On June 1, 2015, the US Centers for Medicare & Medicaid Services (“CMS”) published its proposed rule on Medicaid managed care (CMS-2390-P).  As noted in our two earlier advisories, Massive CMS rule seeks to align Medicaid managed care with Medicare Advantage and marketplace plans and Medicaid managed care proposed rule expands federal role in rate setting at both the managed care organization and provider level, the proposed rule represents the first update to Medicaid managed care regulations since 2002, and offers revisions that are intended to better align the Medicaid program and the Children’s Health Insurance Program (“CHIP”) with other health care coverage sources, including Qualified Health Plans (“QHPs”) under the Health Insurance Exchange marketplace and the Medicare Advantage program ("MA").

This third advisory examines the proposed rule's provisions related to program integrity, which range from expanded elements for an effective compliance program to a series of new integrity requirements.  According to CMS, these changes were necessary because the rapid growth of Medicaid managed care notwithstanding, the existing regulation's program integrity provisions are "fairly limited in scope."  The proposed regulations reflect CMS's focus on two types of program integrity risks: (1) fraud committed by Medicaid managed care health plans, and (2) fraud by network providers. The most notable changes relate to:

  1. Subcontractual Relationships and Delegation;
  2. Provider Screening and Enrollment;
  3. New Program Integrity Responsibility for States;
  4. Data Submission and Certification;
  5. Compliance Program Content and Procedures;
  6. Overpayments; and
  7. Payment Suspension.

If finalized, the cumulative impact of the proposed changes could have a profound effect not only on participating plans and providers, but also on the various states.  We discuss these changes and their implications in greater detail below.

Compliance Plan (42 C.F.R. § 438.608(a))

The current Medicaid managed care regulation states that a Medicaid managed care organization ("MCO") or Prepaid Inpatient Health Plan ("PIHP") "must have administrative and management arrangements or procedures, including a mandatory compliance plan, that are designed to guard against fraud and abuse."  42 C.F.R. § 438.608(a).  The detail provided is somewhat basic, focusing on the seven standard elements of a baseline compliance program:

  1. Written policies, procedures, and standards of conduct that articulate the organization's commitment to comply with all applicable Federal and State standards.
  2. The designation of a compliance officer and a compliance committee that are accountable to senior management.
  3. Effective training and education for the compliance officer and the organization's employees.
  4. Effective lines of communication between the compliance officer and the organization's employees.
  5. Enforcement of standards through well publicized disciplinary guidelines.
  6. Provision for internal monitoring and auditing.
  7. Provision for prompt response to detected offenses, and for development of corrective action initiatives related to the MCO's or PIHP's contract.

As noted, the current regulations offer little detail as to how plans can or should implement the seven standards.  The proposed rule, by contrast, fleshes out the purpose and function of the existing elements; in addition, it adds new substantive requirements for participating plans' compliance programs in the interest of making them more robust and effective.  Finally, CMS proposes to apply the program integrity requirements to Prepaid Ambulatory Health Plans ("PAHPs") and to subcontractors.

CMS asserts in several places that the proposed revisions and additions are intended to align Medicare Advantage and Medicaid by making the Medicaid managed care compliance program requirements  "consistent" with those of MA, as set forth at 42 C.F.R. § 422.503(b)(4)(vi).  CMS's statements notwithstanding, the proposed changes below differ from MA requirements in several fundamental respects (with the italicized language highlighting areas of difference from the MA requirements):

  • The establishment and implementation of procedures and a system with dedicated staff for routine internal monitoring and auditing of compliance risks, prompt response to compliance issues as they are raised, investigation of potential compliance problems as identifies in the course of self-evaluation and audits, correction of such problems promptly and thoroughly (or coordination of suspected criminal acts with law enforcement agencies) to reduce the potential for recurrence, and ongoing compliance with the requirements under the contract.
  • A system for training and education for the Compliance Officer, the organization's senior management, and employees for the Federal and State standards and requirements under the contract.
  • The establishment of a Regulatory Compliance Committee on the Board of Directors and at the senior management level charged with oversight of the compliance program.

