Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems, 5415-5429 [2017-00916]
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Rules and Regulations
This rule finalizes changes to
the pass-through payment transition
periods and the maximum amount of
pass-through payments permitted
annually during the transition periods
under Medicaid managed care
contract(s) and rate certification(s). This
final rule prevents increases in passthrough payments and the addition of
new pass-through payments beyond
those in place when the pass-through
payment transition periods were
established, in the final Medicaid
managed care regulations effective July
5, 2016.
DATES: Effective Date: These regulations
are effective on March 20, 2017.
FOR FURTHER INFORMATION CONTACT: John
Giles, (410) 786–1255.
SUPPLEMENTARY INFORMATION:
inpatient health plan’s (PIHP’s), or
prepaid ambulatory health plan’s
(PAHP’s) expenditures under the
contract.
In the May 6, 2016 Federal Register
(81 FR 27498), we published the
‘‘Medicaid and Children’s Health
Insurance Program (CHIP) Programs;
Medicaid Managed Care, CHIP
Delivered in Managed Care, and
Revisions Related to Third Party
Liability’’ final rule (‘‘May 6, 2016 final
rule’’), which finalized the June 1, 2015
proposed rule. In the final rule, we
finalized, with some revisions, the
proposal which limited state direction
of payments, including pass-through
payments as defined below.
In the November 22, 2016 Federal
Register (81 FR 83777), we published
the ‘‘Medicaid Program; The Use of New
or Increased Pass-Through Payments in
Medicaid Managed Care Delivery
Systems’’ proposed rule (‘‘November 22,
2016 proposed rule’’). This rule finalizes
the November 22, 2016 proposed rule as
discussed below. This final rule is
consistent with the intent of the May 6,
2016 final rule to provide transition
periods for states that already use passthrough payments—these transition
periods allow states to implement
changes to existing pass-through
payments over a period of time to
minimize disruption and to ensure
continued financial support for safetynet providers. As we discussed in the
November 22, 2016 proposed rule, this
final rule is also consistent with the
CMCS Informational Bulletin (CIB)
concerning ‘‘The Use of New or
Increased Pass-Through Payments in
Medicaid Managed Care Delivery
Systems,’’ which was published on July
29, 2016.
I. Background
In the June 1, 2015 Federal Register
(80 FR 31098), we published the
‘‘Medicaid and Children’s Health
Insurance Program (CHIP) Programs;
Medicaid Managed Care, CHIP
Delivered in Managed Care, Medicaid
and CHIP Comprehensive Quality
Strategies, and Revisions Related to
Third Party Liability’’ proposed rule
(‘‘June 1, 2015 proposed rule’’). As part
of the actuarial soundness proposals, we
proposed to define actuarially sound
capitation rates as those sufficient to
provide for all reasonable, appropriate,
and attainable costs that are required
under the terms of the contract,
including furnishing of covered services
and operation of the managed care plan
for the duration of the contract. Among
the proposals was a general rule that the
state may not direct the managed care
organization’s (MCO’s), prepaid
A. Summary of the Medicaid Managed
Care May 6, 2016 Final Rule
We finalized a policy to limit state
direction of payments, including passthrough payments, at § 438.6(c) and (d)
in the May 6, 2016 final rule (81 FR
27587 through 27592). Specifically,
under the final rule (81 FR 27588), we
defined pass-through payments at
§ 438.6(a) as any amount required by the
state (and considered in calculating the
actuarially sound capitation rate) to be
added to the contracted payment rates
paid by the MCO, PIHP, or PAHP to
hospitals, physicians, or nursing
facilities that is not for the following
purposes: A specific service or benefit
provided to a specific enrollee covered
under the contract; a provider payment
methodology permitted under
§ 438.6(c)(1)(i) through (iii) for services
and enrollees covered under the
contract; a subcapitated payment
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[FR Doc. 2016–31823 Filed 1–17–17; 8:45 am]
BILLING CODE 6560–50–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Part 438
[CMS–2402–F]
RIN 0938–AT10
Medicaid Program; The Use of New or
Increased Pass-Through Payments in
Medicaid Managed Care Delivery
Systems
Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Final rule.
AGENCY:
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SUMMARY:
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arrangement for a specific set of services
and enrollees covered under the
contract; graduate medical education
(GME) payments; or federally-qualified
health center (FQHC) or rural health
clinic (RHC) wrap around payments. We
noted that section 1903(m)(2)(A) of the
Social Security Act (the Act) requires
that capitation payments to managed
care plans be actuarially sound; we
interpret this requirement to mean that
payments under the managed care
contract must align with the provision
of services to beneficiaries covered
under the contract. We provided that
these pass-through payments are not
consistent with our regulatory standards
for actuarially sound rates because they
do not tie provider payments with the
provision of services. The final rule
contains a detailed description of the
policy rationale (81 FR 27587 through
27592).
In an effort to provide a smooth
transition for network providers, to
support access for the beneficiaries they
serve, and to provide states and
managed care plans with adequate time
to design and implement payment
systems that link provider
reimbursement with services covered
under the contract or associated quality
outcomes, we finalized transition
periods related to pass-through
payments for the specified provider
types to which states make most passthrough payments under Medicaid
managed care programs: Hospitals,
physicians, and nursing homes (81 FR
27590 through 27592). As finalized,
§ 438.6(d)(2) and (3) provide a 10-year
transition period for hospitals, subject to
limitations on the amount of passthrough payments. For MCO, PIHP, or
PAHP contracts beginning on or after
July 1, 2027, states will not be permitted
to require pass-through payments for
hospitals. The final rule also provides a
5-year transition period for pass-through
payments to physicians and nursing
facilities. For MCO, PIHP, or PAHP
contracts beginning on or after July 1,
2022, states will not be permitted to
require pass-through payments for
physicians or nursing facilities. These
transition periods provide states,
network providers, and managed care
plans significant time and flexibility to
integrate current pass-through payment
arrangements into allowable payment
structures under actuarially sound
capitation rates, including enhanced fee
schedules or the other approaches
consistent with § 438.6(c).
As finalized in the May 6, 2016 final
rule, § 438.6(d) limits the amount of
pass-through payments to hospitals as a
percentage of the ‘‘base amount,’’ which
is defined in paragraph (a) and
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calculated under rules in paragraph
(d)(2). Section 438.6(d)(3) specifies a
schedule for the phased reduction of the
base amount, limiting the amount of
pass-through payments to hospitals. For
contracts beginning on or after July 1,
2017, the state may require pass-through
payments to hospitals under the
contract up to 100 percent of the base
amount, as defined in the final rule. For
subsequent contract years (contracts
beginning on or after July 1, 2018
through contracts beginning on or after
July 1, 2026), the portion of the base
amount available for pass-through
payments decreases by 10 percentage
points per year. For contracts beginning
on or after July 1, 2027, no pass-through
payments to hospitals are permitted.
The May 6, 2016 final rule noted that
nothing would prohibit a state from
eliminating pass-through payments to
hospitals before contracts beginning on
or after July 1, 2027. However, the final
rule provided for a phased reduction in
the percentage of the base amount that
can be used for pass-through payments,
because a phased transition would
support the development of permissible
and accountable payment approaches
while mitigating any disruption to states
and providers.
We believe that states will be able to
more easily transition existing passthrough payments to physicians and
nursing facilities to payment structures
linked to services covered under the
contract compared to the transition
necessary for similar payments to
hospitals. Consequently, the May 6,
2016 final rule, in § 438.6(d)(5),
provided a shorter time period for
eliminating pass-through payments to
physicians and nursing facilities and
did not prescribe a limit or phased
reduction in these payments; states have
the option to eliminate these payments
immediately or phase down these
payments over the 5 year transition
period if they prefer. As noted in the
May 6, 2016 final rule, the distinction
between hospitals and nursing facilities
and physicians was also based on the
comments from stakeholders during the
public comment period (81 FR 27590).
B. Questions About the May 6, 2016
Final Rule
Since publication of the May 6, 2016
final rule, we have received inquiries
about states’ ability to integrate new or
increased pass-through payments into
Medicaid managed care contracts. As
explained in the CMCS Informational
Bulletin (CIB) published on July 29,
2016,1 adding new or increased pass1 The Use of New or Increased Pass-Through
Payments in Medicaid Managed Care Delivery
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through payments for hospitals,
physicians, or nursing facilities
complicates the required transition of
these pass-through payments to
permissible provider payment models.
The transition periods under the May
6, 2016 final rule provide states,
network providers, and managed care
plans significant time and flexibility to
move existing pass-through payment
arrangements (that is, those in effect
when the final rule was published) into
different, permissible payment
structures under actuarially sound
capitation rates, including enhanced fee
schedules or the other approaches
consistent with § 438.6(c). We did not
intend for states, after the May 6, 2016
final rule was published, to begin
additional or new pass-through
payments, or to increase existing passthrough payments; such actions are
contrary to and undermine the policy
goal of eliminating pass-through
payments. We proposed in the
November 22, 2016 proposed rule and
finalize here that we will not permit a
pass-through payment amount to exceed
the lesser of the amounts calculated
under paragraph (d)(3) of this final rule.
For states to add new or to increase
existing pass-through payments is
inconsistent with longstanding CMS
policy, the proposal made in the June 1,
2015 proposed rule, and the May 6,
2016 final rule, which reflects the
general policy goal to effectively and
efficiently transition away from passthrough payments.
Under the May 6, 2016 final rule, we
provided a delayed compliance
deadline for § 438.6(c) and (d); we will
enforce compliance with § 438.6(c) and
(d) no later than the rating period for
Medicaid managed care contracts
beginning on or after July 1, 2017. Our
exercise of enforcement discretion in
this respect was not intended to create
new opportunities for states to add or
increase existing pass-through payments
before July 1, 2017. This delay was
intended to address concerns articulated
by commenters, among them states and
providers, that an abrupt end to directed
pass-through payments could cause
damaging disruption to safety-net
providers. As discussed in the May 6,
2016 final rule and this final rule, passthrough payments are inconsistent with
our interpretation and implementation
of the statutory requirement for
actuarially sound capitation rates
because pass-through payments do not
Systems; available at https://www.medicaid.gov/
federal-policy-guidance/downloads/cib072916.pdf.
CMCS also noted in this CIB that it intended to
further address in future rulemaking the issue of
adding new or increased pass-through payments to
managed care contracts.
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tie provider payments to the provision
of services under the contract (81 FR
27588). A distinguishing characteristic
of a pass-through payment is that a
managed care plan is contractually
required by the state to pay providers an
amount that is disconnected from the
amount, quality, or outcomes of services
delivered to enrollees under the contract
during the rating period of the contract.
When managed care plans only serve as
a conduit for passing payments to
providers independent of delivered
services, such payments reduce
managed care plans’ ability to control
expenditures, effectively use valuebased purchasing strategies, implement
provider-based quality initiatives, and
generally use the full capitation
payment to manage the care of
enrollees. The May 6, 2016 final rule
made clear our position on these
payments and our intent that they be
eliminated from Medicaid managed care
delivery systems, except for the directed
payment models permitted by
§ 438.6(c), or the payments excluded
from the definition of a pass-through
payment in § 438.6(a), such as FQHC
wrap payments.
The transition periods provided under
§ 438.6(d) are for states to identify
existing pass-through payments and
begin either tying such payments
directly to services and utilization
covered under the contract or
eliminating them completely in favor of
other support mechanisms for providers
that comply with the requirements in
§ 438.6(c). The transition periods for
current pass-through payments
minimize disruption to local health care
systems and interruption of beneficiary
access by permitting a gradual step
down from current levels of passthrough payments: (1) At the schedule
and subject to the limit announced in
the May 6, 2016 final rule for hospitals
under § 438.6(d)(3); and (2) at a
schedule adopted by the state for
physicians and nursing facilities under
§ 438.6(d)(5). By providing states,
network providers, and managed care
plans significant time and flexibility to
integrate current pass-through payment
arrangements into different payment
structures (including enhanced fee
schedules or the other approaches
consistent with § 438.6(c)) and into
actuarially sound capitation rates, we
intended to address comments that the
June 1, 2015 proposed rule would be
unnecessarily disruptive and endanger
safety-net provider systems that states
have developed for Medicaid.
Questions from states following the
May 6, 2016 final rule indicated that the
transition period and delayed
enforcement date have caused some
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confusion regarding our intent for
increased and new pass-through
payments for contracts prior to July 1,
2017, because the final rule did not
explicitly prohibit such additions or
increases. While we assumed such a
prohibition was implicit in the May 6,
2016 final rule, as our discussion of
§ 438.6(d) made clear that pass-through
payments were to be discontinued, we
believe that this additional rulemaking
is necessary to clarify this issue in light
of the recent questions. Under this final
rule, we are linking pass-through
payments permitted during the
transition period to the aggregate
amounts of pass-through payments that
were in place at the time the May 6,
2016 final rule became effective on July
5, 2016, which is consistent with the
intent under the May 6, 2016 final rule
to phase out pass-through payments
under Medicaid managed care contracts.
II. Provisions of the Proposed
Regulations and Analysis of and
Responses to Public Comments
We received 46 timely comments
from the public, including comments
from hospitals, hospital associations,
state Medicaid agencies, Medicaid
managed care plans, and other
healthcare providers and associations.
The following sections, arranged by
subject area, are a summary of the
comments we received. In response to
the November 22, 2016 proposed rule,
some commenters chose to raise issues
that were beyond the scope of our
proposals. In this final rule, we are not
summarizing or responding to those
comments.
We proposed to revise § 438.6(d) to
better effectuate the intent of the May 6,
2016 final rule. In the November 22,
2016 proposed rule, we first proposed to
limit the availability of the transition
periods in § 438.6(d)(3) and (5) (that is,
the ability to continue pass-through
payments for hospitals, physicians, or
nursing facilities) to states that can
demonstrate that they had such passthrough payments in either: (A)
Managed care contract(s) and rate
certification(s) for the rating period that
includes July 5, 2016, and that were
submitted for our review and approval
on or before July 5, 2016; or (B) if the
managed care contract(s) and rate
certification(s) for the rating period that
includes July 5, 2016 had not been
submitted to us on or before July 5,
2016, the managed care contract(s) and
rate certification(s) for a rating period
before July 5, 2016 that had been most
recently submitted to us for review and
approval as of July 5, 2016.
Second, we proposed to prohibit
retroactive adjustments or amendments
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to managed care contract(s) and rate
certification(s) to add new pass-through
payments or increase existing passthrough payments defined in § 438.6(a).
In the proposed rule, we noted that we
would not permit a pass-through
payment amount to exceed the lesser of
the amounts calculated under paragraph
(d)(3).
Third, we proposed to establish a new
maximum amount of permitted passthrough payments for each year of the
transition period. For hospitals, a state
would be limited (in the total amount of
permissible pass-through payments)
during each year of the transition period
to the lesser of either: (A) The
percentage of the base amount
applicable to that contract year; or (B)
the pass-through payment amount
identified in proposed paragraph
(d)(1)(i). Thus, the amount of passthrough payments identified by the state
in order to satisfy proposed paragraph
(d)(1)(i) would be compared to the
amount representing the applicable
percentage of the base amount that is
calculated for each year of the transition
period. For pass-through payments to
physicians and nursing facilities, we
also proposed to limit the amount of
pass-through payments during the
transition period to the amount of passthrough payments to physicians and
nursing facilities under the contract and
rate certification identified in proposed
paragraph (d)(1)(i).
