State plan 
except as specifically provided in paragraphs (c) and (d) of this 
section.
    (g) Compliance dates--(1) In general. State plans (including those 
that contract with a MCE) must comply with the requirements of this 
section no later than October 2, 2017.
    (2) [Reserved].

    Dated: February 4, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: February 22, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-06876 Filed 3-29-16; 8:45 am]
 BILLING CODE 4120-01-P