Other noteworthy additional requirements on MCOs, PIHPs, and PAHPs include obligations relating to:

  • Notifying the State when a plan receives information about changes in an enrollee's circumstances that may affect the enrollee's eligibility;
  • Notifying the State when a plan receives information about a change in a provider's circumstances that may affect the provider's eligibility to participate in the managed care program;
  • Developing a method to verify, by sampling or other methods, whether services were in fact delivered to and received by enrollees;
  • Referring to the State Medicaid program integrity unit or fraud control unit any potential fraud, waste, or abuse that the MCO, PIHP, or PAHP identifies; and
  • Suspending payments to a network provider for which the State determines there is a credible allegation of fraud.

Data Submission (Proposed 42 C.F.R. § 438.604) and Certification (Proposed 42 C.F.R. § 438. 606)

Current managed care regulations identify required data elements for submission and certification, including, but not limited to, "enrollment information, encounter data, and other information required by the State and contained in contracts, proposals, and related documents." 42 C.F.R. § 438.604(a).  CMS is proposing to expand the types of data submitted as well as the standards regarding such submission by each MCO, PIHP, PAHP, Primary Care Case Manager ("PCCM") or entity performing primary case management and other services ("PCCM entity") to the State.  The new data submission categories would include encounter data and other data generated by the health plan for purposes of rate-setting; data on which the State determined compliance with MLR standards; data supporting compliance with solvency standards; data to ensure availability and accessibility of services; ownership and control disclosure information; the annual report on recoveries of overpayments; and, any other data related to the performance of the entity's obligations as specified by the State or Secretary.

The proposed rule also makes numerous and significant changes to the data certification process. In this regard, CMS proposes to eliminate the option available under the current regulations (similar to that available in the MA context) for a health plan's executive leadership to delegate the certification.  Under the proposed rule, the data attestation must be made by either the CEO or CFO of the health plan.  According to CMS, the CEO or CFO must be "personally responsible for the accuracy, completeness, and truthfulness of the reported data, documentation, or information."  Notably, CMS proposes that, "consistent with" recently revised MA regulations,  the certification be expressly based on a "reasonably diligent review of the data, documentation, and information specified."  Although the recently amended MA regulations do refer to the exercise of "reasonable diligence," it is exclusively in the context of identifying MA overpayments (42 C.F.R. § 422.326), and does not feature in any of the various MA certification regulations.  Therefore, it appears that CMS is proposing to apply the "reasonably diligent" standard, which is currently limited to MA overpayments, far more broadly in the context of Medicaid managed care certification requirements. This proposed change represents a major modification in the standards required for certification, meriting a strong public response to CMS's invitation for comments on using the reasonably diligent standard.

Overpayments (Proposed 42 C.F.R. § 438.608(d))

Section 1128J(d)(1) of the Social Security Act, as added by the Affordable Care Act, requires a person who has received an overpayment to report and return the overpayment to the Secretary, the State, an intermediary, or contractor, and to notify the party in writing of the reason for the overpayment within 60 days after the overpayment was identified.  The proposed rule would implement the statutory requirement by expressly mandating that MCOs, PIHPs, and PAHPs report overpayments to the State within 60 calendar days of their identification.  To assist in the reporting process, CMS is proposing that each MCO, PIHP, or PAHP have a standard mechanism in place for network providers to report the receipt of overpayments and return such overpayments within 60 calendar days.  Presumably, this mechanism would be supported by express contract provisions.

However, rather than the MCO, PIHP, or PAHP returning the overpayments to the State, CMS proposes that plan contracts specify that the MCO, PIHP, or PAHP should retain overpayments recovered from providers.  States would then be expected to take such recoveries into account in  developing future actuarially sound capitation rates based on information provided by the plans. States would be required to collect reports from MCOs, PIHPs, or PAHPs about their recovery of overpayments.

CMS is seeking comment on its proposal to allow MCOs, PIHPs, and PAHPs to retain overpayment recoveries.  This proposal, if implemented, could prove problematic for health plans and raise questions regarding the impact of such recoveries on plan capitation rates, particularly given the proposed rule's attention to actuarial soundness and rate setting.

Suspension of Payments (Proposed 42 C.F.R. § 438.608(a)(8))

As stated above, the proposed rule adds a new provision that would enable MCOs, PIHPs, and PAHPs to suspend payments to a network provider that is the subject of a credible allegation of fraud in accordance with 42 C.F.R. § 455.23.  CMS had previously discussed the applicability of suspension of payment requirements to Medicaid managed care plans,1 and believes the same rationale would apply with respect to investigations finding credible allegations of fraud regarding individual network providers, provided the State determines there is good cause for suspension of payments.  The responsibility of plans would be limited to promptly suspending payments at the direction of the State.

