CMS Rings in the New Year with Updated Guidance on ‘In Lieu of Services and Settings’ (ILOS) in Medicaid Managed Care

Welcome back!  We hope everyone had a great start to 2023.  A new year provides an opportunity to look back on previous successes and identify areas for growth (this said, we certainly don’t expect everyone to make—let alone adhere to—a “new year’s resolution!”).

In its recent letter to state Medicaid directors, the Centers for Medicare and Medicare Services (CMS) encourages states to build on past efforts to address Medicaid beneficiaries’ social determinants of health (SDOH) by implementing an innovative option to meet beneficiaries’ health-related social needs (HRSNs).

SDOH and HRSNs: Definitions

As you are probably aware, the health policy field has a longstanding affinity for acronyms—for example, the above-referenced SDOH and HRSNs.  Though related, SDOH and HRSNs are distinct and have specific definitions.

The Assistant Secretary for Planning and Evaluation (ASPE) Office of Health Policy (under the Department of Health and Human Services, or HHS) incorporates HHS’ definition of SDOH in its April 1, 2022 report, Addressing Social Determinants of Health: Examples of Successful Evidence-Based Strategies and Current Federal Efforts.  The SDOH are “the conditions in the environments where people are born, live, learn, work, play, worship, and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks.”  ASPE also clarifies that SDOH “include factors such as housing, food and nutrition, transportation, social and economic mobility, education, and environmental conditions.”

Whereas SDOH applies to broad conditions, HRSNs are unique to an individual.  ASPE explains, “[a]t the individual level, we use [HRSNs] to refer to an individual’s needs that might include affordable housing, healthy foods, or transportation. An unequal distribution of SDOH is the root cause of HRSNs at the individual level.”

CMS’ 2023 Letter to State Medicaid Directors

Two years ago, I wrote my first Medicaid and the Law blog post discussing then-released guidance from CMS to help state health officials implement value-based care arrangements in Medicaid and CHIP.  The 2021 guidance described opportunities for state Medicaid and CHIP programs to leverage existing flexibilities under Federal law to design benefits addressing beneficiaries’ SDOH.

On January 4, 2023, CMS released another letter to state Medicaid directors, which builds on the agency’s 2021 guidance by addressing another Medicaid managed care option for states to consider: a service or setting provided in lieu of a service or setting (ILOS) covered under the state Medicaid plan.  We’ve discuss the managed care ILOS authority in previous blog posts.  In essence, this authority recognizes states’ and managed care plans’ authority to cover services (or settings) that are alternatives for services or settings covered under the state plan.

As CMS explains in the new guidance, ILOSs provide “an existing option” for states and managed care plans to “strengthen access to care by expanding settings options” and HRSNs for certain Medicaid enrollees—thereby potentially reducing the need for “future costly state plan-covered services.”  Importantly, the updated guidance explains Medicaid managed care plans and enrollees have the option to use ILOSs “as immediate or [longer-term] substitutes for state plan-covered services or settings, or when the ILOSs can be expected to reduce or obviate the future need to utilize state plan-covered services or settings.”

Medicaid and CHIP Managed Care Coverage of ‘In Lieu of Services and Settings’ (ILOS)

CMS finalized 42 CFR § 438.3(e)(2), which authorizes states and managed care plans to cover ILOS, in its 2016 Medicaid and CHIP managed care final rule.  The rule finalized four requirements for using ILOS: (1) the state must determine the substitute to be “medically appropriate” and “cost-effective”; (2) enrollees cannot be required to use the ILOS; (3) the managed care plan contract must identify and authorize the ILOS, and offer the ILOS to enrollees “at the option” of the plan; and (4) utilization and actual cost of the ILOS must be taken into account when “developing the component of the capitation rates that represents the covered State plan services, unless a statute or regulation explicitly requires otherwise.”

In its 2023 letter, CMS announced six “clarifying parameters” to help states “effectively utilize ILOSs.”  According to CMS, these parameters will help ensure adequate assessment of the substitutes before implementation, assist with ongoing monitoring, and support financial accountability.  The six parameters are:

  1. ILOSs must advance the objectives of the Medicaid program;
  2. ILOSs must be cost effective;
  3. ILOSs must be medically appropriate;
  4. ILOSs must be provided in a manner that preserves enrollee rights and protections;
  5. ILOSs must be subject to appropriate monitoring and oversight; and
  6. ILOSs must be subject to retrospective evaluation, when applicable

CMS acknowledges that “many states are already covering ILOSs, and those states may need time to conform with this guidance, such as to make necessary procedural and contractual changes.”  To support those states, CMS will allow states using “clearly documented” ILOSs in “an approved managed care plan contract” until the next contract rating period (on or after January 1, 2024) to meet the requirements set forth in the guidance.  However, any ILOSs approved after the date of publication of the guidance must conform with the guidance.

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