July 24, 2015

After months of anticipation and speculation, CMS has finally released the proposed Medicaid managed care rules for public review. What has been labeled as “epic”, a “significant overhaul”, a “really big deal” and “the uber rule” proposes major changes for Medicaid health plans and state Medicaid programs. It has been 13 years since the rules have been updated and a lot has happened in the arena since that time. Some 39 states have enrolled over 46 million Medicaid beneficiaries in Medicaid managed care. CMS, in proposing the new rules, said they wanted to recognize changes to the program as well as aligned the regulations with those of the Qualified Health Plans (QHPS) and Medicare Advantage (MA) plans. However, they also indicate that the rules attempt to recognize state program variations so as to not stifle innovation.

We have compiled a list of the major provisions that will impact states and health plans.


The proposed regulations require states to put in place a Medical Loss Ratio (MLR) requirement for Medicaid MCOs. CMS notes that as of 2015 Medicaid and CHIP are the “only health benefit coverage programs to not utilize a minimum MLR for managed care plans”. The proposal requires that the MLR calculations must be considered in the rate setting process to ensure that capitation rates are actuarially sound. CMS proposes that an MLR of at least 85 percent be required although they indicate that a state may want to set a higher MLR. They also propose that states establish a reasonable maximum threshold that would account for reasonable administrative costs. They express concern that if the MLR is too high it could mean the capitation rates are too low. The proposed rules do not set a maximum, instead leaving that up to states to determine. One important note is that the proposed regulations do not require states to collect funds from MCOs that do not meet the MLR. CMS notes “While states would not have to collect remittances from the MCOs, PIHPs, or PAHPs through this proposed rule, we strongly encourage states to implement the types of financial contract provisions that would drive MCO, PIHP, and PAHP performance in accordance with the MLR standard”.

Implications of MLR

Currently 28 states apply a MLR to their Medicaid managed care programs so for them this requirement will has less impact. However for all states there will be new rate setting and CMS reporting standards. States will need to provide documentation to CMS on how the MLR was calculated for each MCO and how the methodology used in application to the capitation rates.

Network Adequacy

In the proposed rules CMS has taken the approach used with the QHP rather than the more prescriptive network adequacy requirements for MA plans. CMS stipulates that the state must establish, at a minimum, network adequacy standards for specified provider types. Time and distance standards for the network provider types, including primary care, OB/GYN; behavioral health, specialist, hospital and additional provider types must be established by the states when it promotes the objectives of the Medicaid program. States must ensure physical access, accommodations, and accessible equipment are made available for Medicaid enrollees with physical or mental disabilities and that there are sufficient network providers to communicate with limited English proficient enrollee. The rules also address state allowance for exceptions to network requirements and new requirements to establish time and distance standards for LTSS providers.

Implications of Network Adequacy

States will have new requirements for assessing and reporting on compliance with network adequacy for individual MCOs. CMS considered requiring a mix of approaches, such as conducting enrollee surveys, reviewing encounter data, calculating and reporting of HEDIS measures related to access, implementing secret shopper efforts, and a systematic evaluation of consumer service calls. CMS is requesting comment on approaches to measuring access to services. CMS is requiring that states review documentation and submit assurances of the adequacy of networks for each contracted MCO. CMS will take a much more active role in reviewing the results of provider network reviews and in enforcing compliance.

Quality Rating System

The proposed rule would also establish a Medicaid managed care quality rating system. This system would be similar to rating systems required for Medicare Advantage and QHP. The components of the proposed rating system would be based on the same three summary indicators used in the QHP quality rating system (clinical quality management, member experience, and plan efficiency, affordability, and management). CMS also proposes that states establish a public notice and comment period to determine a core set of performance measures and performance improvement projects for states related to MCOs.

Implications of Quality Rating System

CMS will now specify standardized performance measures and topics for performance-improvement projects for states. While it makes sense to have a quality rating system for Medicaid managed care, it will be a heavy lift for many state Medicaid programs. The staff time investment and expense of implementing such a process is high as recognized by Medicare program in the implementation of their 5 Star Rating System. In addition states would need to provide for a performance review that is at least as stringent as reviews by private accreditation entities recognized by CMS prior to entering a contractual relationship with a state.

