On April 25, 2016, CMS released a Final Rule that will update regulations governing Medicaid and Children’s Health Insurance Program (“CHIP”) managed care plans. This Final Rule is the first major update to the Medicaid and CHIP managed care regulations in more than a decade. While CMS reviewed over 800 comments, the Final Rule is largely unchanged from the proposed rule. According to CMS, the Final Rule has four key goals: (1) support states in advancing delivery system reform and improving quality of care for beneficiaries, (2) strengthen the consumer experience, (3) strengthen program integrity by improving accountability and transparency, and (4) improve efficiency and assist consumers in transitioning between coverage by aligning rules across health insurance programs.
In addressing these goals, the Final Rule sets a medical loss ratio (“MLR”) of 85 percent for Medicaid, a first for the program. This requires that plans spend a minimum of 85 percent of their premium revenue on medical, rather than administrative, expenses. Plans will be required to calculate and report their MLR beginning on July 1, 2017. If plans do not meet the MLR target, state Medicaid programs are required to take that into account in setting capitation rates for subsequent years. States also have the option of requiring plans that do not meet the MLR target to submit remittances to the state.
The Final Rule also seeks to align the Medicaid and CHIP managed care appeals process with those of Medicare Advantage and the private market by improving consistency in definitions, timeframes for resolution, and levels of internal appeals. In an effort to further align Medicaid and CHIP managed care plans with Medicare Advantage and the private market, the Final Rule also updates the regulations governing the scope of enrollee information and dissemination practices. States and managed care plans now have the option to use mail, e-mail, and website postings to disseminate required information. Managed care plans must also include provider directories and drug formularies on their websites. To address network adequacy, the Final Rule outlines the network adequacy standards for key types of providers and requires that states publish information on managed care plans.
Other notable provisions in the Final Rule include the establishment of Medicaid’s first Quality Rating System, which reflects the rating system CMS uses for plans in the Affordable Care Act marketplace. However, states will not have the option of defaulting to the Medicare Advantage five-star rating system. In addition, the Final Rule elaborates upon the requirement that Medicaid managed care rates be actuarially sound by outlining the types of data that may be used for rate setting. The Final Rule sets requirements for the level of documentation and detail regarding the development of capitation rates that states must submit to CMS for review. The Final Rule also clarifies the scope of states’ authority to enter into contracts that pay plans based on quality or alternative payment models.
The Final Rule rule is scheduled to be published in the Federal Register on May 6, 2016. A public inspection copy of the Final Rule is available here. The HHS press release is available here. CMS also issued nine fact sheets related to the Final Rule, which are available here.
Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.
