CMS Releases Proposed Rules on Medicaid and CHIP Managed Care

On Tuesday, May 26, 2015, the Centers for Medicare & Medicaid Services (“CMS”) released the pre-publication proposed rule that updates Medicaid and Children’s Health Insurance Program (CHIP) managed care regulations.  In the accompanying press release, Andy Slavitt, Acting Administrator of CMS, indicated that “[t]his proposal will better align regulations and best practices to other health insurance programs, including the private market and Medicare Advantage plans, to strengthen federal and state efforts at providing quality, coordinated care to millions of Americans with Medicaid or CHIP insurance coverage.”

One way the rule seeks to align Medicaid and CHIP managed care regulations with that of other health insurance programs is through the introduction of a medical loss ratio (“MLR”).  A MLR dictates the percentage of premium dollars that must be spent on actual healthcare expenses, rather than administrative costs.  Private health insurance and Medicare Advantage (“MA”) plans have been subject to MLRs since the Affordable Care Act was enacted and some states have already imposed a minimum MLR.  The proposal in this rule is to standardize the minimum MLR across states and subject managed care plans to a 85% MLR, which is described as the industry standard for MA and large employers in the private health insurance market.  The main purpose of the MLR will be to determine whether capitation rates are adequately based on reasonable expenditures on covered medical services.

Further, the rule proposes minimum standards for all states to use in developing a Medicaid managed care quality rating system.  The quality rating system will offer transparency regarding Medicaid managed care health plan performance and will allow consumers to make more informed choices when selecting a plan.  CMS believes the rating system should be based on three main components:  (1)  clinical quality management, (2) member experience, and (3) plan efficiency, affordability, and management.  CMS intends to solicit feedback on the quality rating system through a comment process and will refine the rating standards in the three to five years prior to implementation.  The rule also allows for an alternative to this rating system and permits states to create their own quality rating systems, which would be subject to CMS approval.

Another provision in the proposed rules seeks to modernize state monitoring of managed care plans by mandating that states have a monitoring system that addresses the following:

  • administration and management;
  • appeals claims management;
  • enrollee materials and customer services;
  • finance;
  • information systems;
  • marketing;
  • medical management;
  • program integrity;
  • provider network management;
  • quality improvement; and
  • the delivery of long-term services and supports.

The rule also proposes that annual assessments of managed care plans be reported to CMS and made available to the public.

Based on these proposed rule, it appears that CMS’s focus is protecting consumers and providing more transparency about the plans.  What is unknown about these regulations is how they will affect state budgets, as states will be required to make significant investments to fully implement the proposed requirement.

The proposed rule was officially posted on June 1, 2015 and public comments will be accepted through July 27, 2015.

Varsha Gadani

Varsha Gadani

Varsha Gadani focuses her practice on the health care industry. Her clients include hospitals, physicians, behavioral health care providers, long-term care facilities, and other providers. Prior to joining Parker Poe, Ms. Gadani served as Assistant Counsel at the North Carolina Medical Society (NCMS). In this role, she performed a variety of legal functions for the NCMS. She monitored and analyzed emerging state and federal health law issues and advised physicians on health policy matters.

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