In making these comparisons to the
pass-through payments under the
managed care contract(s) in effect for the
rating period covering July 5, 2016 as
identified in proposed paragraph
(d)(1)(i)(A), or the rating period before
July 5, 2016 as identified in proposed
paragraph (d)(1)(i)(B), we noted that we
would look at total pass-through
payment amounts for the specified
provider types. Past aggregate amounts
of hospital pass-through payments will
be used in determining the maximum
amount for hospital pass-through
payments during the transition period;
past aggregate amounts of physician
pass-through payments will be used in
determining the maximum amount for
physician pass-through payments
during the transition period; and past
aggregate amounts of nursing facility
pass-through payments will be used in
determining the maximum amount for
nursing facility pass-through payments
during the transition period.
Under the November 22, 2016
proposed rule, the aggregate amounts of
pass-through payments in each provider
category would be used to set applicable
limits for the provider type during the
transition period, without regard to the
specific provider(s) that received a pass-
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through payment. For example, if the
pass-through payments in the contract
identified under paragraph (d)(1)(i) were
to 5 specific hospitals, the aggregate
amount of pass-through payments to
those hospitals would be relevant in
establishing the limit during the
transition period, but different hospitals
could be the recipients of pass-through
payments during the transition. We
requested comment on our proposed
approach as a whole, as well as our
specific proposals to amend the existing
regulation text and revise paragraph
(d)(1) (adding new (d)(1)(i) and (ii)),
revise paragraph (d)(3) (adding new
(d)(3)(i) and (ii)), and revise paragraph
(d)(5).
A. General Comments
Comment: Some commenters stated
concerns with the overall proposal and
stated that the current proposal would
limit state flexibility for pass-through
payments beyond what was finalized in
the May 6, 2016 final rule; these
commenters recommended that we not
finalize the November 22, 2016
proposed rule and recommended that
we ensure that states continue to have
the flexibility permitted in the May 6,
2016 final rule for pass-through
payments in Medicaid managed care
programs.
Response: We do not agree with
commenters that states should have
more flexibility in this area than this
final rule provides. We believe that this
final rule flows from the intent of the
May 6, 2016 final rule to phase out passthrough payments under Medicaid
managed care contracts and ensure that
the transition periods be used by states
that had pass-through payments in their
MCO, PIHP, or PAHP contracts when
we finalized the May 6, 2016 final rule.
While we recognize that the regulation
text finalized in the May 6, 2016 final
rule was not explicit on this point and
have taken steps to amend this final rule
here to rectify that, this final rule is
consistent with the policy and goals of
the May 6, 2016 final rule in adopting
transition periods. This final regulation
maintains the significant time and
flexibility provided to states, network
providers, and managed care plans
during the transition periods to move
existing pass-through payment
arrangements (those in effect when the
May 6, 2016 final rule was published)
into different, permissible payment
structures under actuarially sound
capitation rates, including enhanced fee
schedules or the other approaches
consistent with § 438.6(c) that tie
managed care payments to services and
utilization (and outcomes) covered
under the contract.
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Comment: Some commenters
recommended that we not finalize this
rule and that we not further restrict or
limit pass-through payments beyond
what was included in the May 6, 2016
final rule to support safety-net providers
that provide care to Medicaid managed
care enrollees. These commenters stated
that states and providers have already
begun to plan for the transition periods
beginning in July 2017 and that
additional constraints will add
significant burden on safety-net
providers.
Response: We do not agree that the
proposed provisions, finalized here,
restrict or limit states from continuing to
use pass-through payments to support
safety-net providers that provide care to
Medicaid managed care enrollees during
the transition periods adopted in the
May 6, 2016 final rule. The May 6, 2016
final rule provided transition periods
designed and finalized to enable
affected providers, states, and managed
care plans—meaning those that already
had pass-through payments in place—to
transition away from existing passthrough payments and limit disruption
to safety-net providers. We believe such
payments can be transitioned into
permissible and accountable payment
models that are tied to covered services,
value-based payment structures, or
delivery system reform initiatives
without undermining access for
Medicaid managed care enrollees. This
rule flows from and reinforces the intent
of the May 6, 2016 final rule by ensuring
that the transition periods are used by
states that had pass-through payments
in their MCO, PIHP, or PAHP contracts
when we finalized the May 6, 2016 final
rule. These are the states for which we
were concerned, based on the comments
to the June 1, 2015 proposed rule, that
an abrupt end to pass-through payments
could be disruptive to their health care
delivery system and safety-net
providers. While we recognize that the
regulation text finalized in the May 6,
2016 final rule was not explicit on this
point and have taken steps to amend
this final rule here to rectify that, this
final rule is consistent with the policy
and goals of the May 6, 2016 final rule
in adopting transition periods.
If states do not currently have passthrough payments in their managed care
contracts, we believe that the transition
periods are unnecessary to avoid
disruption. States that do not have passthrough payments in their managed care
contracts that wish to pursue delivery
system and provider payment initiatives
are already in a strong position to design
and implement allowable payment
structures under actuarially sound
capitation rates, including enhanced fee
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schedules or the other approaches
consistent with § 438.6(c) that tie
managed care payments to services and
utilization covered under the contract.
We understand that states and
providers have already begun to plan for
the transition periods beginning in July
2017, but we do not believe that this
rule will create substantially more
constraints or add significant burden on
safety-net providers. Under the May 6,
2016 final rule, we did not intend to
permit or encourage states to add new
pass-through payments or to ramp-up
pass-through payments in ways that are
not consistent with the elimination of
pass-through payments during the
transition periods. Adding new or
increased pass-through payments would
substantially complicate the required
transition away from pass-through
payments, potentially creating more
disruption for safety-net providers by
increasing dependence on these
payments and then compressing the
actual amount of time available to
eliminate them.
Comment: Some commenters
recommended that the proposed rule
not be finalized until the new
administration has the opportunity to
review and ensure that the policy in the
November 22, 2016 proposed rule is
consistent with the new
administration’s Medicaid policy and
goals. These commenters stated that
such an approach is congruent with the
general practice and policy that
significant new rules should not be
issued shortly before a change in the
administration.
Response: A delay in finalizing this
rule is contrary to our goals and policy
so we do not accept this
recommendation. This final rule flows
from and reinforces the intent of the
May 6, 2016 final rule to phase out passthrough payments under Medicaid
managed care contracts; any delay
would undermine the goals of that rule
and make the transition to an actuarially
sound approach more difficult. We
discussed in the June 1, 2015 proposed
rule, the May 6, 2016 final rule, the July
29, 2016 CIB, and the November 22,
2016 proposed rule the rationale for our
position that pass-through payments are
not consistent with our regulatory
standards for actuarially sound rates;
specifically, because they do not tie
provider payments with the provision of
services. While we recognize that the
regulation text finalized in the May 6,
2016 final rule was not explicit on the
point that this final rulemaking
addresses (for example, that the
transition periods were not for the
initial adoption of and then elimination
of new or increased pass-through
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payments), this final rule is consistent
with the policy and goals of the May 6,
2016 final rule in adopting transition
periods. This final rule is congruent
with established and published policy
guidance, is not a new policy being
implemented at the last minute, and is
timely as states prepare for the July 1,
2017 implementation date.
In addition to comments on the
proposal generally, we received
comments about specific provisions in
the proposal. We address and respond
to those comments below.
B. Comments on § 438.6(d)(1)
We proposed to revise paragraph
(d)(1) to clarify that a state may continue
to require an MCO, PIHP, or PAHP to
make pass-through payments (as
defined in § 438.6(a)) to network
providers that are hospitals, physicians,
or nursing facilities under the contract,
provided the requirements of paragraph
(d) are met. We proposed retaining the
regulation text that provides explicitly
that states may not require MCOs,
PIHPs, or PAHPs to make pass-through
payments other than those permitted
under paragraph (d). We received the
following comments in response to our
proposal to revise § 438.6(d)(1).
Comment: Some commenters
recommended that we remove the
regulation text that provides explicitly
that states may not require MCOs,
PIHPs, or PAHPs to make pass-through
payments other than those permitted
under paragraph (d); these commenters
recommended that we reconsider the
pass-through payment policy finalized
in the May 6, 2016 final rule.
Response: Since commenters did not
raise any new issues for our
consideration in paragraph (d)(1), we do
not agree with commenters that we
should remove the regulation text that
provides explicitly that states may not
require MCOs, PIHPs, or PAHPs to make
pass-through payments other than those
permitted under paragraph (d). The May
6, 2016 final rule provided a detailed
description of the policy rationale (81
FR 27587 through 27592) for why we
established pass-through payment
transition periods and limited passthrough payments to hospitals,
physicians, and nursing facilities, and
this policy rationale has not changed.
With the proposal to amend the
regulation text to more explicitly reflect
our intent for the transition periods and
the limits on pass-through payments, we
did not intend to revisit our rationale for
establishing the pass-through payment
transition periods. We continue to
believe that pass-through payments are
not consistent with the statutory
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requirements that capitation rates be
actuarially sound.
After considering the comments, we
are finalizing § 438.6(d)(1) as proposed
without revision.
C. Comments on § 438.6(d)(1)(i)
Under proposed paragraph (d)(1)(i), a
state would be able to use the transition
period for pass-through payments to
hospitals, physicians, or nursing
facilities only if the state can
demonstrate that it had pass-through
payments for hospitals, physicians, or
nursing facilities, respectively, in both
the managed care contract(s) and rate
certification(s) that meet the
requirements in either proposed
paragraph (d)(1)(i)(A) or (B).
We proposed in paragraph (d)(1)(i)(A)
that the managed care contract(s) and
rate certification(s) must be for the
rating period that includes July 5, 2016
and have been submitted for our review
and approval on or before July 5, 2016.
If the state had not yet submitted MCO,
PIHP, or PAHP contract(s) and rate
certification(s) for the rating period that
includes July 5, 2016, we proposed in
paragraph (d)(1)(i)(B) that the state must
demonstrate that it required the MCO,
PIHP, or PAHP to make pass-through
payments for a rating period before July
5, 2016 in the managed care contract(s)
and rate certification(s) that were most
recently submitted for our review and
approval as of July 5, 2016.
We proposed to use the date July 5,
2016 for the purpose of identifying the
pass-through payments in managed care
contract(s) and rate certification(s) that
are eligible for the pass-through
payment transition period because it is
consistent with the intent of the May 6,
2016 final rule that the transition period
be used by states that had pass-through
payments in their MCO, PIHP, or PAHP
contracts when that rule was finalized.
The transition period was intended to
address concerns, articulated in the
comments to the June 1, 2015 proposed
rule, that an abrupt end to pass-through
payments could be disruptive to state
health care delivery systems and safetynet providers. We noted in the
November 22, 2016 proposed rule that
limiting the use of the transition period
to states that had pass-through
payments in effect as of the effective
date of the May 6, 2016 final rule
facilitates elimination of these types of
payments. We did not intend for the
May 6, 2016 final rule to incentivize or
encourage states to add new passthrough payments, as we believe that
these payments are inconsistent with
actuarially sound rates. We received the
following comments in response to our
proposal to revise § 438.6(d)(1)(i),
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including new paragraphs (d)(1)(i)(A)
and (B).
Comment: Some commenters
recommended that we not finalize
paragraph (d)(1)(i) because this new
provision will be administratively
burdensome on states and has the
potential to delay our approval of
managed care contracts and rate
certifications. Other commenters
recommended that we add regulatory
text to address scenarios in which states
had not submitted managed care
contracts or rate certifications to us by
July 5, 2016, but states had already
executed contracts with their managed
care plans. These commenters
recommended that we permit states to
produce these executed contracts and
allow these states to use these managed
care contracts and rate certifications for
the purpose of the transition period.
Response: We believe that the
requirements under § 438.6(d)(1)(i) will
not be significantly more burdensome
on states and will not cause delays in
the approval of managed care contracts
and rate certifications. To the contrary,
we believe that the proposed
requirements under § 438.6(d)(1)(i) will
streamline the process for documenting
and demonstrating pass-through
payments and will facilitate a quicker
approval process because the passthrough payments will be more
transparently identified. In addition, we
currently review and work with states
on managed care contracts and rates,
and because pass-through payments
exist today, any additional burden to
state or federal governments should be
minimal.
We also do not agree that additional
regulatory text is necessary to address
scenarios in which states had not
submitted managed care contracts or
rate certifications to us by July 5, 2016,
but states had already executed
contracts with their managed care plans.
As proposed in § 438.6(d)(1)(i), we will
permit states to demonstrate passthrough payments in two ways: (1) Passthrough payments for hospitals,
physicians, or nursing facilities were in
managed care contracts and rate
certifications for the rating period that
includes July 5, 2016 and were
submitted for our review and approval
before July 5, 2016; or (2) if the managed
care contracts and rate certifications for
the rating period that includes July 5,
2016 had not been submitted to us on
or before July 5, 2016, pass-through
payments for hospitals, physicians, or
nursing facilities were in managed care
contracts and rate certifications for a
rating period before July 5, 2016 that
had been most recently submitted for
our review and approval as of July 5,
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2016. We believe these requirements
strike the appropriate balance between
administrative simplicity and flexibility.
Comment: Some commenters
recommended that we withdraw this
proposal. These commenters stated that
establishing value-based payment
arrangements, delivery system reform,
minimum fee schedules, and payment
rate increases require substantial time
and attention. These commenters
believed that the fact that some states
had established pass-through payments
before the effective date of the May 6,
2016 final rule (July 5, 2016) should not
preclude other states from receiving
similar reasonable flexibilities to
implement permissible payment
arrangements under Medicaid managed
care.
Response: We do not agree with
commenters that we should withdraw
this proposal. While we understand that
establishing value-based payment
arrangements, delivery system reform,
minimum fee schedules, and payment
rate increases require substantial time
and attention, we see no rationale to
provide transition periods for states to
phase out and transition away from
pass-through payments if they have not
previously implemented such
payments. Unlike states that already
have pass-through payments in place
and need to reverse those actions, states
that have not already used such passthrough payments are starting from a
clean slate in terms of adopting payment
mechanisms and systems described in
§ 438.6(c). To permit new and increased
pass-through payments is contrary to
the policy adopted in the May 6, 2016
final rule of eliminating pass-through
payments and is not consistent with our
regulatory standards for actuarially
sound rates. Further, encouraging or
enabling states to add or increase such
pass-through payments during the
transition periods only exacerbates the
challenges of eliminating them and
transitioning to actuarially sound rates,
or establishing value-based payment
arrangements, delivery system reform,
and fee schedule and payment rate
reforms. For states with existing passthrough payments, the transition
periods provide significant time and
flexibility to integrate existing passthrough payment arrangements into
permissible payment structures that tie
provider payments to the provision of
services (or outcomes) under the
contract. For states that currently do not
have pass-through payments in their
managed care contracts that wish to
pursue delivery system and provider
payment initiatives, we believe such
states are already in a better and
superior position to design and
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implement allowable payment
structures within actuarially sound
capitation rates, including enhanced fee
schedules or the other approaches
consistent with § 438.6(c) that tie
managed care payments to services and
utilization covered under the contract.
Comment: Some commenters did not
agree with the use of the July 5, 2016
date and characterized the use of that
date as finalizing a rule that applies
retroactively. These commenters stated
that the use of the July 5, 2016 date and
retroactive rulemaking is not consistent
with the intent of notice and comment
rulemaking under the Administrative
Procedure Act (APA) and makes it
impossible for states and providers to
plan for the potential impact of such
rulemaking. Some commenters
recommended that we withdraw the
proposed rule immediately and stated
that our proposals would significantly
and retroactively change the compliance
date for the pass-through payment
phase-down and would effectively
move-up the start of the phase-out
period a full year from July 1, 2017 to
July 5, 2016. These commenters stated
that such a change in the compliance
date would result in substantial new
payment restrictions with little time for
states and hospitals to make
adjustments. These commenters stated
concern that further limiting passthrough payments could adversely affect
hospitals and the patients they serve.
