CLIENT ALERT: The Centers for Medicare and Medicaid Services (CMS) Release Extensive Proposed Rule on Medicaid Managed Care Regulations

By Published On: June 16, 2015

On June 1, 2015, CMS published a proposed rule with extensive updates to the Medicaid managed care regulations. This is the first update to Medicaid managed care regulations since 2002. Nearly 70% of Medicaid enrollees are served through managed care delivery systems, so the impact of these new regulations will be significant.

One key objective of the proposed rule is to align the Medicaid managed care regulations with the rules that govern Medicare Advantage plans and Qualified Health Plans (QHPs) in the health insurance marketplaces.  For example, CMS proposes to require managed care entities (MCEs) operating in Medicaid or the Children’s Health Insurance Programs (CHIP) to calculate, report, and achieve a Medical Loss Ratio (MLR) of at least 85% — a standard that currently applies to QHPs. The MLR would be calculated as a ratio of the amount an MCE spends on healthcare services and quality improvement measures, over the premium revenue collected by the MCE. Under the proposed rule, the MLR would be used to set future capitation rates, such that using projected revenues and expenditures, State agencies can set capitation rates at a level that will allow the MCE to achieve its minimum MLR. In this way, the MLR would form part of the determination of an actuarially sound capitation rate for MCEs.

Several provisions of the proposed rule, if finalized, will have a marked impact on  health care providers contracting with MCEs.  For example, CMS proposes to implement more detailed and rigorous network adequacy standards in Medicaid managed care than exist today, including specific time and distance standards for a variety of provider types. CMS seeks comment on whether CMS or the individual States should be responsible for articulating those standards.

Additionally, the proposed rule implements a provision of the Affordable Care Act (ACA) that required states to suspend Medicaid payments to providers during an ongoing investigation of a “credible allegation” of fraud.  It has been unclear since enactment of the ACA in 2010 how that statutory provision would apply in the managed care context.  Under the proposed rule, states’ contracts with MCEs would be required to include a provision allowing MCEs to suspend payments to providers for pending state investigations of a credible allegation of fraud.

The proposed rule also would make substantial changes to Medicaid’s Quality Assessment and Performance Improvement and External Quality Review standards. CMS plans to implement a rating system for MCEs similar to the rating systems currently used for Medicare Advantage plans and QHPs. These Medicaid managed care quality strategies will be used in both Medicaid and CHIP, and expanded to fee-for-service.  Providers can anticipate that changes in MCE reimbursement, such as quality incentives, will likely result from these new standards.

Relatedly, the proposed rule sets forth limited protections for providers entering into risk-sharing and value-based purchasing arrangements with MCEs for payment.

While the proposed rule does not specifically address federally-qualified health center (FQHC) services or reimbursement, several provisions are particularly likely to affect FQHCs and other safety net providers.  For example, depending on the network adequacy standards that are ultimately adopted, the new regulations may help safeguard FQHCs’ right to participate in MCE networks.  Health centers commenting on the proposed rule may wish to advocate for network adequacy standards that specifically protect FQHCs.

The proposed rule will also impact those FQHCs that administer pharmacy as 340B “covered entities.”  The ACA made drugs administered under Medicaid managed care, with the exception of drugs procured under the 340B drug pricing program, eligible for the Medicaid prescription drug rebate offered to States.  The proposed rule would require MCEs to provide drug utilization data enabling States to seek rebates on drugs, and would require MCEs to exclude 340B drugs from the reported utilization data.

If implemented effectively, the proposed rule may lead to more rigorous monitoring of MCE contracts by CMS, enhanced protections for network providers, and more effective access to care for managed care enrollees.  Understanding the changes in the law will be essential for health care providers to negotiate effectively with plans.

Comments on the proposed rule are due on July 27, 2015.  FTLF will be monitoring the implementation of these new regulations to anticipate their impact on our clients.


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