On June 1, 2015, the Centers for Medicare and Medicaid Services (CMS) will publish in the Federal Register a long-awaited proposed rule addressing Medicaid Managed Care Organizations (MMCOs). Comments on the proposed rule will be accepted through July 27, 2015. For MMCOs and their participating providers, this is the first major CMS guidance since 2002. The proposed rule would impose significant changes for both MMCOs and their network providers, including:

Implementation of Medical Loss Ratio Requirements

In the proposed rule, CMS imposes Medical Loss Ratio (MLR) requirements similar to those applied to commercial and Medicare Advantage plans under the Affordable Care Act. For MMCO contracts beginning on or after January 1, 2017, the MLR would limit the amount an insurer may spend on administrative expenses and margin that may be retained. CMS has proposed a minimum MLR of 85%, and given each state the freedom to set the MLR at a higher rate. Both issues are likely to attract a number of public comments.

Overpayment Retention and Reporting

The proposed rule includes minimum standard contract terms that clarify the overpayment return and reporting process for MMCOs. MMCOs would retain identified overpayments made to providers recovered by the MMCO or returned voluntarily by providers, but would have their own reporting obligations to ensure MMCO capitation rates are set accurately. Establishment of a national standard for this issue is significant.

MMCO Compliance

CMS also proposed several new compliance requirements for MMCOs and certain subcontractors. These requirements include the establishment of a regulatory compliance committee on the Board of MMCO companies, mandating specific reporting structures for an MMCOs' compliance officer, and a variety of additional reporting obligations for MMCOs back to State Medicaid agencies.

Affirmation of Third Party Liability Rules

In the proposed rule, CMS affirmed its third party liability rules—chiefly that Medicaid is the payor of last resort. Put differently, Medicaid only provides reimbursement after every other potential source of payment has been exhausted. Automobile and other accident-related insurance policies are specifically mentioned, "to ensure that state Medicaid programs remain secondary payers as specified in federal law."

New Provider Enrollment Requirements

Finally, in a policy change that is likely to be of high importance to providers, CMS proposes that all providers who furnish services to MMCO beneficiaries must enroll in Medicaid and be subject to the screening and disclosure requirements arising from enrollment. Under current rules, providers may furnish (but not order) services to MMCO beneficiaries without enrolling in Medicaid. The prior policy was an important tool for MMCOs to build their provider networks, and the proposed rule may limit the number of providers participating in MMCOs. While the proposed rule is structured such that these new, specially-enrolled providers would not have to provide services to Medicaid fee for service beneficiaries, enrollment comes with numerous compliance burdens and requirements that may not be desirable for providers.