On June 1, 2015, the Centers for Medicare & Medicaid Services (CMS) published its much-anticipated proposed rule to revise—for the first time in more than a decade—the Medicaid managed care regulations.1 At the same time, CMS leaves significant flexibility to the states to develop their own standards and policies for their Medicaid managed care programs. Among other changes that may be of interest to manufacturers of health care products, hospitals, physicians, and other providers of Medicaid covered services, and issuers of managed care plans, the proposed rule

  • clarifies the requirements for Medicaid managed care coverage of “covered outpatient drugs;”
  • establishes minimum federal standards for managed care plans’ provider networks;
  • provides Medicaid beneficiary protections related to enrollment and disenrollment in managed care and continuity of care;
  • revises the appeals and grievance procedures that must be implemented by Medicaid managed care entities to align them with those used by Medicare Advantage plans and commercial health insurance plans;
  • overhauls the standards for information that must be provided to Medicaid beneficiaries to help them compare plans;
  • allows states to require their managed care contractors to adopt value-based purchasing models and to participate in other delivery system reform or performance improvement initiatives; and
  • requires states to establish comprehensive quality strategies for their Medicaid and CHIP programs.

Comments on the proposed rule are due by July 27, 2015.

Medicaid Managed Care Coverage of Covered Outpatient Drugs. CMS proposes to require state contracts with managed care organizations (MCOs), prepaid ambulatory health plans (PAHPs), and prepaid inpatient health plans (PIHPs), (collectively “managed care entities”), that provide coverage of “covered outpatient drugs,” (as that term is defined in section 1927(k)(2) of the Social Security Act), to impose contractual obligations on the managed care entity to comply with “the standards for coverage of such drugs imposed by section 1927 of the Act as if such standards applied directly to the MCO, PIHP, or PAHP.”  In other words, states must, as a matter of contract, require managed care entities to comply with many of the same standards that apply to Medicaid fee-for-service coverage of covered outpatient drugs. 

Scope of Coverage: Although managed care entities may maintain their own formularies for covered outpatient drugs, when there is a medical need for a covered outpatient drug not on the formulary, the managed care entity must cover the covered outpatient drug through a prior authorization process. That prior authorization process must comply with section 1927(d)(5) of the Act, meaning that it must (1) provide a response to a request for prior authorization within 24 hours of the request; and (2) dispense a 72 hour supply of a covered outpatient drug in an emergency situation.

Medicaid Rebate Data: A managed care entity must provide drug utilization data to the state within 45 calendar days after the end of each quarterly rebate period to ensure that the data is included with the state’s invoicing of manufacturers for rebates for fee-for-service utilization for the same rebate period.

Prevention of “Duplicate Discounts.”  Covered outpatient drugs that are subject to discounts under the 340B Drug Discount program are not subject to Medicaid drug rebates. To guard against manufacturers from being required to pay duplicate discounts on those drugs, CMS proposes to require that managed care entities establish procedures to exclude utilization data for covered outpatient drugs that are subject to discounts under the 340B program from the drug utilization reports that they provide to the state.

Network Adequacy. CMS proposes to establish minimum standards for managed care networks for certain provider types while giving states the flexibility to develop additional standards for network adequacy. CMS proposes to require states to establish time and distance standards for primary care (adult and pediatric), OB/GYN, behavioral health, specialist (adult and pediatric), hospital, pharmacy, pediatric dental, and “additional provider types when it promotes the objectives of the Medicaid program.”  CMS specifically requests comment on whether it should propose a different measure for network adequacy, such as provider-to-enrollee ratios, as well as whether it should define the actual measures to be used by the states, such that CMS, rather than the states, sets the time and distance or other standards for provider networks.  

Beneficiary Protections. CMS proposes to address the “gap” in the current Medicaid managed care regulations regarding the enrollment process and providing continuity of coverage for items and services that treat chronic conditions and during transitions in coverage. CMS gives states significant flexibility to make policy choices about how to address each of these topics.     

Enrollment in Managed Care. CMS would give states the option of using an active choice or passive enrollment process with a specified opt-out period for voluntary managed care programs (i.e., programs in which a beneficiary may make a choice about whether to enroll in managed care or to receive coverage through fee-for-service (FFS)). For both voluntary and mandatory managed care programs, CMS proposes that the state must provide 14 days of FFS coverage to allow the beneficiary to select a managed care plan before applying any default enrollment process. CMS also proposes to require states to establish a default enrollment process that “seek[s] to preserve existing provider-beneficiary relationships and relationships with provides that have traditionally served Medicaid beneficiaries.” If that is “not possible,” the state must equitably distribute individuals among the entities available to enroll them. 