Response: This final rule will not and
does not apply retroactively to July 5,
2016, and we have followed all notice
and comment procedures for
rulemaking under the APA. This final
rule only affects future action of states
and does not penalize or invalidate past
actions taken by states, which is
permissible rulemaking.2 We provided
our detailed rationale in the proposed
rule for using the July 5, 2016 date; we
are only using the July 5, 2016 date for
the purpose of identifying the passthrough payments in managed care
contracts and rate certifications that are
eligible for the pass-through payment
transition period. That date was chosen
because it is consistent with our intent
that the transition period be used by
states that had pass-through payments
2 Here, the rule only affects future action and
limits future choices available to states. Retroactive
rules ‘‘alter[ ] the past legal consequences of past
actions.’’ Bowen v. Georgetown Univ. Hosp., 488
U.S. 204, 219, 109 S. Ct. 468 (1988) (Scalia, J.,
concurring) (emphasis in original). When an agency
takes action to alter the future effect but not the past
legal consequences of an activity, the agency has
not taken a retroactive action; similarly, when
agency action upsets expectations for future activity
that are based on prior law, it has not taken a
retroaction action. Mobile Relay Assocs. v. F.C.C.,
457 F.3d 1, 10–11 (D.C. Cir. 2006).
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in their MCO, PIHP, or PAHP contracts
when we finalized that rule. Limiting
the use of the transition period to states
that had pass-through payments in
effect as of the effective date of the May
6, 2016 final rule (July 5, 2016) supports
the policy goal of eliminating these
types of payments, while ensuring that
an abrupt end to pass-through payments
will not be disruptive to state health
care delivery systems and safety-net
providers. Using this past date as the
point by which to determine eligibility
for the transition period eliminates the
possibility that the transition period
itself encourages states to create new or
increase pass-through payments.
For commenters concerned about
compliance dates, we want to clarify
that this rule does not change the
original compliance date for § 438.6(d)
from the May 6, 2016 final rule. We will
still enforce compliance with the
requirements in § 438.6(d) no later than
the rating period for Medicaid managed
care contracts beginning on or after July
1, 2017. As discussed in the November
22, 2016 proposed rule and this final
rule, our exercise of enforcement
discretion in permitting delayed
compliance of the May 6, 2016 final rule
with § 438.6(d) was not intended to
create new opportunities for states to
add or increase existing pass-through
payments either before or after July 1,
2017. This delay was intended to
address concerns articulated by
commenters, among them states and
providers, that an abrupt end to directed
pass-through payments could cause
damaging disruption to safety-net
providers. The delay was also intended
to give states and managed care plans
time to appropriately address any
contract or rate issues needed to
implement and comply with § 438.6(d).
This final rule amends the parameters
for the transition periods that begin with
rating periods for contracts starting on
or after July 1, 2017. As that date is still
several months in the future, this final
rule is not retroactive.
We understand the need for states and
providers to have adequate time to make
adjustments in complying with the
requirements at § 438.6(d)—that is why
the May 6, 2016 final rule provided
transition periods to phase-down passthrough payments. We agree and noted
in the May 6, 2016 final rule (81 FR
27589) and the November 22, 2016
proposed rule (81 FR 83782) that the
transition from one payment structure to
another often requires robust provider
and stakeholder engagement, agreement
on approaches to care delivery and
payment, establishing systems for
measuring outcomes and quality,
planning efforts to implement changes,
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and evaluating the potential impact of
change on Medicaid financing
mechanisms. However, for states that do
not currently have pass-through
payments in their managed care
contracts, transition periods are
unnecessary. States that do not have
pass-through payments in their
managed care contracts that wish to
pursue delivery system and provider
payment initiatives can design and
implement allowable payment
structures under actuarially sound
capitation rates tying managed care
payments to services and utilization
covered under the contract without
concern that modifying existing passthrough payments could potentially
undermine access for Medicaid
managed care enrollees or adversely
impact hospitals.
Comment: Some commenters stated
that for many states, the capitation rates
and contracts submitted as of or prior to
July 5, 2016 were for prior rating
periods when both enrollment numbers
and the cost of providing care would be
substantially less than the total
enrollments and costs for current and
future rating periods. These commenters
stated that the limitation on setting
pass-through payments based on a prior
submitted date (July 5, 2016) of
capitation rates and contracts deviates
from the longstanding practice of states
making retroactive adjustments and
amendments to actuarially sound
capitation rates. These commenters
stated that the setting of an aggregate
pass-through payment amount limit
based on capitation rates and contracts
submitted by states as of July 5, 2016
has the added effect of speeding up the
transition periods established under the
May 6, 2016 final rule and that states
should be provided additional time to
submit for our approval new managed
care capitation rates, including passthrough payments, because states and
providers had no notice prior to this
cutoff date; some of these commenters
recommended that we modify the rule
to allow the use of the most recent rate
year for demonstrating previous passthrough payments.
Response: We understand that for
some states, the capitation rates and
contracts submitted as of or prior to July
5, 2016 would be for prior rating
periods; it is for this reason that under
the proposed requirements in
§ 438.6(d)(1)(i), we permitted states to
demonstrate pass-through payments in
the two ways described in paragraphs
(d)(1)(i)(A) and (B).
We do not believe that the limitation
on setting pass-through payments based
on a prior submitted date deviates from
the practice of retroactive amendments
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to capitation rates. Under this final rule,
we are not generally restricting states
from adjusting or amending their
actuarially sound capitation rates; the
requirements for retroactive adjustments
to capitation rates are specified at
§ 438.7(c)(2) and those requirements are
not changed with this final rule. Since
we will enforce compliance with the
requirements of § 438.7(c)(2) for rating
periods for contracts beginning July 1,
2017, we also note that before the May
6, 2016 final rule, states were permitted
to adjust and amend actuarially sound
capitation rates retroactively under
§ 438.6(c)(1). This final rule does not
change these policies in permitting
states to adjust and amend actuarially
sound capitation rates retroactively.
Under paragraph (d)(1)(ii), as
proposed and as finalized, we will not
approve a retroactive adjustment or
amendment to managed care contracts
and rate certifications to add new passthrough payments or increase existing
pass-through payments, as defined in
§ 438.6(a). This limit only applies to
retroactive adjustments to capitation
rates related to new or increased passthrough payments; other retroactive
adjustments to rates are not affected by
this final rule. The existing policy
permitting states flexibility to make
other changes in capitation rates, subject
to the limits on filing claims for FFP
under 45 CFR 95.7 and, for contracts for
rating periods after July 1, 2017, subject
to the requirements in § 438.7(c)(2),
remains in effect for all other changes to
capitation rates.
We also do not agree that this
proposal has the added effect of
speeding up the transition periods
established under the May 6, 2016 final
rule. We indicated in the proposed rule
that we did not intend to speed up the
rate of a state’s phase down of passthrough payments; rather, the proposed
rule intended only to prevent increases
in pass-through payments and the
addition of new pass-through payments
beyond what was already in place when
the pass-through payment limits and
transition periods were finalized in the
May 6, 2016 final rule. The length of the
transition periods remains the same
under this final rule: 10 years for
hospital pass-through payments and 5
years for physician and nursing facility
pass-through payments. States that were
reliant on and using pass-through
payments at the time we finalized the
May 6, 2016 final rule will continue to
be eligible for the full transition periods
under this final rule. Further, this final
rule will permit states to continue passthrough payments in the same amount
as before the beginning of the transition
period, unless and until, that amount
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exceeds the percentage of the base
amount available for the applicable year
of the transition period for hospital
pass-through payments. Our
amendments to § 438.6(d) only serve to
prevent states from adding new passthrough payments, or increasing the
total amount of pass-through payments,
in the Medicaid managed care context.
We also do not agree that states
should be provided additional time to
submit new managed care capitation
rates to include new or increased passthrough payments, because such an
approach is contrary to our policy goal
of eliminating pass-through payments.
We believe that limiting the use of the
transition period to states that had passthrough payments in effect as of the
effective date of the May 6, 2016 final
rule (July 5, 2016) supports the policy
goal of eliminating these types of
payments, while ensuring that an abrupt
end to already existing pass-through
payments will not be disruptive to state
health care delivery systems and safetynet providers. Using the date of July 5,
2016 as the point by which to determine
eligibility for the transition period
eliminates concern that the transition
period itself encourages states to create
new or increase pass-through payments
despite our policy concerns that such
payments are inconsistent with actuarial
soundness and may compromise a
managed care plan’s ability to
effectively direct care and implement
quality improvement strategies.
Comment: Some commenters
recommended that we include specific
regulatory text at § 438.6(d)(1)(i) to also
specify that in order to use a transition
period described under paragraph (d), a
state must demonstrate that it had passthrough payments for hospitals,
physicians, or nursing facilities ‘‘in
managed care contracts and rate
certifications for the rating period
beginning before October 1, 2016,
regardless of the date of submission to
CMS, if the state can demonstrate that
funding for the pass-through payment
was approved by the state’s legislature
prior to July 5, 2016, and that
corresponding supplemental payments
were made under Medicaid fee-forservice (FFS) or section 1115
demonstration programs for at least 10
consecutive years prior to July 5, 2016.’’
These commenters stated that this
language would ensure that a specific
pass-through payment would meet the
criteria under the proposed rule.
Response: We understand the
commenters’ concerns regarding a
specific pass-through payment that was
recently approved by their state
legislature; however, including the
commenters’ suggested regulatory text at
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5421
§ 438.6(d)(1)(i) would not comport with
our policy goals. The pass-through
payment transition periods included in
the May 6, 2016 final rule were
intended to be used by states that
already had pass-through payments in
place and would face significant
disruption if immediate compliance
with § 438.6(c) were required. Under the
proposed rule and this final rule, we are
linking pass-through payments
permitted during the transition period
to the aggregate amounts of passthrough payments that were in place at
the time the May 6, 2016 final rule
became effective on July 5, 2016, which
is consistent with the intent under the
May 6, 2016 final rule to eliminate passthrough payments but provide a
transition period to limit disruption to
safety net providers. Changing our
proposal to include ‘‘managed care
contracts and rate certifications for the
rating period beginning before October
1, 2016 regardless of the date of
submission to CMS’’ is not consistent
with the rationale in the May 6, 2016
final rule or the November 22, 2016
proposed rule and would permit certain
new or increased pass-through
payments beyond those already in place
at the time the May 6, 2016 final rule
became effective on July 5, 2016.
Further, we do not believe that we
should allow new or increased passthrough payments for states with
corresponding supplemental payments
that were made under Medicaid FFS or
section 1115 demonstration programs
prior to July 5, 2016. As we have
described throughout this rule, passthrough payments are not consistent
with our regulatory standards for
actuarially sound rates because they do
not tie provider payments with the
provision of services. For states with
supplemental payments that were made
under Medicaid FFS or section 1115
demonstration programs prior to July 5,
2016, we believe that as part of a state’s
transition to a managed care delivery
system, the state needs to integrate such
FFS supplemental payments into
allowable payment structures that tie
managed care payments to services and
utilization covered under the contract.
Integrating the FFS supplemental
payments into allowable payment
structures at the time of the transition
will ensure that the state can hold
managed care plans accountable for the
cost and quality of services delivered
under the contract.
After considering the comments, we
are finalizing § 438.6(d)(1)(i) as
proposed without revision.
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D. Comments on § 438.6(d)(1)(ii)
We proposed in paragraph (d)(1)(ii)
that we would not approve a retroactive
adjustment or amendment to managed
care contract(s) and rate certification(s)
to add new pass-through payments or
increase existing pass-through payments
defined in § 438.6(a). We noted that we
would not permit a pass-through
payment amount for hospitals to exceed
the lesser of the amounts calculated
under paragraph (d)(3) in the proposed
rule. We also proposed, in paragraph
(d)(5), that pass-through payment
amounts to physicians and nursing
facilities would be limited to the
amount in place in the managed care
contracts and rate certifications
submitted pursuant to paragraph
(d)(1)(i). We proposed paragraph
(d)(1)(ii) to prevent states from
undermining the policy goal of limiting
the use of the transition period to states
that had pass-through payments in
effect as of the effective date of the May
6, 2016 final rule. This proposed change
also aligns with the policy rationale
under the May 6, 2016 final rule and the
July 29, 2016 CMCS Informational
Bulletin (CIB) by prohibiting new or
increased pass-through payments in
Medicaid managed care contract(s),
notwithstanding the adjustments to the
base amount permitted in § 438.6(d)(2).
We received the following comments in
response to our proposal to revise
§ 438.6(d)(1)(ii).
Comment: Some commenters
recommended that we address scenarios
in which states are already paying passthrough payments through their
managed care plans and were currently
in the process of amending managed
care contracts and rate certifications
when the proposed rule was issued;
these commenters recommended that
we permit such retroactive adjustments
and amendments. Some commenters
provided that states have historically
implemented retroactive rate
adjustments to capitation rates and
processed routine adjustments and
amendments every year; these
commenters recommended that we
permit these adjustments and
amendments and address how such
routine activities would fit with this
rule. Other commenters recommended
that we permit retroactive adjustments
and amendments through July 1, 2017 to
account for potential increases in passthrough payments that were put into
place before this rule was issued.
Response: We do not agree that
additional regulatory text is needed to
address scenarios in which states are
already paying pass-through payments
through their managed care plans and
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were in the process of amending
managed care contracts and rate
certifications at the time of the May 6,
2016 final rule or the November 22,
2016 proposed rule. It is unclear to us
what standard we could use to
implement this recommendation while
preventing new or increased passthrough payments. We note that
§ 438.6(d)(1)(ii), as proposed and as
finalized here, will not be a barrier to
the approval of retroactive changes to
managed care contracts and rate
certifications when the retroactive
change does not purport to add or
increase a pass-through payment to
hospitals, physicians, or nursing
facilities. Therefore, states that were in
the process of amending contracts or
rates for other purposes should not be
affected by § 438.6(d)(1)(ii).
States will need to meet the
requirements in § 438.6(d)(1)(i) in order
to use a transition period described in
§ 438.6(d). That means that states must
be able to demonstrate pass-through
payments in managed care contracts and
rate certifications under the
requirements in proposed
§ 438.6(d)(1)(i)(A) and (B). For
commenters concerned about general
adjustments and amendments unrelated
to new or increased pass-through
payments, this rule does not impact
those routine activities that states
undertake each year; the requirements
in § 438.6(d)(1)(ii), as proposed and
finalized here, only limit retroactive
adjustments and amendments intended
to add new pass-through payments or
increase existing pass-through payments
defined in § 438.6(a). Without this
provision limiting retroactive changes to
pass-through payments, a state could
retroactively change a prior, submitted
managed care contract and rate
certification to increase or add passthrough payments and eliminate the
restrictions on the use of the transition
periods that were proposed in the
November 22, 2016 proposed rule and
finalized in this rule. Further, the
adjustments to the base amount under
§ 438.6(d)(2) are still permitted upon
finalization of this rule; therefore, the
base amount will be calculated annually
and increases in Medicaid and Medicare
FFS rates will be taken into account
even though a smaller percentage of the
base amount will be available for passthrough payments. However, we would
not permit a pass-through payment
amount to exceed the lesser of the
amounts calculated under paragraph
(d)(3) in this rule. We are not generally
restricting states from adjusting or
amending their actuarially sound
capitation rates that are unrelated to
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new or increased pass-through
payments; the general requirements for
retroactive adjustments to capitation
rates are specified at § 438.7(c)(2) and
those requirements are not changed
with this final rule. Only contract
actions to add or increase pass-through
payments on a retroactive basis will be
denied under § 438.6(d)(1)(ii); other
retroactive rate changes will be
evaluated and approved pursuant to
other applicable rules adopted prior to
this rulemaking.
