CMS Releases the New Medicaid Managed Care Final Rule

On November 9, 2020, the Centers for Medicare and Medicaid Services (“CMS”) announced it finalized the Medicaid and Children’s Health Insurance Program (“CHIP”) Managed Care final rule (“2020 final rule”). According to CMS, the 2020 final rule advances CMS’s efforts to streamline the Medicaid and CHIP managed care regulatory framework and “reflects a broader strategy to relieve regulatory burdens; support state flexibility and local leadership; and promote transparency, flexibility, and innovation in the delivery of care.”

Notably, in 2016 the Obama Administration promulgated a Medicaid Managed Care final rule of its own (“2016 final rule”). The 2016 final rule, the first Medicaid managed care regulation since 2002, primarily sought to establish state and managed care plan requirements and strengthen Medicaid beneficiary protections in a variety of different ways.

However, according to CMS, the 2016 rule drew criticism from state Medicaid directors and managed care organizations (“MCOs”), who argued the rule imposed excessive administrative burdens. The Trump Administration subsequently proposed and finalized the 2020 final rule, which is primarily a revision of the 2016 final rule and not a replacement, to account for changes in “the landscape for healthcare delivery” and the recent experience of states. In practice, the 2020 final rule can be seen primarily as an effort to relax state requirements and beneficiary protections established in the 2016 final rule.

The 2020 final rule makes the following key changes:

Network Adequacy Standards. CMS eliminates the current policy requiring time and distance standards for MCO provider networks, and instead allows states to set alternative quantitative network adequacy standards. This may give MCOs additional flexibility to exclude certain providers from their networks, and may lead to inadequate access for certain managed care enrollees.

Appeals and Grievances. CMS revises the definition of an “adverse benefit determination” to exclude claims denied solely because they do not meet the definition of a “clean claim.” CMS also eliminates current policy requiring an enrollee who submits an oral appeal to also submit a corresponding written appeal. Last, CMS revises the timeframe for enrollees to request a state fair hearing to no less than 90 calendar days and no greater than 120 calendar days, to better align with the fee-for-service (FFS) timeframe.

Requirements for Beneficiary Information. CMS eliminates the requirement that states and managed care plans include taglines in a font no smaller than 18-point on all written materials for potential and current enrollees, and instead adopts a “conspicuously visible” standard. CMS also eliminates the requirement that a managed care plan make a good-faith effort to provide notice of the termination of a contracted in-network provider within 15 days of receipt or issuance of the termination notice, and instead allows managed care plans to issue notices by the later of 30 calendar days prior to the effective date of the termination or 15 calendar days after the receipt or issuance of the notice. Last, CMS relaxes current standards to permit quarterly provider directory updates, if the managed care plan offers a mobile-enabled provider directory.

Actuarial Soundness – Option to Develop and Certify a Rate Range. CMS permits states in certain circumstances to develop and certify as actuarially sound a rate range per rate cell (i.e., enrollee category), reversing course on current policy that requires states to develop and certify as actuarially sound each individual rate for each enrollee category covered by the managed care plan. CMS also allows states to make changes to the capitation rates (i.e., monthly payments to MCOs) within the permissible range without the need for state approval. This provides states with more flexibility in the manner in which they set capitation rate payments to managed care plans. These changes become effective July 1, 2021.

Actuarial SoundnessCapitation Rate Development Practices that Increase Federal Costs and Vary with the Rate of Federal Financial Participation (FFP). CMS provides that any differences in the assumptions, methodologies, or factors used to develop capitation rates for covered populations must be based on valid rate development standards that represent actual cost differences in providing covered services to these populations, and that any differences in the assumptions, methodologies, or factors used to develop capitation rates must not vary with the rate of federal financial participation (“FFP”) associated with the covered populations in a manner that increases Federal costs.

Quality Rating System. CMS revises the Quality Rating System (QRS), providing states more flexibility to submit information according to a state-developed alternative QRS, as opposed to a CMS-developed QRS. CMS makes explicit its intention to take feasibility into account when requiring that the information yielded by a state alternative QRS be substantially comparable to the information yielded by the CMS-developed QRS. Finally, CMS eliminates the requirement that states obtain prior approval from CMS before implementing a state alternative QRS.

Payments to MCOs for Enrollees that are a Patient in an Institution for Mental Disease (IMD). CMS declines to extend the available FFP for capitation payments to MCOs for enrollees who received inpatient treatment in an IMD for longer than 15 days in a given month. CMS states that, although in the proposed rule it requested public comments on additional data sources it should review to make a better-informed decision on this matter, it did not receive any such public comments.

In the rule’s preamble, CMS also provides some clarity on an issue that has become a point of contention between managed care plans and IMDs over the last few years. Specifically, managed care plans have been interpreting CMS’s current “15-day policy” to mean that IMDs should reimburse the managed care plans for care provided to managed care enrollees for only the first 15 days, if the enrollee stays beyond day 15. However, in the 2020 final rule CMS sides with the IMDs, pointing out that there is no regulatory requirement for IMDs to reimburse managed care plans for the care provided for only the first 15 days if a patient stays beyond day 15. CMS explains that the current regulatory framework only governs the availability of FFP when states make capitation payments to an MCO for enrollees aged 21-64 receiving inpatient treatment in an IMD. Any requirements for repayment from IMDs to managed care plans are not governed by this framework, and are instead “within the scope of the contractual arrangements between IMDs and managed care plans.”

Standard Contract Requirements.  CMS eliminates the requirement that managed care plans that cover Medicare-Medicaid dually eligible enrollees enter into a Coordination of Benefits Agreement directly with Medicare and participate in the automated crossover claim process administered by Medicare. That said, CMS will now require a state’s contracts with managed care plans to specify the methodology by which the state would ensure that the managed care plans receive all appropriate crossover claims for which they are responsible.

Risk Sharing Mechanisms. To address the practice of adopting or amending risk-sharing mechanisms retroactively, CMS requires that risk-sharing mechanisms be documented in the contract and rate certification documents prior to the start of the rating period. CMS also explicitly prohibits retroactively adding or modifying risk-sharing mechanisms described in the contract or rate certification documents after the start of the rating period.

State Directed Payments. Due to the frequency and similarities of state directed payment arrangements, CMS will now allow states to require managed care plans to adopt payment models that are based on a state plan approved FFS fee schedule without first receiving written approval from CMS and to provide for the approval of multi-year payment arrangements when specified criteria are met.

Pass-Through Payments. CMS will permit states transitioning Medicaid populations or services from a FFS delivery system to a managed care delivery system to require managed care plans to make pass-through payments for up to 3-years at an amount that is less than or equal to the amount of their current upper payment limit payments under FFS. This provision will take effect with rating periods beginning on or after July 1, 2021.

Rate Certification Submission. CMS clarifies that that states adjusting a final certified rate within the contract year that is within the range of 1.5 percent from the final certified rate do not need to submit a revised rate certification or justification, unless documentation is specifically requested by CMS.


An incoming Biden Administration is likely to revisit many Trump-era regulations, including some of the policies in this final rule. While we expect due consideration to be paid to feedback from state Medicaid agencies, it is likely that the Biden Administration will seek to reverse course on the portions of the rule that could impede Medicaid beneficiary access, such as the revised network adequacy provisions and information requirements. It should also be noted that the next Congress could theoretically block this rule via the Congressional Review Act, but we do not expect it to do so.

Except as noted above, the 2020 final rule’s changes take effect 30 days after today – November 13, 2020 – the date of publication in the Federal Register.



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  1. Pingback: Medicaid and the Law: CMS Releases the New Medicaid Managed Care Final Rule - FedHealthIT

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