CMS also proposes to require states to develop and implement a “beneficiary support system” to provide support before and after managed care enrollment that includes at a minimum, choice counseling for all beneficiaries, training for network providers, assistance for enrollees in understanding managed care, and assistance for enrollees who use or desire to use long-term services and supports. The states retain wide flexibility to design and implement their beneficiary support systems. 

Non-Discrimination. CMS proposes language that must be included in state contracts with managed care entities that prohibits discrimination against individuals eligible to enroll in the managed care entity on the basis of their health status or need for health care services and prohibits the entity from using “any policy or practice that has the effect of discriminating on the basis of race, color, or national origin, sex, sexual orientation, gender identity, or disability.”

Beneficiary “Lock in.” The Medicaid statute requires a state using a mandatory managed care program to allow an enrollee to disenroll without cause from an MCE during the “90 days beginning on the date the individual receives notice of such enrollment.” CMS previously interpreted that requirement to mean that a beneficiary could disenroll within 90 days of enrollment in a particular managed care or primary care case management (PCCM) entity. This meant that a beneficiary could disenroll every 90 days from each managed care or PCCM entity, until he or she had exhausted all options for which he or she was eligible. CMS now proposes to change that interpretation to limit the 90-day without cause disenrollment period to the first 90 days of a beneficiary’s initial enrollment into any MCE or PCCM—i.e., such that an enrollee would have only one 90-day without cause disenrollment per enrollment period.  

Continuity of Care. CMS also proposes to require states to have a “transition of care policy” to ensure continued access to services during a transition from FFS to managed care or during a transition between managed care or PCCM entities. CMS proposes broad standards for these transition of care policies, including that they ensure that an enrollee (1) is permitted to retain his or her current provider for a period of time if that provider is not in network, and (2) is referred to an appropriate provider that is in-network. The transition of care policy would apply to prescription drugs if the managed care entity is required to cover drugs. CMS also proposes to require the state to make its transition of care policy publicly available and provide instructions to enrollees and potential enrollees on how to access continued services upon transition. 

Appeals and Grievances. CMS proposes to revise the Medicaid managed care appeals and grievances procedures across Medicaid managed care plans to align them with the existing procedures required for Medicare Advantage plans and commercial plans. These include:

  • Establishing a two-step process for appealing an “adverse benefit determination,” by a Medicaid managed care entity that is similar to the appeals process required for commercial coverage in the individual market.
  • Aligning the time frames in which MCOs, PAHPs, and PIHPs must issue decisions on beneficiary appeals with the time frames that apply to MA plans: within 30 calendar days for standard appeals (shortened from 45 days under current rules), and within 72 hours for requests for expedited appeals (shortened from three working days).
  • Establishing standard record-keeping requirements for each appeal and grievance and requiring the state to review the information as part of its monitoring of managed care programs and revising and updating its comprehensive quality strategy.

Beneficiary Communications. CMS proposes to overhaul the standards for providing information to enrollees and potential enrollees in Medicaid managed care plans. Among other changes, the proposed rule permits states and managed care plans to make beneficiary information available in electronic form through websites and email. For example, CMS proposes to require MCOs, PAHPs, and PIHPs to make their provider networks and formularies available on their websites in a machine readable file and format specified by CMS. 

Value-Based Payment and Delivery System Reform. CMS proposes to grant states flexibility to use incentive arrangements in their contracts with managed care entities, in addition to the traditional capitation rates, provided that those contracts comply with other requirements specified in the regulation. CMS also would give states flexibility to require MCOs, PIHPs, and PAHPs to implement value-based purchasing models for provider reimbursement, such as pay for performance arrangements, bundled payments, or other service payment models intended to recognize value or outcomes over volume of services, or to require MCOs, PIHPs, and PAHPs to participate in a multi-payer delivery system reform or performance improvement initiative. These arrangements must have prior written approval by CMS.

Quality Improvement. CMS proposes to extend existing Medicaid requirements to require states to develop a comprehensive written strategy for assessing and improving the quality of managed care services offered by MCOs and PIHPs to apply to all state Medicaid programs, regardless of delivery system, and including delivery of long-term services and supports. Among other things, that includes new standards for accreditation or approval of managed care entities and for developing a Medicaid managed care quality rating system that is modeled after the qualified health plan quality rating system and revised requirements for the existing external quality review process for Medicaid managed care entities.