CMS finalizes revisions to Medicaid Managed Care Rule

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On November 9, 2020, the Centers for Medicare & Medicaid Services (CMS) released a pre-publication version of a new final regulation regarding Medicaid managed care (2020 Final Rule). The 2020 Final Rule will be published in the November 13, 2020, Federal Register and comes almost exactly two years after the proposed rule (83 Fed. Reg. 57264 (Nov. 14, 2018)). CMS stresses that the revisions to the 2016 Medicaid Managed Care Final Rule (81 Fed. Reg. 27498 (May 6, 2016), the 2016 Final Rule) are intended to advance “CMS’ efforts to streamline the Medicaid and Children’s Health Insurance Program (CHIP) managed care regulatory framework and reflect a broader strategy to relieve regulatory burdens; support state flexibility and local leadership; and promote transparency, flexibility, and innovation in the delivery of care.”

The 2020 Final Rule includes several notable revisions in the context of Medicaid supplemental payments, particularly to the Medicaid managed care delivery system and provider payment initiative provisions implemented through the 2016 Medicaid Managed Care Final Rule and set forth at 42 C.F.R. § 438.6(c). The 2020 Final Rule finalizes many of these revisions as proposed, including the following:

  • Minimum fee schedules. Due to the frequency and similarities of directed payment arrangements based on state plan approved rates, CMS now believes that they should be specifically addressed in regulation. Payment arrangements that are based on state plan approved rates would not be subject to the existing written prior approval (or pre-print) requirement, although they would need to meet all other requirements. Note that CMS specifies that “state plan approved rates” exclude state plan “supplemental payments,“ which are defined in 2020 Final Rule. 
  • Automatic renewal. In the 2016 Final Rule CMS established that a directed payment arrangement may not be renewed automatically. However, CMS has received numerous payment arrangement proposals from states requesting a multi-year approval to align state delivery system reform efforts or contract requirements. The 2020 Final Rule codifies guidance included in the November 2, 2017, CMCS Informational Bulletin (CIB) entitled “Delivery System and Provider Payment Initiatives under Medicaid Managed Care Contracts” to permit multi-year payment arrangements when certain defined criteria are met. Consistent with the CIB, approval of minimum fee schedules, maximum fee schedules and uniform dollar or percentage increases would continue to be for one rating period.
  • Preprint Review Period. In response to commenters’ concerns related to delays in CMS approval of directed payments, CMS reiterated its commitment to process § 438.6(c) preprints that do not contain significant policy or payment issues within 90 calendar days after receipt of a complete submission. CMS declined to include a specific review period in 2020 Final Rule.

Notably, while the 2018 proposed rule proposed to allow states to require managed care plans to adopt, as a directed payment, a cost-based rate, a Medicare equivalent rate, a commercial rate, or other market-based rate for network providers that provide a particular service under the contract, in addition to the minimum or maximum fee schedules permissible under the current rule, CMS chose not to finalize the alternative fee schedules at this time. CMS indicated that such proposals may be addressed in future rulemaking or guidance.

In addition to the revisions to the directed payment provisions, the 2020 Final Rule creates a new, limited category of permissible pass-through payments. CMS acknowledges that since implementation of the 2016 Final Rule and the 2017 Pass Through Payment Final Rule (82 Fed. Reg. 5415 (Jan. 18, 2017)), CMS has worked with many states that have not transitioned some or all services or eligible populations from their fee-for-service (FFS) delivery system into a managed care program. The limited category of pass through payments will allow states to require managed care plans to make pass-through payments to hospitals, nursing facilities or physicians for a transition period of up to three years, when Medicaid populations or services are initially transitioning from FFS to managed care.

In order to qualify for the pass-through payments, (1) services must be covered for the first time under a managed care contract and previously provided in a FFS delivery system; (2) the state must have made supplemental payments, as newly defined, to hospitals, nursing facilities or physicians during the 12-month period immediately 2 years prior to the first year of the transition period; and (3) the aggregate amount of the pass-through payments must be less than or equal to the amounts calculated pursuant to the new methodologies set forth in the proposed rule. To ensure states have adequate time to plan and implement a transition from a FFS system to a managed care delivery system, CMS is delaying the 42 C.F.R. § 438.6(d)(6) effective date. States that are initially transitioning populations and services from FFS to managed care must comply with § 438.6(d)(6) effective July 1, 2021 for Medicaid managed care rating periods starting on or after July 1, 2021.

Note that in addition to the payment provisions discussed above, the 2020 Final Rule finalizes revisions to a number of other provisions implemented through the 2016 Final Rule. These revisions include, but are not limited to, actuarial soundness and rate development standards, network adequacy standards, information requirements, reporting of enrollee encounter data, and coordination of benefits. Dentons is available and happy to explore these issues in greater detail.

States must comply with most requirements of this rule 30 days after the date of publication in the Federal Register. Notwithstanding the recent election, the 2020 Final Rule would go into effect before the end of the current administration and the new administration would need to go through a rulemaking process to reverse any of the changes implemented pursuant to this Final Rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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