CMS Relaxes Managed Care Requirements

Key changes under the Medicaid and Children’s Health Insurance Plan (“CHIP”) Managed Care Final Rule (the “2020 final rule”) are set to take effect December 14, 2020. The Centers for Medicare and Medicaid Services (“CMS”) announced the 2020 final rule on November 9, 2020, roughly 4 years after the Obama Administration issued its own set of regulations on the same subject (the “2016 final rule”). According to CMS, the 2020 final rule is intended to: relieve regulatory burdens, support state flexibility and local leadership, and promote transparency flexibility and innovation in the delivery of care.

States design and administer their own Medicaid programs within federal requirements, with each state determining how it wants to deliver and pay for care for Medicaid beneficiaries. Although not all states contract with third party managed care organizations (“MCOs”), states have increasingly used managed care contracts in recent years to help introduce payment and care innovations intended to improve outcomes and reduce costs. The Medicaid and CHIP Payment Access Commission estimates that roughly 80% of Medicaid enrollees are covered through MCOs. According to the most recent data from CMS, comprehensive managed care covers at least 70% of Medicaid enrollees, and nearly half of the program’s spending ($300 billion in 2019) goes to the managed care plans that run the benefits at a monthly per-person cost to the state.

The 2016 final rule, which updated managed care rules for the first time since 2002, sought to improve state transparency and accountability, as well as to protect beneficiaries, by establishing managed care plan requirements similar to the requirements for other types of health insurance. Given that MCOs and state Medicaid directors criticized the 2016 final rule for imposing excessive administrative burdens, it is understandable that the 2020 final rule seems concerned primarily with relaxing state requirements to reduce costs. The 2020 final rule seems less concerned with implementing consumer protections intended to improve the quality of care and beneficiary experience.

Below is a short description of some of the key changes under the 2020 final rule:

• Standard Contact Requirements for Claims Processing. Under the 2016 final rule, MCOs were required to participate in an automated cross-over claims process administered by Medicare, for beneficiaries eligible for both Medicare and Medicaid (“dual eligibles”). The purpose of this requirement was to allow MCOs to bill once for dual eligibles rather than sending separate claims to Medicare and Medicaid. However, in the preamble to the 2020 rule, CMS acknowledged complaints made by some states that the automated cross-over claims process created confusion and unnecessary administrative costs as well as burdens on payors and providers. Therefore, the 2020 final rule eliminates the requirement that MCOs participate in the cross-over claims process and instead allows states the flexibility to choose whether to participate in the Medicare managed care process or to use a home-grown system.

• Actuarial Soundness Standards. Under the 2016 final rule, states were required to develop and certify actuarially-sound rates for each enrollee category to promote the accountability of managed care program rates. Under the 2020 final rule, states will have the option to develop and certify a rate range per enrollee category, subject to specific parameters regarding how the upper and lower ends of the rate range will be established and documented. States will also be required to document and explain the criteria used for paying managed care plans at different points within the rate range. While rate ranges were generally prohibited under the 2016 final rule, the 2020 final rule adds greater flexibility to states with respect to rate setting while also limiting potential obfuscation of rates and maintaining actuarial soundness.

• Network Adequacy Standards. The 2016 final rule required states to set time and distance standards to the specified provider types for determining network adequacy. The 2020 final rule deleted the requirements for states to set time and distance standards and instead set a more flexible requirement that states set a quantitative network adequacy standard for specified provider types. Under the 2020 final rule, CMS sought to enable states to choose from a variety of quantitative network adequacy standards that meet the needs of the states’ respective Medicaid programs as a way to ensure that there are not gaps in access to, and sufficient availability of, services for enrollees. Whether this actually improves network adequacy is not yet clear, as many believe the time and distance standards are necessary to ensure patient access and avoid the narrowing of existing networks.

The 2020 final rule also made revisions to the regulatory framework with respect to pass-through payments, risk sharing mechanisms, and payments for enrollees receiving inpatient treatment in Institutions for Mental Disease (“IMDs”).