For states that may already have a quality rating system in place, the proposed rules allow, with CMS approval, to use an alternative quality rating system. The rules also allow the option to default to the MA five-star rating system for those plans that serve dual eligible beneficiaries only. States would be required to post online the results of their quality rating system(s). CMS notes that the standards for the Medicaid quality rating system would be refined over a period of three to five years prior to implementation.

Finally and just as significant, states would be required to expand the Medicaid managed care quality strategy to all delivery systems including fee-for-service.


Rate Setting

It was expected that CMS would address the rate setting process in the proposed rule as the agency had been criticized by the OIG for not adequately verifying actuarial soundness of state capitation rates. The proposed rule requires that rates submitted to CMS should provide “sufficient detail, documentation and transparency”. CMS encourages states to consider building incentive amounts, limited to 5%, in the rates that would be tied to performance. The rules propose that states must use the annual MLR reporting in their rate development. They further stipulate that states must provide achievable targets related to payment withholds. CMS is also proposing that states submit rates to CMS 90 days prior to implementation prior to review.

Implications of Rate Setting
There are several areas in the proposed rule for rate setting that require clarification. In particular the proposed rules do not align with the Proposed Rate Setting Guidelines for 2016 that were released after the NPRM. The National Association of Medicaid Director’s (NAMD)) has sent a letter to CMS on the Proposed Rate Setting Guidelines for 2016 saying that CMS should limit the documentation requirements for submission as it would require states to submit an “unprecedented amount of documentation”. Their letter further indicates that the guidelines should align with the NPRM policy direction. Further concern was raised about CMS’ ability to review the documentation in a timely manner and the lack of stated timelines for CMS approval.

Another area requiring clarification is the proposed requirement that actuaries certify individual rate cells as being actuarially sound. The data requirements would be prohibitive to perform this level of review on rates cells set for individual health plans.

MCOs will also be requesting the rate setting documentation required in this rules be released to them so that they may reconstruct the rates to verify the state’s calculations. This may result in appeals to CMS requiring further review.

Finally, states must submit rates to CMS that allow for a minimum 90 day review prior to effective date. This will put extra burden on states to analyze trend and encounter data earlier in the fiscal year to ensure that they meet the deadline for submission.



MLTSS is addressed throughout the proposed rule due to the significant growth in Managed Long Term Services and Supports since 2002 when the rules were last updated. The alignment of the 10 principles of long term services and supports, (which were issued as guidance to states in 2013,) with the managed care regulations was the primary objective of CMS’s proposed regulations for MLTSS.
These ten principals are:
• Adequate planning
• Stakeholder engagement
• Enhanced provision of home and community based services
• Support for beneficiaries
• Person centered processes
• Comprehensive, integrated service package
• Qualified Providers
• Participant Protections
• Quality

Implications for States
With a heavy emphasis on pre-planning, states and MCOs will need to add additional requirements to planning procedures to include LTSS. They will also need to amend current information material or create additional material to include Long-Term Services and Supports. The enhanced provision of Home and Community Based Services emphasizes meeting all ADA and Olmstead requirements and all other pertinent state and federal requirements. While these requirements are already included in most state requirements, some states are being challenged with their Olmstead compliance by the Department of Justice and this rule may provide leverage for advocates when it comes to this compliance.

States would be required to provide training to Managed Care Organizations on specific community-based resources and supports. Implementing an access point for complaints, educating beneficiaries on grievance appeals process, assisting in navigating the grievance and appeal process, and the review and oversight of LTSS program data to assist state Medicaid agency on making systematic changes. When it comes to principal on qualified providers, the state would be required to review and certify the documentation which would mean additional paperwork and administration function for states which could be an issue. This will require staff, development of policies, monitoring, and some activity of reporting.

The deadline to submit comments on the rules is July 27. We welcome the opportunity to speak to you regarding your concerns or questions regarding the new Medicaid Managed Care rules. Please do not hesitate to contact us at info@

Pam Coleman

About Pam Coleman

Pam Coleman’s expertise is in Medicaid integrated managed care including the implementation of programs for complex populations with need for home and community based services. Pam is a frequent presenter at national conferences on complex care populations and integrated delivery systems.
Ms. Coleman has also worked with the team on projects involving healthcare delivery system redesign and transformation. She is supporting states and health plans with strategies for serving new Medicaid and exchange populations and in implementing innovative accountable care approaches to service delivery and payment reform. She has also provided support for strategic review of legislation impacting various provider and health plan groups.