Finally, we do not believe that we
should permit retroactive adjustments
and amendments through July 1, 2017 to
account for potential increases in passthrough payments that were put into
place before this rule. This approach is
not consistent with our policy, which
has been discussed in the May 6, 2016
final rule and throughout this final rule,
to eliminate pass-through payments,
which are inconsistent with our
regulatory standards for actuarially
sound capitation rates.
After considering the comments, we
are finalizing § 438.6(d)(1)(ii) as
proposed without revision.
E. Comments on § 438.6(d)(3)
In paragraph (d)(3), we proposed to
amend the cap on the amount of passthrough payments to hospitals that may
be incorporated into managed care
contract(s) and rate certification(s)
during the transition period for hospital
payments, which will apply to rating
periods for contract(s) beginning on or
after July 1, 2017. Specifically, we
proposed to revise § 438.6(d)(3) to
require that the limit on pass-through
payments each year of the transition
period be the lesser of: (A) The sum of
the results of paragraphs (d)(2)(i) and
(ii),3 as modified under the schedule in
this paragraph (d)(3); or (B) the total
dollar amount of pass-through payments
to hospitals identified by the state in the
managed care contract(s) and rate
certification(s) used to meet the
requirement in paragraph (d)(1)(i). This
proposed language would limit the
amount of pass-through payments each
contract year to the lesser of the
calculation adopted in the May 6, 2016
final rule (the ‘‘base amount’’), as
decreased each successive year under
3 The portion of the base amount calculated in
§ 438.6(d)(2)(i) is analogous to performing UPL
calculations under a FFS delivery system, using
payments from managed care plans for Medicaid
managed care hospital services in place of the
state’s payments for FFS hospital services under the
state plan. The portion of the base amount
calculated in § 438.6(d)(2)(ii) takes into account
hospital services and populations included in
managed care during the rating period that includes
pass-through payments which were in FFS two
years prior.
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the schedule in this paragraph (d)(3), or
the total dollar amount of pass-through
payments to hospitals identified by the
state in managed care contract(s) and
rate certification(s) described in
paragraph (d)(1)(i). For example, if a
state had $10 million in pass-through
payments to hospitals in the contract
and rate certification used to meet the
requirement in paragraph (d)(1)(i), that
$10 million figure would be compared
each year to the base amount as reduced
on the schedule described in this
paragraph (d)(3); the lower number
would be used to limit the total amount
of pass-through payments to hospitals
allowed for that specific contract year.
We noted that this proposed language
would prevent increases of aggregate
pass-through payments for hospitals
during the transition period beyond
what was already in place when the
pass-through payment limits and
transition periods were finalized in the
May 6, 2016 final rule. We also noted
that our proposal was not intended to
speed up the rate of a state’s phase
down of pass-through payments; rather,
the proposed rule intended to prevent
increases in pass-through payments and
the addition of new pass-through
payments beyond what was already in
place when the pass-through payment
limits and transition periods were
finalized given that this was the final
rule’s intent.
In addition, we proposed to amend
paragraph (d)(3) to provide that states
must meet the requirements in
paragraph (d)(1)(i) to make pass-through
payments for hospitals during the
transition period. We noted that this
additional text was necessary to be
consistent with our intent, explained
above, for the proposed revisions to
paragraph (d)(1). As in the May 6, 2016
final rule, we noted that pass-through
payments to hospitals must be phased
out no longer than on the 10-year
schedule, beginning with rating periods
for contracts that start on or after July 1,
2017. We proposed to add the phrase
‘‘rating periods’’ to be consistent with
our approach in the May 6, 2016 final
rule; we made this revision throughout
proposed paragraphs (d)(3) and (d)(5).
We received the following comments in
response to our proposal to revise
§ 438.6(d)(3), including new paragraphs
(d)(3)(i) and (ii).
Comment: Some commenters
recommended that we not finalize
proposed paragraph (d)(3). Some
commenters recommended that we
permit increases in pass-through
payments over the 10-year transition
period to give states the maximum
amount of flexibility in phasing down
pass-through payments for hospitals.
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Some commenters recommended that
we permit new or increased passthrough payments for states that are
currently in the process of moving
hospital FFS supplemental payments
into managed care, or that we provide
states that had received federal approval
to transition to managed care before this
rule, the opportunity to implement their
managed care programs using the passthrough payment transition periods and
amounts established in the May 6, 2016
final rule. Some commenters similarly
recommended that we permit new or
increased pass-through payments for
states with Medicaid state plan
approved UPL payments for hospitals as
of July 5, 2016 and allow such states to
utilize the transition periods and
amounts outlined in the May 6, 2016
final rule.
Response: We do not agree with
commenters that we should not finalize
proposed paragraph (d)(3). We have
explained throughout this rule our
rationale to prevent increases of passthrough payments for hospitals during
the transition period beyond what was
already in place when the pass-through
payment limits and transition periods
were finalized in the May 6, 2016 final
rule.
We also do not believe that we should
permit increased pass-through payments
through the 10-year transition period.
The 10-year transition period provides
states with significant flexibility and
time to phase down existing passthrough payments for hospitals. We
believe that we should not allow new or
increased pass-through payments for
states that are currently in the process
of moving hospital FFS supplemental
payments into managed care, and that
we should not permit new or increased
pass-through payments for states with
Medicaid state plan approved UPL
payments for hospitals as of July 5,
2016. As we have reiterated throughout
this rule, pass-through payments are not
consistent with our regulatory standards
for actuarially sound rates because they
do not tie provider payments with the
provision of services. When passthrough payments guarantee a portion of
a provider’s payment and divorce the
payment from service delivery, there is
little accountability for the payment and
it is more challenging for managed care
plans to negotiate provider contracts
with incentives focused on outcomes
and managing individuals’ overall care.
Consequently, for states that are
currently in the process of moving
hospital FFS supplemental payments
into managed care, we believe that
integrating the FFS supplemental
payments into allowable payment
structures at the time of the transition
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will facilitate a state’s ability to hold
managed care plans accountable for the
cost and quality of services delivered
under the contract. To date, we have
already provided technical assistance to
states who are seeking to implement
these types of allowable payment
structures and remain available to
provide future technical assistance. We
will work with states to integrate FFS
supplemental payments into allowed
payment structures as states undertake
transitions to managed care.
Comment: Some commenters
recommended that we withdraw all
caps and limits on the ‘‘base amount’’
for hospitals and allow states the
flexibility to adjust pass-through
payment amounts to reflect significant
programmatic changes and increases in
the managed care population. These
commenters provided that if the base
amount increases from one year to the
next, the ‘‘total dollar amount’’ limit
should also be permitted to increase at
the same percentage. Some commenters
similarly recommended a ‘‘per-member
per-month’’ (PMPM) basis rather than a
total dollar amount limitation on the
maximum amount of pass-through
payments for hospitals. Other
commenters stated the concern that this
proposed rule is effectively limiting the
maximum amount of pass-through
payments to the amount in place prior
to the final rule’s compliance date and
would give state Medicaid programs and
hospitals no time to transition these
payments.
Response: We do not agree that we
should withdraw all caps and limits on
the base amount for hospitals, and we
do not agree that the ‘‘total dollar
amount’’ limit should be permitted to
increase, or that we should permit
PMPM increases, as these approaches
could have the effect of permitting
increased pass-through payments for
hospitals, which would be counter to
our stated policy goals. We believe that
adopting these recommendations would
complicate the required transition of
pass-through payments to permissible
provider payment models and delay the
development of permissible and
accountable payment approaches that
are based on the utilization and delivery
of services or the quality and outcomes
of services. We also note that states can
implement allowed payment structures
to reflect significant programmatic
changes and increases in the managed
care population.
In the June 1, 2015 proposed rule and
the May 6, 2016 final rule, we discussed
how the payment structures permitted
under § 438.6(c) tied payments to
services while permitting states to
reward quality in the provision of
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services, assure minimum payment
rates, or develop delivery system
reform. One advantage of using an
allowed payment mechanism to address
changes in the managed care population
is that such a structure would allow
states and managed care plans to link
payments to significant programmatic
changes. Linking provider payments to
utilization and outcomes under a
managed care plan’s control facilitates a
state’s ability to hold managed care
plans accountable for the quality,
utilization, and cost of care provided to
beneficiaries.
We agree with commenters that this
final rule limits the maximum amount
of pass-through payments to the amount
in place on the effective date of the May
6, 2016 final rule (July 5, 2016).
However, we do not agree that this final
rule eliminates the transition period for
existing pass-through payments. This
final rule does not change the transition
periods established under the May 6,
2016 final rule. This final rule provides
a new maximum amount of passthrough payments for hospitals in order
to prevent new or increased passthrough payments. States that were
reliant on and using pass-through
payments at the time we finalized the
May 6, 2016 final rule will continue to
be eligible for the full transition periods
under this final rule. This final rule
does not accelerate the transition period
for states compared to the May 6, 2016
final rule.
Comment: Some commenters stated
that § 438.6(d) of the May 6, 2016 final
rule allowed for specific calculations
and adjustments to the base amount to
determine the upper limit of passthrough payments for hospitals. These
commenters stated that § 438.6(d)
allowed states to account for changes in
the demographics, service mix,
enrollment, and utilization of Medicaid
managed care beneficiaries beginning
July 1, 2017. These commenters stated
concerns that the proposed rule
eliminates these flexibilities by
artificially limiting ‘‘the total dollar
amount’’ of pass-through payments
without accounting for the permitted
adjustments in the May 6, 2016 final
rule.
Response: We understand
commenters’ concerns regarding the
base amount calculations and permitted
adjustments at § 438.6(d)(2) in the May
6, 2016 final rule. This final rule does
not modify the adjustments to the base
amount permitted under § 438.6(d)(2);
however, this final rule does not permit
a pass-through payment amount to
exceed the lesser of the amounts
calculated under paragraph (d)(3) in this
final rule, as we believe such a
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flexibility could have the effect of
permitting increased pass-through
payments for hospitals. We believe that
increasing pass-through payments will
complicate the required transition of
pass-through payments to permissible
provider payment models and delay the
development of permissible and
accountable payment approaches that
are based on the utilization and delivery
of services or the quality and outcomes
of services.
Under § 438.6(d)(2), states can
account for changes in the
demographics, service mix, enrollment,
and utilization in their Medicaid
managed care programs (see 81 FR
27591). States can also account for
changes in the demographics, service
mix, enrollment, and utilization through
permissible payment mechanisms. One
advantage of using an allowed payment
mechanism to address changes in the
managed care population (such as
demographics, service mix, enrollment,
or utilization) is that such a structure
would allow states and managed care
plans to link new and increased funding
to the corresponding increase in
services that result from the
programmatic changes or increased
population. Linking provider payments
to utilization and outcomes under a
managed care plan’s control facilitates a
state’s ability to hold managed care
plans accountable for the quality,
utilization, and cost of care provided to
beneficiaries. Therefore, we do not agree
that the proposed rule, which is
finalized here, eliminates these
flexibilities. Also, as described
throughout this final rule, the ‘‘total
dollar amount’’ limit for pass-through
payments was established under
paragraphs (d)(3) and (d)(5) for
hospitals, physicians, and nursing
facilities because we did not intend
states to begin additional or new passthrough payments, or to increase
existing pass-through payments.
After considering the comments, we
are finalizing § 438.6(d)(3) as proposed
without revision.
F. Comments on § 438.6(d)(5)
We proposed to revise § 438.6(d)(5) to
be consistent with the proposed
revisions in § 438.6(d)(1)(i) and to limit
the total dollar amount of pass-through
payments that is available each contract
year for physicians and nursing
facilities. We noted that we were not
proposing to implement a phase-down
for pass-through payments to physicians
or nursing facilities. We proposed that
for states that meet the requirements in
paragraph (d)(1)(i), rating periods for
contracts beginning on or after July 1,
2017 through rating periods for
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contracts beginning on or after July 1,
2021, may continue to require passthrough payments to physicians or
nursing facilities under the MCO, PIHP,
or PAHP contract; such pass-through
payments may be no more than the total
dollar amount of pass-through payments
for each category identified in the
managed care contracts and rate
certifications used to meet the
requirement in paragraph (d)(1)(i). We
proposed to add the phrase ‘‘rating
periods’’ to be consistent with our
approach in the May 6, 2016 final rule;
we made this revision throughout
proposed paragraphs (d)(3) and (d)(5).
We received the following comments in
response to our proposal to revise
§ 438.6(d)(5).
Comment: Some commenters
recommended that we not finalize the
‘‘total dollar amount’’ limit on passthrough payments over the 5-year
transition period for physicians and
nursing facilities because such a limit
does not recognize significant
programmatic changes and increases in
the managed care population.
Commenters recommended that we
continue to allow increases over the 5year transition period to give states the
maximum amount of flexibility in
phasing down pass-through payments.
Some commenters also recommended
that we permit new or increased passthrough payments for states that are
currently in the process of moving
physician or nursing facility FFS
supplemental payments into managed
care, or that we provide states that had
received federal approval to transition
to managed care before this rule, the
opportunity to implement their
managed care programs using the passthrough payment transition periods and
amounts established in the May 6, 2016
final rule.
Response: As noted above, we believe
the lack of an affirmative limit on passthrough payments at the total amount of
prior pass-through payments identified
under paragraph (d)(1)(i) will permit
states to increase pass-through
payments to physicians and nursing
facilities, which is contrary to our
policy goals for eliminating these types
of payments. This final rule will
encourage states to use the other,
permissible payment types described in
§ 438.6(c) in directing payments to
nursing facilities and physicians. We
explained throughout this final rule our
rationale for prohibiting increases of
pass-through payments during the
transition period beyond what was
already in place when the pass-through
payment limits and transition periods
were finalized in the May 6, 2016 final
rule. We reiterate that states can
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implement allowed, accountable
payment structures to reflect significant
programmatic changes and increases in
the managed care population. One
advantage of using an allowed payment
mechanism to address the changes is
that such a structure would allow states
and managed care plans to link new and
increased funding to the corresponding
increased utilization resulting from the
programmatic changes or increased
population. Additionally, the 5-year
transition period provides states with
significant flexibility and time to phase
down existing pass-through payments
for physicians and nursing facilities.
Consistent with our response for
hospital FFS supplemental payments,
we do not believe that we should allow
new or increased pass-through
payments for states that are currently in
the process of moving physician or
nursing facility FFS supplemental
payments into managed care. As we
have provided throughout this rule,
pass-through payments are not
consistent with our interpretation of the
statutory requirement for actuarial
soundness and our regulatory standards
for actuarially sound rates because they
do not tie provider payments with the
provision of services. For states that are
currently in the process of moving
physician or nursing facility FFS
supplemental payments into managed
care, we believe that integrating the FFS
supplemental payments into allowable
payment structures at the time of the
transition will ensure that the state can
hold managed care plans accountable
for the cost and quality of services
delivered under the contract.
We did not receive any comments on
our proposal to use the phrase ‘‘rating
period’’ in § 438.6(d)(3) and (5). After
considering the comments, we are
finalizing § 438.6(d)(5) as proposed
without revision.
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III. Provisions of the Final Regulations
As a result of the public comments
received under the proposed rule, this
final rule incorporates the provisions of
the proposed rule without revision.