Some plans may appreciate the fact that the State would determine the existence of "good cause," since that could relieve the managed care entity of the burden of making a decision that is likely to be vigorously opposed by a suspended provider.

Provider Screening and Enrollment (Proposed 42 C.F.R. §§ 438.602(b), 608(b))

The Affordable Care Act added sections 1902(a)(77) and 1902(kk)(7) to the Social Security Act, requiring States to (1) comply with the process for screening providers, and (2) enroll all ordering and referring physicians or other professionals as participating providers.  Prior regulations specifically excluded Medicaid providers that only order or refer services as part of a risk-based managed care plan network from the screening and enrollment requirements.  76 Fed. Reg. 5862, 5904 (Feb. 2, 2011).

CMS's proposed revisions require the State, through its contracts with a MCO, PIHP, PAHP, PCCM, or PCCM entity, to ensure that all network providers are enrolled with the State as Medicaid providers, consistent with the Medicaid provider disclosure, screening, and enrollment requirements set forth in 42 C.F.R. Part 455, subparts B and E.  However, the proposed revisions make clear that they would not require network providers to render services to Medicaid fee-for-service ("FFS") beneficiaries.  Even though the State (and not the plans) would be responsible for screening and enrolling all network providers not otherwise enrolled with the State to provide services to FFS beneficiaries, the new screening and enrollment requirements could nevertheless prove problematic for plans who have managed care providers who do not participate in FFS.  Thus, requiring providers to enroll in Medicaid could present new challenges to building a provider network, such as logistical and administrative impediments if many providers need to be certified at the same time and if provider's are resistant or disinterested in going through the process. 

Subcontractual Relationships and Delegation (Proposed 42 C.F.R. § 438.230)

CMS proposes to replace the current standards set forth at § 438.230 with clearer expectations for MCOs, PIHPs, or PAHPs that enter into subcontractual arrangements and delegate responsibilities directly or indirectly related to the plan's performance of its contract with the State.  CMS notes that the new expectations are modeled on the MA standards set forth at 42 C.F.R. § 422.504(i) governing MA organization arrangements with first tier, downstream, and related entities (commonly referred to as "FDRs"), but they appear to go further.  For instance, under the proposed rule, CMS, HHS, or the OIGwould have the right to audit, evaluate, and inspect at any time if the Agency or Comptroller determines a reasonable possibility of fraud exists.  The MA corollary regulation does not refer to the "OIG," or use the phrase "at any time."  Similarly, the proposed regulation would require a FDR to make available, for purposes of the audit, evaluation or inspection, "its premises, physical facilities, and equipment," but the MA regulation does not directly require FDRs to do so.

State Responsibilities (Proposed 42 C.F.R. § 438.602)

Current regulations set forth the basic rule that "as a condition of receiving payment under the Medicaid Managed Care program, an MCO, PCCM, PIHP, or PAHP must comply with the applicable certification, program integrity, and prohibited affiliation requirements" set forth in the Subpart H of the managed care regulations.  42 C.F.R. § 438.602.  CMS proposes revisions to replace the basic rule in its entirety and create a new section that contains all State responsibilities associated with program integrity, including monitoring of contractor compliance, screening, enrollment and revalidation of providers, review of ownership and control information, conducting federal database checks and periodic audits, receiving and investigating information provided by whistleblowers, posting certain information on the State website or making it available, upon request, implementing contractor safeguards, and implementing restrictions with regard to entities located outside the United States. 


While the expanded compliance program requirements, provider screening and enrollment procedures, overpayment provisions, enhanced data certification requirements, and new rules governing suspension of payments to providers may better address program integrity risks, the significant revisions to the existing program integrity requirements could have far reaching impacts on health plans, providers, service vendors, and State budgets.  In many respects, the additional detail and specificity in the regulations would create a new minimum, yet far more robust, compliance standard with which health plans, providers, contractors, and States would have to comply.

Health plans, providers, service vendors, the States, and other interested parties will have the opportunity to comment on CMS’s comprehensive proposal.  To be assured consideration, comments are due to CMS no later than 5 p.m. EST on July 27, 2015.