IV. Collection of Information
Requirements
This final rule will not impose any
new or revised information collection,
reporting, recordkeeping, or third-party
disclosure requirements or burden. Our
revision of § 438.6(d) will not impose
any new or revised IT system
requirements or burden because the
existing regulation at § 438.7 requires
the rate certification to document
special contract provisions under
§ 438.6. Consequently, there is no need
for review by the Office of Management
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and Budget under the authority of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.).
V. Regulatory Impact Analysis
A. Statement of Need
As discussed in the May 6, 2016 final
rule, the proposed rule, and this final
rule, we have significant concerns that
pass-through payments have negative
consequences for the delivery of
services in the Medicaid program. The
existence of pass-through payments may
affect the amount that a managed care
plan is willing or able to pay for the
delivery of services through its base
rates or fee schedule. In addition, passthrough payments may make it more
difficult to implement quality initiatives
or to direct beneficiaries’ utilization of
services to higher quality providers
because a portion of the capitation rate
under the contract is independent of the
services delivered and outside of the
managed care plan’s control. Put
another way, when the fee schedule for
services is set below the normal market,
or negotiated rate, to account for passthrough payments, moving utilization to
higher quality providers can be difficult
because there may not be adequate
funding available to incentivize the
provider to accept the increased
utilization. When pass-through
payments guarantee a portion of a
provider’s payment and divorce the
payment from service delivery, it is
more challenging for managed care
plans to negotiate provider contracts
with incentives focused on outcomes
and managing individuals’ overall care.
We realize that some pass-through
payments have served as a critical
source of support for safety-net
providers who provide care to Medicaid
beneficiaries. Several commenters
raised this issue in response to the June
1, 2015 proposed rule.4 Therefore, in
response to some commenters’ request
for a delayed implementation of the
limitation on directed payments and to
address concerns that an abrupt end to
these payments could create significant
disruptions for some safety-net
providers who serve Medicaid managed
care enrollees, we included in the May
6, 2016 final rule a delay in the
compliance date and a transition period
for existing pass-through payments to
hospitals, physicians, and nursing
facilities. These transition periods begin
with the compliance date, and were
designed and finalized to enable
affected providers, states, and managed
care plans to transition away from
4 Available at: https://www.gpo.gov/fdsys/pkg/FR2015-06-01/pdf/2015-12965.pdf.
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existing pass-through payments. Such
payments could be transitioned into
payments tied to covered services,
value-based payment structures, or
delivery system reform initiatives
without undermining access for the
beneficiaries; alternatively, states could
step down such payments and devise
other methods to support safety-net
providers to come into compliance with
§ 438.6(c) and (d).
However, as noted previously, the
transition period and delayed
enforcement date caused some
confusion regarding increased and new
pass-through payments. The May 6,
2016 final rule inadvertently created a
strong incentive for states to move
swiftly to put pass-through payments
into place in order to take advantage of
the pass-through payment transition
periods established in the May 6, 2016
final rule. Contrary to our discussion in
the May 6, 2016 final rule regarding the
statutory requirements in section
1903(m) of the Act and regulations for
actuarially sound capitation rates, some
states expressed interest in developing
new and increased pass-through
payments for their respective Medicaid
managed care programs as a result of the
May 6, 2016 final rule. In response to
this interest, we published the July 29,
2016 CMCS Informational Bulletin (CIB)
to quickly address questions regarding
the May 6, 2016 final rule’s intent
regarding states’ ability to increase or
add new pass-through payments under
Medicaid managed care plan contracts
and capitation rates, and to describe our
plan for monitoring the transition of
pass-through payments to approaches
for provider payment under Medicaid
managed care programs that are based
on the delivery of services, utilization,
and the outcomes and quality of the
delivered services.
We noted in the CIB that the
transition from one payment structure to
another requires robust provider and
stakeholder engagement, agreement on
approaches to care delivery and
payment, establishing systems for
measuring outcomes and quality,
planning efforts to implement changes,
and evaluating the potential impact of
change on Medicaid financing
mechanisms. Whether implementing
value-based payment structures,
implementing other delivery system
reform initiatives, or eliminating passthrough payments, there will be
transition issues for states coming into
compliance; adequately working
through transition issues, including
ensuring adequate base rates, is central
to both delivery system reform and to
strengthening access, quality, and
efficiency in the Medicaid program. We
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stressed that the purpose and intention
of the transition periods is to
acknowledge that pass-through
payments existed prior to the May 6,
2016 final rule and to provide states,
network providers, and managed care
plans time and flexibility to integrate
existing pass-through payment
arrangements into permissible payment
structures.
As we noted in the CIB and
throughout this final rule, we believe
that adding new or increased passthrough payments for hospitals,
physicians, or nursing facilities, beyond
what was included as of July 5, 2016,
into Medicaid managed care contracts
exacerbates a problematic practice that
is inconsistent with our interpretation of
statutory and regulatory requirements,
complicates the required transition of
these pass-through payments to
permissible and accountable payment
approaches that are based on the
utilization and delivery of services to
enrollees covered under the contract, or
the quality and outcomes of such
services, and reduces managed care
plans’ ability to effectively use valuebased purchasing strategies and
implement provider-based quality
initiatives. In the CIB, we signaled the
possible need, and our intent, to further
address this policy in future rulemaking
and link pass-through payments through
the transition period to the amounts of
pass-through payments in place at the
time the Medicaid managed care rule
was effective on July 5, 2016.
B. Overall Impact
We have examined the impacts of this
final rule as required by Executive
Order 12866 on Regulatory Planning
and Review (September 30, 1993),
Executive Order 13563 on Improving
Regulation and Regulatory Review
(January 18, 2011), the Regulatory
Flexibility Act (RFA) (September 19,
1980, Pub. L. 96–354), section 1102(b) of
the Act, section 202 of the Unfunded
Mandates Reform Act of 1995 (March
22, 1995; Pub. L. 104–4), Executive
Order 13132 on Federalism (August 4,
1999), and the Congressional Review
Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Section 3(f) of Executive Order
12866 defines a ‘‘significant regulatory
action’’ as an action that is likely to
result in a rule: (1) Having an annual
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effect on the economy of $100 million
or more in any 1 year, or adversely and
materially affecting a sector of the
economy, productivity, competition,
jobs, the environment, public health or
safety, or state, local or tribal
governments or communities (also
referred to as ‘‘economically
significant’’); (2) creating a serious
inconsistency or otherwise interfering
with an action taken or planned by
another agency; (3) materially altering
the budgetary impacts of entitlement
grants, user fees, or loan programs or the
rights and obligations of recipients
thereof; or (4) raising novel legal or
policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order.
A regulatory impact analysis (RIA)
must be prepared for major rules with
economically significant effects ($100
million or more in any 1 year). We
estimate that this final rule is
‘‘economically significant’’ as measured
by the $100 million threshold, and
hence a major rule under the
Congressional Review Act.
The May 6, 2016 final rule included
a RIA (81 FR 27830). During that
analysis, we did not project a significant
fiscal impact for § 438.6(d). When we
reviewed and analyzed the May 6, 2016
final rule, we concluded that states
would have other mechanisms to build
in the amounts currently provided
through pass-through payments in
approvable ways, such as approaches
consistent with § 438.6(c). If a state was
currently building in $10 million in
pass-through payments to hospitals
under their current managed care
contracts, we assumed that the state
would incorporate the $10 million into
their managed care rates in permissible
ways rather than spending less in
Medicaid managed care. While it is
possible that this would be more
difficult for states with relatively larger
amounts of pass-through payments, the
long transition period provided under
the May 6, 2016 final rule to phase out
pass-through payments should help
states to integrate existing pass-through
payments into actuarially sound
capitation rates through permissible
Medicaid financing structures,
including enhanced fee schedules or the
other approaches consistent with
§ 438.6(c) that tie managed care
payments to services and utilization
covered under the contract.
A number of states have integrated
some form of pass-through payments
into their managed care contracts for
hospitals, nursing facilities, and
physicians. In general, the size and
number of the pass-through payments
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for hospitals has been more significant
than for nursing facilities and
physicians. We noted in the May 6,
2016 final rule (81 FR 27589) a number
of reasons provided by states for using
pass-through payments in their
managed care contracts. As of the
effective date of the May 6, 2016 final
rule, we estimate that at least eight
states have implemented approximately
$105 million in pass-through payments
for physicians annually; we estimate
that at least three states have
implemented approximately $50 million
in pass-through payments for nursing
facilities annually; and we estimate that
at least 16 states have implemented
approximately $3.3 billion in passthrough payments for hospitals
annually. These estimates are somewhat
uncertain, as before the final rule, we
did not have regulatory requirements for
states to document and describe passthrough payments in their managed care
contracts or rate certifications. The
amount of pass-through payments often
represents a significant portion of the
overall capitation rate under a managed
care contract. We have seen passthrough payments that have represented
25 percent, or more, of the overall
managed care contract and 50 percent of
individual rate cells. The rationale for
these pass-through payments in the
development of the capitation rates is
often not transparent, and it is not clear
what the relationship of these passthrough payments is to the provision of
services or the requirement for
actuarially sound rates.
Since the publication of the May 6,
2016 final rule, we received a formal
proposal from one state regarding $250
to $275 million in pass-through
payments to hospitals; we have been
working with the state to identify
permissible implementation options for
their proposal, including under
§ 438.6(c), and tie such payments to the
utilization and delivery of services (as
well as the outcomes of delivered
services). We heard informally that two
additional states are working to develop
pass-through payment mechanisms to
increase total payments to hospitals by
approximately $10 billion cumulatively.
We also heard informally from one state
regarding a $200 million proposal for
pass-through payments to physicians.
We also continue to receive inquiries
from states, provider associations, and
consultants who are developing formal
proposals to add new pass-through
payments, or increase existing passthrough payments, and incorporate such
payments into Medicaid managed care
rates. These state proposals have not
been approved to date. While it is
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difficult for us to conduct a detailed
quantitative analysis given this
considerable uncertainty and lack of
data, we believe that without this final
rulemaking, states will continue to
ramp-up pass-through payments in
ways that are not consistent with the
pass-through payment transition periods
established in the May 6, 2016 final
rule.
Since we cannot produce a detailed
quantitative analysis, we have
developed a qualitative discussion for
this RIA. We believe there are many
benefits with this regulation, including
consistency with our interpretation and
implementation of the statutory
requirements in section 1903(m) of the
Act and regulations for actuarially
sound capitation rates, improved
transparency in rate development
processes, permissible and accountable
payment approaches that are based on
the utilization and delivery of services
to enrollees covered under the contract,
or the quality and outcomes of such
services, and improved support for
delivery system reform that is focused
on improved care and quality for
Medicaid beneficiaries. We believe that
the costs of this regulation to state and
federal governments will not be
significant; we currently review and
work with states on managed care
contracts and rates, and because passthrough payments exist today, any
additional costs to state or federal
governments should be negligible.
Relative to the current baseline, this
final rule builds on the May 6, 2016
final rule and may further reduce the
likelihood of increases in or the
development of new pass-through
payments, which could reduce state and
federal government transfers to
hospitals, physicians, and nursing
facilities. However, states may instead
increase or develop actuarially sound
payments that link provider
reimbursement with services covered
under the contract or associated quality
outcomes. Because we lack sufficient
information to forecast the eventual
overall impact of the May 6, 2016 final
rule on state pass-through payments, we
provide only a qualitative discussion of
the impact of this final rule on avoided
transfers. Given the potential for
avoided transfers, we believe this final
rule is economically significant as
defined by Executive Order 12866.
We received the following comment
on the proposed overall impact and
regulatory impact analysis.
Comment: One commenter stated
concern that we did not provide, in the
proposed rule and to the public, a
careful and transparent analysis of the
anticipated quantitative consequences
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of this economically significant
regulatory action. This commenter
recommended that we withdraw the
proposed rule until such a quantitative
analysis is completed.
Response: The commenter did not
provide any substantive information
with which to conduct such an analysis.
As stated in the proposed rule, it is
difficult for us to conduct a detailed
quantitative analysis given the
considerable uncertainty and lack of
data discussed above; however we
continue to believe that without this
final rulemaking, states will continue to
ramp-up pass-through payments in
ways that are not consistent with the
pass-through payment transition periods
established in the May 6, 2016 final
rule. We solicited and received no
substantive suggestions on doing such
an analysis. Since we cannot produce a
detailed quantitative analysis, we have
developed a qualitative discussion for
this final rule.
After considering the comments, we
are finalizing the regulatory impact
analysis as proposed without revision.
C. Anticipated Effects
The RFA requires agencies to analyze
options for regulatory relief of small
businesses. For purposes of the RFA,
small entities include small businesses,
nonprofit organizations, and small
governmental jurisdictions. Small
entities are those entities, such as health
care providers, having revenues
between $7.5 million and $38.5 million
in any 1 year. Individuals and states are
not included in the definition of a small
entity. We do not believe that this final
rule will have a significant economic
impact on a substantial number of small
businesses.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory
impact analysis for any rule that may
have a significant impact on the
operations of a substantial number of
small rural hospitals. This analysis must
conform to the provisions of section 604
of the RFA. For purposes of section
1102(b) of the Act, we define a small
rural hospital as a hospital that is
located outside a Metropolitan
Statistical Area and has fewer than 100
beds. We do not anticipate that the
provisions in this final rule will have a
substantial economic impact on small
rural hospitals. We are not preparing
analysis for either the RFA or section
1102(b) of the Act because we have
determined, and the Secretary certifies,
that this final rule will not have a
significant economic impact on a
substantial number of small entities or
a significant impact on the operations of
a substantial number of small rural
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5427
hospitals in comparison to total
revenues of these entities.
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
also requires that agencies assess
anticipated costs and benefits before
issuing any rule whose mandates
require spending in any 1 year of $100
million in 1995 dollars, updated
annually for inflation. In 2016, that is
approximately $146 million. This final
rule does not mandate any costs
(beyond this threshold) resulting from
(A) imposing enforceable duties on
state, local, or tribal governments, or on
the private sector, or (B) increasing the
stringency of conditions in, or
decreasing the funding of, state, local, or
tribal governments under entitlement
programs.
Executive Order 13132 establishes
certain requirements that an agency
must meet when it issues a rule that
imposes substantial direct requirements
or costs on state and local governments,
preempts state law, or otherwise has
federalism implications. Since this final
rule does not impose any costs on state
or local governments, the requirements
of Executive Order 13132 are not
applicable. In accordance with the
provisions of Executive Order 12866,
this final rule was reviewed by the
Office of Management and Budget.
We did not receive comments on the
proposed anticipated effects for the
revisions to § 438.6(d) and finalize our
analysis in this rule.
D. Alternatives Considered
During the development of this final
rule, we assessed all regulatory
alternatives and discussed in the
preamble of the proposed rule a few
alternatives that we considered. First, in
discussing our revisions to paragraphs
(d)(1)(i) and (ii) in the proposed rule, we
considered linking eligibility for the
transition period to those states with
pass-through payments for hospitals,
physicians, or nursing facilities that
were in approved (not just submitted for
our review and approval) managed care
contract(s) and rate certification(s) only
for the rating period covering July 5,
2016. We noted in the proposed rule
that we believed such an approach was
not administratively feasible for states
or us because it did not recognize the
nuances of the timing and approval
processes. We believe our approach
under this final rule provides the
appropriate parameters and conditions
for pass-through payments in managed
care contract(s) and rate certification(s)
during the transition period.
Second, in discussing our revisions to
paragraphs (d)(3) and (d)(5) in the
proposed rule, we described that the
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aggregate amounts of pass-through
payments in each provider category
would be used to set applicable limits
for the provider type during the
transition period, without regard to the
specific provider(s) that received a passthrough payment. We considered
proposing that the state should be
limited by amount and recipient during
the transition period; however, this
narrower policy would be more limiting
than originally intended under the May
6, 2016 final rule when the pass-through
payment transition periods were
finalized. We requested comment on our
alternative proposals.
We did not receive comments on the
alternative proposals to revise § 438.6(d)
and, as noted above, are finalizing the
proposed amendments to § 438.6(d).
E. Accounting Statement
As discussed in this RIA, the benefits,
costs, and transfers of this final
regulation are identified in table 1 as
qualitative impacts only.
TABLE 1—ACCOUNTING STATEMENT
Units
Category
Primary
estimate
Low estimate
High estimate
Year dollars
Discount rate
Period
covered
Notes
Benefits
Non-Quantified .............
Benefits include: Consistency with the statutory requirements in section 1903(m) of the Act and regulations for actuarially sound capitation rates; improved transparency in rate development processes; greater incentives for payment
approaches that are based on the utilization and delivery of services to enrollees covered under the contract, or
the quality and outcomes of such services; and improved support for delivery system reform that is focused on improved care and quality for Medicaid beneficiaries.
Costs
Non-Quantified .............
Costs to state or federal governments should be negligible.
Transfers
Non-Quantified .............
Relative to the current baseline, this final rule builds on the May 6, 2016 final rule and may further reduce the likelihood of increases in or the development of new pass-through payments, which could reduce state and federal
government transfers to hospitals, physicians, and nursing facilities. Given the potential for avoided transfers, we
believe this final rule is economically significant as defined by Executive Order 12866.
List of Subjects in 42 CFR Part 438
Grant programs—health, Medicaid,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR
chapter IV as set forth below:
PART 438—MANAGED CARE
1. The authority citation for part 438
continues to read as follows:
■
Authority: Sec. 1102 of the Social Security
Act (42 U.S.C. 1302).
2. Section 438.6 is amended by
revising paragraphs (d)(1), (3), and (5) to
read as follows:
■
§ 438.6 Special contract provisions related
to payment.
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*
*
*
*
*
(d) * * * (1) General rule. States may
continue to require MCOs, PIHPs, and
PAHPs to make pass-through payments
(as defined in paragraph (a) of this
section) to network providers that are
hospitals, physicians, or nursing
facilities under the contract, provided
the requirements of this paragraph (d)
are met. States may not require MCOs,
PIHPs, and PAHPs to make pass-through
payments other than those permitted
under this paragraph (d).
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(i) In order to use a transition period
described in this paragraph (d), a State
must demonstrate that it had passthrough payments for hospitals,
physicians, or nursing facilities in:
(A) Managed care contract(s) and rate
certification(s) for the rating period that
includes July 5, 2016, and were
submitted for CMS review and approval
on or before July 5, 2016; or
(B) If the managed care contract(s) and
rate certification(s) for the rating period
that includes July 5, 2016 had not been
submitted to CMS on or before July 5,
2016, the managed care contract(s) and
rate certification(s) for a rating period
before July 5, 2016 that had been most
recently submitted for CMS review and
approval as of July 5, 2016.
(ii) CMS will not approve a retroactive
adjustment or amendment,
notwithstanding the adjustments to the
base amount permitted in paragraph
(d)(2) of this section, to managed care
contract(s) and rate certification(s) to
add new pass-through payments or
increase existing pass-through payments
defined in paragraph (a) of this section.
*
*
*
*
*
(3) Schedule for the reduction of the
base amount of pass-through payments
for hospitals under the MCO, PIHP, or
PAHP contract and maximum amount
of permitted pass-through payments for
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Sfmt 4700
each year of the transition period. For
States that meet the requirement in
paragraph (d)(1)(i) of this section, passthrough payments for hospitals may
continue to be required under the
contract but must be phased out no
longer than on the 10-year schedule,
beginning with rating periods for
contract(s) that start on or after July 1,
2017. For rating periods for contract(s)
beginning on or after July 1, 2027, the
State cannot require pass-through
payments for hospitals under a MCO,
PIHP, or PAHP contract. Until July 1,
2027, the total dollar amount of passthrough payments to hospitals may not
exceed the lesser of:
(i) A percentage of the base amount,
beginning with 100 percent for rating
periods for contract(s) beginning on or
after July 1, 2017, and decreasing by 10
percentage points each successive year;
or
(ii) The total dollar amount of passthrough payments to hospitals
identified in the managed care
contract(s) and rate certification(s) used
to meet the requirement of paragraph
(d)(1)(i) of this section.
*
*
*
*
*
(5) Pass-through payments to
physicians or nursing facilities. For
States that meet the requirement in
paragraph (d)(1)(i) of this section, rating
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Rules and Regulations
periods for contract(s) beginning on or
after July 1, 2017 through rating periods
for contract(s) beginning on or after July
1, 2021, may continue to require passthrough payments to physicians or
nursing facilities under the MCO, PIHP,
or PAHP contract of no more than the
total dollar amount of pass-through
payments to physicians or nursing
facilities, respectively, identified in the
managed care contract(s) and rate
certification(s) used to meet the
requirement of paragraph (d)(1)(i) of this
section. For rating periods for
contract(s) beginning on or after July 1,
2022, the State cannot require passthrough payments for physicians or
nursing facilities under a MCO, PIHP, or
PAHP contract.
Dated: January 3, 2017.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Dated: January 10, 2017.
Sylvia M. Burwell,
Secretary, Department of Health and Human
Services.
[FR Doc. 2017–00916 Filed 1–17–17; 8:45 am]
BILLING CODE 4120–01–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 665
[Docket No. 160811726–6999–02]
RIN 0648–XE809
Pacific Island Fisheries; 2016–17
Annual Catch Limit and Accountability
Measures; Main Hawaiian Islands Deep
7 Bottomfish
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Final specifications.
AGENCY:
In this final rule, NMFS
specifies an annual catch limit (ACL) of
318,000 lb of Deep 7 bottomfish in the
main Hawaiian Islands (MHI) for the
2016–17 fishing year. As an
accountability measure (AM), if the ACL
is projected to be reached, NMFS would
close the commercial and noncommercial fisheries for MHI Deep 7
bottomfish for the remainder of the
fishing year. The ACL and AM support
the long-term sustainability of Hawaii
bottomfish.
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SUMMARY:
The final specifications are
effective from February 17, 2017,
through August 31, 2017.
DATES:
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16:39 Jan 17, 2017
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The environmental
assessment and finding of no significant
impact for this action, identified as
NOAA–NMFS–2016–0112, is available
at www.regulations.gov, or from Michael
D. Tosatto, Regional Administrator,
NMFS Pacific Islands Region (PIR), 1845
Wasp Blvd. Bldg. 176, Honolulu, HI
96818.
The Fishery Ecosystem Plan for the
Hawaiian Archipelago is available from
the Western Pacific Fishery
Management Council (Council), 1164
Bishop St., Suite 1400, Honolulu, HI
96813, tel 808–522–8220, fax 808–522–
8226, or www.wpcouncil.org.
FOR FURTHER INFORMATION CONTACT:
Sarah Ellgen, NMFS PIR Sustainable
Fisheries, 808–725–5173.
SUPPLEMENTARY INFORMATION: Through
this action, NMFS is specifying an ACL
of 318,000 lb of Deep 7 bottomfish in
the MHI for the 2016–17 fishing year.
The fishing year began September 1,
2016, and ends on August 31, 2017. The
Council recommended this ACL, based
on the best available scientific,
commercial, and other information,
taking into account the associated risk
of overfishing. This ACL is 8,000 lb
lower than the ACL that NMFS
specified for the 2015–16 fishing year,
and is the second annual reduction in
a phased approach to lower the ACL
incrementally over three years, as
recommended by the Council.
The MHI Management Subarea is the
portion of U.S. Exclusive Economic
Zone around the Hawaiian Archipelago
east of 161°20′ W. The Deep 7
bottomfish are onaga (Etelis coruscans),
ehu (E. carbunculus), gindai
(Pristipomoides zonatus), kalekale (P.
sieboldii), opakapaka (P. filamentosus),
lehi (Aphareus rutilans), and hapuupuu
(Hyporthodus quernus).
The MHI bottomfish fishing year
started September 1, 2016, and is
currently open. NMFS will monitor the
fishery and, if we project that the fishery
will reach the ACL before August 31,
2017, we would, as an AM authorized
in 50 CFR 665.4(f), close the noncommercial and commercial fisheries
for Deep 7 bottomfish in Federal waters
through August 31, 2017. During a
fishery closure for Deep 7 bottomfish,
no person may fish for, possess, or sell
any of these fish in the MHI
Management Subarea. There is no
prohibition on fishing for, possessing, or
selling other (non-Deep 7) bottomfish
during such a closure. All other
management measures continue to
apply in the MHI bottomfish fishery. If
NMFS and the Council determine that
the final 2016–17 Deep 7 bottomfish
catch exceeds the ACL, NMFS would
ADDRESSES:
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5429
reduce the Deep 7 bottomfish ACL for
2017–18 by the amount of the overage.
You may review additional
background information on this action
in the preamble to the proposed
specifications (81 FR 75803; November
1, 2016); we do not repeat that
information here.
Comments and Responses
The comment period for the proposed
specifications ended on November 16,
2016. NMFS received comments from
four individuals, and responds, as
follows:
Comment 1: The 2016–2017 ACL
serves as a precautionary measure for
bottomfish stocks that supports healthy
fisheries. The proposed ACL is greater
than recent annual catches, so it would
not significantly inconvenience
fishermen.
Response: NMFS agrees. We assessed
the potential beneficial and adverse
impacts of the ACL and AM on the
environment, including the fishery
itself, and concluded that the action is
necessary to prevent overfishing while
supporting the long-term sustainability
of Hawaii bottomfish.
Comment 2: We need to punish
anyone who harms the ocean and any of
our waters.
Response: While the comment is not
specific to the proposed action,
violations of Federal fishery regulations
are subject to penalties pursuant to
Section 308 of the Magnuson-Stevens
Fishery Conservation and Management
Act (Magnuson-Stevens Act).
Comment 3: Legislation is needed to
reduce overfishing and to protect
marine life in Hawaiian waters.
Response: Federal laws and
regulations already protect Hawaii fish
stocks from overfishing pressure. The
Magnuson-Stevens Act includes
requirements for ACLs and AMs and
other provisions for preventing and
ending overfishing and rebuilding
fisheries. Unless exempted by law, all
fisheries in Federal waters must have
ACLs and AMs. Fishery scientists and
managers use the best scientific
information available, including catch,
fishing effort, biological information,
etc., to determine the maximum catch
that would not harm the conservation
needs of the fish stock, and ACLs must
be set at or below the levels that account
for uncertainty about the fishery
information.
AMs are management controls to
prevent ACLs from being exceeded, and
to correct or mitigate overages when
they occur. For the MHI bottomfish
fishery, one AM would close the fishery
before the scheduled end of the fishing
year to prevent exceeding the ACL, and
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Agencies
[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Rules and Regulations]
[Pages 5415-5429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00916]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 438
[CMS-2402-F]
RIN 0938-AT10
Medicaid Program; The Use of New or Increased Pass-Through
Payments in Medicaid Managed Care Delivery Systems
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule finalizes changes to the pass-through payment
transition periods and the maximum amount of pass-through payments
permitted annually during the transition periods under Medicaid managed
care contract(s) and rate certification(s). This final rule prevents
increases in pass-through payments and the addition of new pass-through
payments beyond those in place when the pass-through payment transition
periods were established, in the final Medicaid managed care
regulations effective July 5, 2016.
DATES: Effective Date: These regulations are effective on March 20,
2017.
FOR FURTHER INFORMATION CONTACT: John Giles, (410) 786-1255.
SUPPLEMENTARY INFORMATION:
I. Background
In the June 1, 2015 Federal Register (80 FR 31098), we published
the ``Medicaid and Children's Health Insurance Program (CHIP) Programs;
Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and
CHIP Comprehensive Quality Strategies, and Revisions Related to Third
Party Liability'' proposed rule (``June 1, 2015 proposed rule''). As
part of the actuarial soundness proposals, we proposed to define
actuarially sound capitation rates as those sufficient to provide for
all reasonable, appropriate, and attainable costs that are required
under the terms of the contract, including furnishing of covered
services and operation of the managed care plan for the duration of the
contract. Among the proposals was a general rule that the state may not
direct the managed care organization's (MCO's), prepaid inpatient
health plan's (PIHP's), or prepaid ambulatory health plan's (PAHP's)
expenditures under the contract.
In the May 6, 2016 Federal Register (81 FR 27498), we published the
``Medicaid and Children's Health Insurance Program (CHIP) Programs;
Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions
Related to Third Party Liability'' final rule (``May 6, 2016 final
rule''), which finalized the June 1, 2015 proposed rule. In the final
rule, we finalized, with some revisions, the proposal which limited
state direction of payments, including pass-through payments as defined
below.
In the November 22, 2016 Federal Register (81 FR 83777), we
published the ``Medicaid Program; The Use of New or Increased Pass-
Through Payments in Medicaid Managed Care Delivery Systems'' proposed
rule (``November 22, 2016 proposed rule''). This rule finalizes the
November 22, 2016 proposed rule as discussed below. This final rule is
consistent with the intent of the May 6, 2016 final rule to provide
transition periods for states that already use pass-through payments--
these transition periods allow states to implement changes to existing
pass-through payments over a period of time to minimize disruption and
to ensure continued financial support for safety-net providers. As we
discussed in the November 22, 2016 proposed rule, this final rule is
also consistent with the CMCS Informational Bulletin (CIB) concerning
``The Use of New or Increased Pass-Through Payments in Medicaid Managed
Care Delivery Systems,'' which was published on July 29, 2016.
A. Summary of the Medicaid Managed Care May 6, 2016 Final Rule
We finalized a policy to limit state direction of payments,
including pass-through payments, at Sec. 438.6(c) and (d) in the May
6, 2016 final rule (81 FR 27587 through 27592). Specifically, under the
final rule (81 FR 27588), we defined pass-through payments at Sec.
438.6(a) as any amount required by the state (and considered in
calculating the actuarially sound capitation rate) to be added to the
contracted payment rates paid by the MCO, PIHP, or PAHP to hospitals,
physicians, or nursing facilities that is not for the following
purposes: A specific service or benefit provided to a specific enrollee
covered under the contract; a provider payment methodology permitted
under Sec. 438.6(c)(1)(i) through (iii) for services and enrollees
covered under the contract; a subcapitated payment arrangement for a
specific set of services and enrollees covered under the contract;
graduate medical education (GME) payments; or federally-qualified
health center (FQHC) or rural health clinic (RHC) wrap around payments.
We noted that section 1903(m)(2)(A) of the Social Security Act (the
Act) requires that capitation payments to managed care plans be
actuarially sound; we interpret this requirement to mean that payments
under the managed care contract must align with the provision of
services to beneficiaries covered under the contract. We provided that
these pass-through payments are not consistent with our regulatory
standards for actuarially sound rates because they do not tie provider
payments with the provision of services. The final rule contains a
detailed description of the policy rationale (81 FR 27587 through
27592).
In an effort to provide a smooth transition for network providers,
to support access for the beneficiaries they serve, and to provide
states and managed care plans with adequate time to design and
implement payment systems that link provider reimbursement with
services covered under the contract or associated quality outcomes, we
finalized transition periods related to pass-through payments for the
specified provider types to which states make most pass-through
payments under Medicaid managed care programs: Hospitals, physicians,
and nursing homes (81 FR 27590 through 27592). As finalized, Sec.
438.6(d)(2) and (3) provide a 10-year transition period for hospitals,
subject to limitations on the amount of pass-through payments. For MCO,
PIHP, or PAHP contracts beginning on or after July 1, 2027, states will
not be permitted to require pass-through payments for hospitals. The
final rule also provides a 5-year transition period for pass-through
payments to physicians and nursing facilities. For MCO, PIHP, or PAHP
contracts beginning on or after July 1, 2022, states will not be
permitted to require pass-through payments for physicians or nursing
facilities. These transition periods provide states, network providers,
and managed care plans significant time and flexibility to integrate
current pass-through payment arrangements into allowable payment
structures under actuarially sound capitation rates, including enhanced
fee schedules or the other approaches consistent with Sec. 438.6(c).
As finalized in the May 6, 2016 final rule, Sec. 438.6(d) limits
the amount of pass-through payments to hospitals as a percentage of the
``base amount,'' which is defined in paragraph (a) and
[[Page 5416]]
calculated under rules in paragraph (d)(2). Section 438.6(d)(3)
specifies a schedule for the phased reduction of the base amount,
limiting the amount of pass-through payments to hospitals. For
contracts beginning on or after July 1, 2017, the state may require
pass-through payments to hospitals under the contract up to 100 percent
of the base amount, as defined in the final rule. For subsequent
contract years (contracts beginning on or after July 1, 2018 through
contracts beginning on or after July 1, 2026), the portion of the base
amount available for pass-through payments decreases by 10 percentage
points per year. For contracts beginning on or after July 1, 2027, no
pass-through payments to hospitals are permitted. The May 6, 2016 final
rule noted that nothing would prohibit a state from eliminating pass-
through payments to hospitals before contracts beginning on or after
July 1, 2027. However, the final rule provided for a phased reduction
in the percentage of the base amount that can be used for pass-through
payments, because a phased transition would support the development of
permissible and accountable payment approaches while mitigating any
disruption to states and providers.
We believe that states will be able to more easily transition
existing pass-through payments to physicians and nursing facilities to
payment structures linked to services covered under the contract
compared to the transition necessary for similar payments to hospitals.
Consequently, the May 6, 2016 final rule, in Sec. 438.6(d)(5),
provided a shorter time period for eliminating pass-through payments to
physicians and nursing facilities and did not prescribe a limit or
phased reduction in these payments; states have the option to eliminate
these payments immediately or phase down these payments over the 5 year
transition period if they prefer. As noted in the May 6, 2016 final
rule, the distinction between hospitals and nursing facilities and
physicians was also based on the comments from stakeholders during the
public comment period (81 FR 27590).
B. Questions About the May 6, 2016 Final Rule
Since publication of the May 6, 2016 final rule, we have received
inquiries about states' ability to integrate new or increased pass-
through payments into Medicaid managed care contracts. As explained in
the CMCS Informational Bulletin (CIB) published on July 29, 2016,\1\
adding new or increased pass-through payments for hospitals,
physicians, or nursing facilities complicates the required transition
of these pass-through payments to permissible provider payment models.
---------------------------------------------------------------------------
\1\ The Use of New or Increased Pass-Through Payments in
Medicaid Managed Care Delivery Systems; available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib072916.pdf.
CMCS also noted in this CIB that it intended to further address in
future rulemaking the issue of adding new or increased pass-through
payments to managed care contracts.
---------------------------------------------------------------------------
The transition periods under the May 6, 2016 final rule provide
states, network providers, and managed care plans significant time and
flexibility to move existing pass-through payment arrangements (that
is, those in effect when the final rule was published) into different,
permissible payment structures under actuarially sound capitation
rates, including enhanced fee schedules or the other approaches
consistent with Sec. 438.6(c). We did not intend for states, after the
May 6, 2016 final rule was published, to begin additional or new pass-
through payments, or to increase existing pass-through payments; such
actions are contrary to and undermine the policy goal of eliminating
pass-through payments. We proposed in the November 22, 2016 proposed
rule and finalize here that we will not permit a pass-through payment
amount to exceed the lesser of the amounts calculated under paragraph
(d)(3) of this final rule. For states to add new or to increase
existing pass-through payments is inconsistent with longstanding CMS
policy, the proposal made in the June 1, 2015 proposed rule, and the
May 6, 2016 final rule, which reflects the general policy goal to
effectively and efficiently transition away from pass-through payments.
Under the May 6, 2016 final rule, we provided a delayed compliance
deadline for Sec. 438.6(c) and (d); we will enforce compliance with
Sec. 438.6(c) and (d) no later than the rating period for Medicaid
managed care contracts beginning on or after July 1, 2017. Our exercise
of enforcement discretion in this respect was not intended to create
new opportunities for states to add or increase existing pass-through
payments before July 1, 2017. This delay was intended to address
concerns articulated by commenters, among them states and providers,
that an abrupt end to directed pass-through payments could cause
damaging disruption to safety-net providers. As discussed in the May 6,
2016 final rule and this final rule, pass-through payments are
inconsistent with our interpretation and implementation of the
statutory requirement for actuarially sound capitation rates because
pass-through payments do not tie provider payments to the provision of
services under the contract (81 FR 27588). A distinguishing
characteristic of a pass-through payment is that a managed care plan is
contractually required by the state to pay providers an amount that is
disconnected from the amount, quality, or outcomes of services
delivered to enrollees under the contract during the rating period of
the contract. When managed care plans only serve as a conduit for
passing payments to providers independent of delivered services, such
payments reduce managed care plans' ability to control expenditures,
effectively use value-based purchasing strategies, implement provider-
based quality initiatives, and generally use the full capitation
payment to manage the care of enrollees. The May 6, 2016 final rule
made clear our position on these payments and our intent that they be
eliminated from Medicaid managed care delivery systems, except for the
directed payment models permitted by Sec. 438.6(c), or the payments
excluded from the definition of a pass-through payment in Sec.
438.6(a), such as FQHC wrap payments.
The transition periods provided under Sec. 438.6(d) are for states
to identify existing pass-through payments and begin either tying such
payments directly to services and utilization covered under the
contract or eliminating them completely in favor of other support
mechanisms for providers that comply with the requirements in Sec.
438.6(c). The transition periods for current pass-through payments
minimize disruption to local health care systems and interruption of
beneficiary access by permitting a gradual step down from current
levels of pass-through payments: (1) At the schedule and subject to the
limit announced in the May 6, 2016 final rule for hospitals under Sec.
438.6(d)(3); and (2) at a schedule adopted by the state for physicians
and nursing facilities under Sec. 438.6(d)(5). By providing states,
network providers, and managed care plans significant time and
flexibility to integrate current pass-through payment arrangements into
different payment structures (including enhanced fee schedules or the
other approaches consistent with Sec. 438.6(c)) and into actuarially
sound capitation rates, we intended to address comments that the June
1, 2015 proposed rule would be unnecessarily disruptive and endanger
safety-net provider systems that states have developed for Medicaid.
Questions from states following the May 6, 2016 final rule
indicated that the transition period and delayed enforcement date have
caused some
[[Page 5417]]
confusion regarding our intent for increased and new pass-through
payments for contracts prior to July 1, 2017, because the final rule
did not explicitly prohibit such additions or increases. While we
assumed such a prohibition was implicit in the May 6, 2016 final rule,
as our discussion of Sec. 438.6(d) made clear that pass-through
payments were to be discontinued, we believe that this additional
rulemaking is necessary to clarify this issue in light of the recent
questions. Under this final rule, we are linking pass-through payments
permitted during the transition period to the aggregate amounts of
pass-through payments that were in place at the time the May 6, 2016
final rule became effective on July 5, 2016, which is consistent with
the intent under the May 6, 2016 final rule to phase out pass-through
payments under Medicaid managed care contracts.
II. Provisions of the Proposed Regulations and Analysis of and
Responses to Public Comments
We received 46 timely comments from the public, including comments
from hospitals, hospital associations, state Medicaid agencies,
Medicaid managed care plans, and other healthcare providers and
associations. The following sections, arranged by subject area, are a
summary of the comments we received. In response to the November 22,
2016 proposed rule, some commenters chose to raise issues that were
beyond the scope of our proposals. In this final rule, we are not
summarizing or responding to those comments.
We proposed to revise Sec. 438.6(d) to better effectuate the
intent of the May 6, 2016 final rule. In the November 22, 2016 proposed
rule, we first proposed to limit the availability of the transition
periods in Sec. 438.6(d)(3) and (5) (that is, the ability to continue
pass-through payments for hospitals, physicians, or nursing facilities)
to states that can demonstrate that they had such pass-through payments
in either: (A) Managed care contract(s) and rate certification(s) for
the rating period that includes July 5, 2016, and that were submitted
for our review and approval on or before July 5, 2016; or (B) if the
managed care contract(s) and rate certification(s) for the rating
period that includes July 5, 2016 had not been submitted to us on or
before July 5, 2016, the managed care contract(s) and rate
certification(s) for a rating period before July 5, 2016 that had been
most recently submitted to us for review and approval as of July 5,
2016.
Second, we proposed to prohibit retroactive adjustments or
amendments to managed care contract(s) and rate certification(s) to add
new pass-through payments or increase existing pass-through payments
defined in Sec. 438.6(a). In the proposed rule, we noted that we would
not permit a pass-through payment amount to exceed the lesser of the
amounts calculated under paragraph (d)(3).
Third, we proposed to establish a new maximum amount of permitted
pass-through payments for each year of the transition period. For
hospitals, a state would be limited (in the total amount of permissible
pass-through payments) during each year of the transition period to the
lesser of either: (A) The percentage of the base amount applicable to
that contract year; or (B) the pass-through payment amount identified
in proposed paragraph (d)(1)(i). Thus, the amount of pass-through
payments identified by the state in order to satisfy proposed paragraph
(d)(1)(i) would be compared to the amount representing the applicable
percentage of the base amount that is calculated for each year of the
transition period. For pass-through payments to physicians and nursing
facilities, we also proposed to limit the amount of pass-through
payments during the transition period to the amount of pass-through
payments to physicians and nursing facilities under the contract and
rate certification identified in proposed paragraph (d)(1)(i).
In making these comparisons to the pass-through payments under the
managed care contract(s) in effect for the rating period covering July
5, 2016 as identified in proposed paragraph (d)(1)(i)(A), or the rating
period before July 5, 2016 as identified in proposed paragraph
(d)(1)(i)(B), we noted that we would look at total pass-through payment
amounts for the specified provider types. Past aggregate amounts of
hospital pass-through payments will be used in determining the maximum
amount for hospital pass-through payments during the transition period;
past aggregate amounts of physician pass-through payments will be used
in determining the maximum amount for physician pass-through payments
during the transition period; and past aggregate amounts of nursing
facility pass-through payments will be used in determining the maximum
amount for nursing facility pass-through payments during the transition
period.
Under the November 22, 2016 proposed rule, the aggregate amounts of
pass-through payments in each provider category would be used to set
applicable limits for the provider type during the transition period,
without regard to the specific provider(s) that received a pass-through
payment. For example, if the pass-through payments in the contract
identified under paragraph (d)(1)(i) were to 5 specific hospitals, the
aggregate amount of pass-through payments to those hospitals would be
relevant in establishing the limit during the transition period, but
different hospitals could be the recipients of pass-through payments
during the transition. We requested comment on our proposed approach as
a whole, as well as our specific proposals to amend the existing
regulation text and revise paragraph (d)(1) (adding new (d)(1)(i) and
(ii)), revise paragraph (d)(3) (adding new (d)(3)(i) and (ii)), and
revise paragraph (d)(5).
A. General Comments
Comment: Some commenters stated concerns with the overall proposal
and stated that the current proposal would limit state flexibility for
pass-through payments beyond what was finalized in the May 6, 2016
final rule; these commenters recommended that we not finalize the
November 22, 2016 proposed rule and recommended that we ensure that
states continue to have the flexibility permitted in the May 6, 2016
final rule for pass-through payments in Medicaid managed care programs.
Response: We do not agree with commenters that states should have
more flexibility in this area than this final rule provides. We believe
that this final rule flows from the intent of the May 6, 2016 final
rule to phase out pass-through payments under Medicaid managed care
contracts and ensure that the transition periods be used by states that
had pass-through payments in their MCO, PIHP, or PAHP contracts when we
finalized the May 6, 2016 final rule. While we recognize that the
regulation text finalized in the May 6, 2016 final rule was not
explicit on this point and have taken steps to amend this final rule
here to rectify that, this final rule is consistent with the policy and
goals of the May 6, 2016 final rule in adopting transition periods.
This final regulation maintains the significant time and flexibility
provided to states, network providers, and managed care plans during
the transition periods to move existing pass-through payment
arrangements (those in effect when the May 6, 2016 final rule was
published) into different, permissible payment structures under
actuarially sound capitation rates, including enhanced fee schedules or
the other approaches consistent with Sec. 438.6(c) that tie managed
care payments to services and utilization (and outcomes) covered under
the contract.
[[Page 5418]]
Comment: Some commenters recommended that we not finalize this rule
and that we not further restrict or limit pass-through payments beyond
what was included in the May 6, 2016 final rule to support safety-net
providers that provide care to Medicaid managed care enrollees. These
commenters stated that states and providers have already begun to plan
for the transition periods beginning in July 2017 and that additional
constraints will add significant burden on safety-net providers.
Response: We do not agree that the proposed provisions, finalized
here, restrict or limit states from continuing to use pass-through
payments to support safety-net providers that provide care to Medicaid
managed care enrollees during the transition periods adopted in the May
6, 2016 final rule. The May 6, 2016 final rule provided transition
periods designed and finalized to enable affected providers, states,
and managed care plans--meaning those that already had pass-through
payments in place--to transition away from existing pass-through
payments and limit disruption to safety-net providers. We believe such
payments can be transitioned into permissible and accountable payment
models that are tied to covered services, value-based payment
structures, or delivery system reform initiatives without undermining
access for Medicaid managed care enrollees. This rule flows from and
reinforces the intent of the May 6, 2016 final rule by ensuring that
the transition periods are used by states that had pass-through
payments in their MCO, PIHP, or PAHP contracts when we finalized the
May 6, 2016 final rule. These are the states for which we were
concerned, based on the comments to the June 1, 2015 proposed rule,
that an abrupt end to pass-through payments could be disruptive to
their health care delivery system and safety-net providers. While we
recognize that the regulation text finalized in the May 6, 2016 final
rule was not explicit on this point and have taken steps to amend this
final rule here to rectify that, this final rule is consistent with the
policy and goals of the May 6, 2016 final rule in adopting transition
periods.
If states do not currently have pass-through payments in their
managed care contracts, we believe that the transition periods are
unnecessary to avoid disruption. States that do not have pass-through
payments in their managed care contracts that wish to pursue delivery
system and provider payment initiatives are already in a strong
position to design and implement allowable payment structures under
actuarially sound capitation rates, including enhanced fee schedules or
the other approaches consistent with Sec. 438.6(c) that tie managed
care payments to services and utilization covered under the contract.
We understand that states and providers have already begun to plan
for the transition periods beginning in July 2017, but we do not
believe that this rule will create substantially more constraints or
add significant burden on safety-net providers. Under the May 6, 2016
final rule, we did not intend to permit or encourage states to add new
pass-through payments or to ramp-up pass-through payments in ways that
are not consistent with the elimination of pass-through payments during
the transition periods. Adding new or increased pass-through payments
would substantially complicate the required transition away from pass-
through payments, potentially creating more disruption for safety-net
providers by increasing dependence on these payments and then
compressing the actual amount of time available to eliminate them.
Comment: Some commenters recommended that the proposed rule not be
finalized until the new administration has the opportunity to review
and ensure that the policy in the November 22, 2016 proposed rule is
consistent with the new administration's Medicaid policy and goals.
These commenters stated that such an approach is congruent with the
general practice and policy that significant new rules should not be
issued shortly before a change in the administration.
Response: A delay in finalizing this rule is contrary to our goals
and policy so we do not accept this recommendation. This final rule
flows from and reinforces the intent of the May 6, 2016 final rule to
phase out pass-through payments under Medicaid managed care contracts;
any delay would undermine the goals of that rule and make the
transition to an actuarially sound approach more difficult. We
discussed in the June 1, 2015 proposed rule, the May 6, 2016 final
rule, the July 29, 2016 CIB, and the November 22, 2016 proposed rule
the rationale for our position that pass-through payments are not
consistent with our regulatory standards for actuarially sound rates;
specifically, because they do not tie provider payments with the
provision of services. While we recognize that the regulation text
finalized in the May 6, 2016 final rule was not explicit on the point
that this final rulemaking addresses (for example, that the transition
periods were not for the initial adoption of and then elimination of
new or increased pass-through payments), this final rule is consistent
with the policy and goals of the May 6, 2016 final rule in adopting
transition periods. This final rule is congruent with established and
published policy guidance, is not a new policy being implemented at the
last minute, and is timely as states prepare for the July 1, 2017
implementation date.
In addition to comments on the proposal generally, we received
comments about specific provisions in the proposal. We address and
respond to those comments below.
B. Comments on Sec. 438.6(d)(1)
We proposed to revise paragraph (d)(1) to clarify that a state may
continue to require an MCO, PIHP, or PAHP to make pass-through payments
(as defined in Sec. 438.6(a)) to network providers that are hospitals,
physicians, or nursing facilities under the contract, provided the
requirements of paragraph (d) are met. We proposed retaining the
regulation text that provides explicitly that states may not require
MCOs, PIHPs, or PAHPs to make pass-through payments other than those
permitted under paragraph (d). We received the following comments in
response to our proposal to revise Sec. 438.6(d)(1).
Comment: Some commenters recommended that we remove the regulation
text that provides explicitly that states may not require MCOs, PIHPs,
or PAHPs to make pass-through payments other than those permitted under
paragraph (d); these commenters recommended that we reconsider the
pass-through payment policy finalized in the May 6, 2016 final rule.
Response: Since commenters did not raise any new issues for our
consideration in paragraph (d)(1), we do not agree with commenters that
we should remove the regulation text that provides explicitly that
states may not require MCOs, PIHPs, or PAHPs to make pass-through
payments other than those permitted under paragraph (d). The May 6,
2016 final rule provided a detailed description of the policy rationale
(81 FR 27587 through 27592) for why we established pass-through payment
transition periods and limited pass-through payments to hospitals,
physicians, and nursing facilities, and this policy rationale has not
changed. With the proposal to amend the regulation text to more
explicitly reflect our intent for the transition periods and the limits
on pass-through payments, we did not intend to revisit our rationale
for establishing the pass-through payment transition periods. We
continue to believe that pass-through payments are not consistent with
the statutory
[[Page 5419]]
requirements that capitation rates be actuarially sound.
After considering the comments, we are finalizing Sec. 438.6(d)(1)
as proposed without revision.
C. Comments on Sec. 438.6(d)(1)(i)
Under proposed paragraph (d)(1)(i), a state would be able to use
the transition period for pass-through payments to hospitals,
physicians, or nursing facilities only if the state can demonstrate
that it had pass-through payments for hospitals, physicians, or nursing
facilities, respectively, in both the managed care contract(s) and rate
certification(s) that meet the requirements in either proposed
paragraph (d)(1)(i)(A) or (B).
We proposed in paragraph (d)(1)(i)(A) that the managed care
contract(s) and rate certification(s) must be for the rating period
that includes July 5, 2016 and have been submitted for our review and
approval on or before July 5, 2016. If the state had not yet submitted
MCO, PIHP, or PAHP contract(s) and rate certification(s) for the rating
period that includes July 5, 2016, we proposed in paragraph
(d)(1)(i)(B) that the state must demonstrate that it required the MCO,
PIHP, or PAHP to make pass-through payments for a rating period before
July 5, 2016 in the managed care contract(s) and rate certification(s)
that were most recently submitted for our review and approval as of
July 5, 2016.
We proposed to use the date July 5, 2016 for the purpose of
identifying the pass-through payments in managed care contract(s) and
rate certification(s) that are eligible for the pass-through payment
transition period because it is consistent with the intent of the May
6, 2016 final rule that the transition period be used by states that
had pass-through payments in their MCO, PIHP, or PAHP contracts when
that rule was finalized. The transition period was intended to address
concerns, articulated in the comments to the June 1, 2015 proposed
rule, that an abrupt end to pass-through payments could be disruptive
to state health care delivery systems and safety-net providers. We
noted in the November 22, 2016 proposed rule that limiting the use of
the transition period to states that had pass-through payments in
effect as of the effective date of the May 6, 2016 final rule
facilitates elimination of these types of payments. We did not intend
for the May 6, 2016 final rule to incentivize or encourage states to
add new pass-through payments, as we believe that these payments are
inconsistent with actuarially sound rates. We received the following
comments in response to our proposal to revise Sec. 438.6(d)(1)(i),
including new paragraphs (d)(1)(i)(A) and (B).
Comment: Some commenters recommended that we not finalize paragraph
(d)(1)(i) because this new provision will be administratively
burdensome on states and has the potential to delay our approval of
managed care contracts and rate certifications. Other commenters
recommended that we add regulatory text to address scenarios in which
states had not submitted managed care contracts or rate certifications
to us by July 5, 2016, but states had already executed contracts with
their managed care plans. These commenters recommended that we permit
states to produce these executed contracts and allow these states to
use these managed care contracts and rate certifications for the
purpose of the transition period.
Response: We believe that the requirements under Sec.
438.6(d)(1)(i) will not be significantly more burdensome on states and
will not cause delays in the approval of managed care contracts and
rate certifications. To the contrary, we believe that the proposed
requirements under Sec. 438.6(d)(1)(i) will streamline the process for
documenting and demonstrating pass-through payments and will facilitate
a quicker approval process because the pass-through payments will be
more transparently identified. In addition, we currently review and
work with states on managed care contracts and rates, and because pass-
through payments exist today, any additional burden to state or federal
governments should be minimal.
We also do not agree that additional regulatory text is necessary
to address scenarios in which states had not submitted managed care
contracts or rate certifications to us by July 5, 2016, but states had
already executed contracts with their managed care plans. As proposed
in Sec. 438.6(d)(1)(i), we will permit states to demonstrate pass-
through payments in two ways: (1) Pass-through payments for hospitals,
physicians, or nursing facilities were in managed care contracts and
rate certifications for the rating period that includes July 5, 2016
and were submitted for our review and approval before July 5, 2016; or
(2) if the managed care contracts and rate certifications for the
rating period that includes July 5, 2016 had not been submitted to us
on or before July 5, 2016, pass-through payments for hospitals,
physicians, or nursing facilities were in managed care contracts and
rate certifications for a rating period before July 5, 2016 that had
been most recently submitted for our review and approval as of July 5,
2016. We believe these requirements strike the appropriate balance
between administrative simplicity and flexibility.
Comment: Some commenters recommended that we withdraw this
proposal. These commenters stated that establishing value-based payment
arrangements, delivery system reform, minimum fee schedules, and
payment rate increases require substantial time and attention. These
commenters believed that the fact that some states had established
pass-through payments before the effective date of the May 6, 2016
final rule (July 5, 2016) should not preclude other states from
receiving similar reasonable flexibilities to implement permissible
payment arrangements under Medicaid managed care.
Response: We do not agree with commenters that we should withdraw
this proposal. While we understand that establishing value-based
payment arrangements, delivery system reform, minimum fee schedules,
and payment rate increases require substantial time and attention, we
see no rationale to provide transition periods for states to phase out
and transition away from pass-through payments if they have not
previously implemented such payments. Unlike states that already have
pass-through payments in place and need to reverse those actions,
states that have not already used such pass-through payments are
starting from a clean slate in terms of adopting payment mechanisms and
systems described in Sec. 438.6(c). To permit new and increased pass-
through payments is contrary to the policy adopted in the May 6, 2016
final rule of eliminating pass-through payments and is not consistent
with our regulatory standards for actuarially sound rates. Further,
encouraging or enabling states to add or increase such pass-through
payments during the transition periods only exacerbates the challenges
of eliminating them and transitioning to actuarially sound rates, or
establishing value-based payment arrangements, delivery system reform,
and fee schedule and payment rate reforms. For states with existing
pass-through payments, the transition periods provide significant time
and flexibility to integrate existing pass-through payment arrangements
into permissible payment structures that tie provider payments to the
provision of services (or outcomes) under the contract. For states that
currently do not have pass-through payments in their managed care
contracts that wish to pursue delivery system and provider payment
initiatives, we believe such states are already in a better and
superior position to design and
[[Page 5420]]
implement allowable payment structures within actuarially sound
capitation rates, including enhanced fee schedules or the other
approaches consistent with Sec. 438.6(c) that tie managed care
payments to services and utilization covered under the contract.
Comment: Some commenters did not agree with the use of the July 5,
2016 date and characterized the use of that date as finalizing a rule
that applies retroactively. These commenters stated that the use of the
July 5, 2016 date and retroactive rulemaking is not consistent with the
intent of notice and comment rulemaking under the Administrative
Procedure Act (APA) and makes it impossible for states and providers to
plan for the potential impact of such rulemaking. Some commenters
recommended that we withdraw the proposed rule immediately and stated
that our proposals would significantly and retroactively change the
compliance date for the pass-through payment phase-down and would
effectively move-up the start of the phase-out period a full year from
July 1, 2017 to July 5, 2016. These commenters stated that such a
change in the compliance date would result in substantial new payment
restrictions with little time for states and hospitals to make
adjustments. These commenters stated concern that further limiting
pass-through payments could adversely affect hospitals and the patients
they serve.
Response: This final rule will not and does not apply retroactively
to July 5, 2016, and we have followed all notice and comment procedures
for rulemaking under the APA. This final rule only affects future
action of states and does not penalize or invalidate past actions taken
by states, which is permissible rulemaking.\2\ We provided our detailed
rationale in the proposed rule for using the July 5, 2016 date; we are
only using the July 5, 2016 date for the purpose of identifying the
pass-through payments in managed care contracts and rate certifications
that are eligible for the pass-through payment transition period. That
date was chosen because it is consistent with our intent that the
transition period be used by states that had pass-through payments in
their MCO, PIHP, or PAHP contracts when we finalized that rule.
Limiting the use of the transition period to states that had pass-
through payments in effect as of the effective date of the May 6, 2016
final rule (July 5, 2016) supports the policy goal of eliminating these
types of payments, while ensuring that an abrupt end to pass-through
payments will not be disruptive to state health care delivery systems
and safety-net providers. Using this past date as the point by which to
determine eligibility for the transition period eliminates the
possibility that the transition period itself encourages states to
create new or increase pass-through payments.
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\2\ Here, the rule only affects future action and limits future
choices available to states. Retroactive rules ``alter[ ] the past
legal consequences of past actions.'' Bowen v. Georgetown Univ.
Hosp., 488 U.S. 204, 219, 109 S. Ct. 468 (1988) (Scalia, J.,
concurring) (emphasis in original). When an agency takes action to
alter the future effect but not the past legal consequences of an
activity, the agency has not taken a retroactive action; similarly,
when agency action upsets expectations for future activity that are
based on prior law, it has not taken a retroaction action. Mobile
Relay Assocs. v. F.C.C., 457 F.3d 1, 10-11 (D.C. Cir. 2006).
---------------------------------------------------------------------------
For commenters concerned about compliance dates, we want to clarify
that this rule does not change the original compliance date for Sec.
438.6(d) from the May 6, 2016 final rule. We will still enforce
compliance with the requirements in Sec. 438.6(d) no later than the
rating period for Medicaid managed care contracts beginning on or after
July 1, 2017. As discussed in the November 22, 2016 proposed rule and
this final rule, our exercise of enforcement discretion in permitting
delayed compliance of the May 6, 2016 final rule with Sec. 438.6(d)
was not intended to create new opportunities for states to add or
increase existing pass-through payments either before or after July 1,
2017. This delay was intended to address concerns articulated by
commenters, among them states and providers, that an abrupt end to
directed pass-through payments could cause damaging disruption to
safety-net providers. The delay was also intended to give states and
managed care plans time to appropriately address any contract or rate
issues needed to implement and comply with Sec. 438.6(d). This final
rule amends the parameters for the transition periods that begin with
rating periods for contracts starting on or after July 1, 2017. As that
date is still several months in the future, this final rule is not
retroactive.
We understand the need for states and providers to have adequate
time to make adjustments in complying with the requirements at Sec.
438.6(d)--that is why the May 6, 2016 final rule provided transition
periods to phase-down pass-through payments. We agree and noted in the
May 6, 2016 final rule (81 FR 27589) and the November 22, 2016 proposed
rule (81 FR 83782) that the transition from one payment structure to
another often requires robust provider and stakeholder engagement,
agreement on approaches to care delivery and payment, establishing
systems for measuring outcomes and quality, planning efforts to
implement changes, and evaluating the potential impact of change on
Medicaid financing mechanisms. However, for states that do not
currently have pass-through payments in their managed care contracts,
transition periods are unnecessary. States that do not have pass-
through payments in their managed care contracts that wish to pursue
delivery system and provider payment initiatives can design and
implement allowable payment structures under actuarially sound
capitation rates tying managed care payments to services and
utilization covered under the contract without concern that modifying
existing pass-through payments could potentially undermine access for
Medicaid managed care enrollees or adversely impact hospitals.
Comment: Some commenters stated that for many states, the
capitation rates and contracts submitted as of or prior to July 5, 2016
were for prior rating periods when both enrollment numbers and the cost
of providing care would be substantially less than the total
enrollments and costs for current and future rating periods. These
commenters stated that the limitation on setting pass-through payments
based on a prior submitted date (July 5, 2016) of capitation rates and
contracts deviates from the longstanding practice of states making
retroactive adjustments and amendments to actuarially sound capitation
rates. These commenters stated that the setting of an aggregate pass-
through payment amount limit based on capitation rates and contracts
submitted by states as of July 5, 2016 has the added effect of speeding
up the transition periods established under the May 6, 2016 final rule
and that states should be provided additional time to submit for our
approval new managed care capitation rates, including pass-through
payments, because states and providers had no notice prior to this
cutoff date; some of these commenters recommended that we modify the
rule to allow the use of the most recent rate year for demonstrating
previous pass-through payments.
Response: We understand that for some states, the capitation rates
and contracts submitted as of or prior to July 5, 2016 would be for
prior rating periods; it is for this reason that under the proposed
requirements in Sec. 438.6(d)(1)(i), we permitted states to
demonstrate pass-through payments in the two ways described in
paragraphs (d)(1)(i)(A) and (B).
We do not believe that the limitation on setting pass-through
payments based on a prior submitted date deviates from the practice of
retroactive amendments
[[Page 5421]]
to capitation rates. Under this final rule, we are not generally
restricting states from adjusting or amending their actuarially sound
capitation rates; the requirements for retroactive adjustments to
capitation rates are specified at Sec. 438.7(c)(2) and those
requirements are not changed with this final rule. Since we will
enforce compliance with the requirements of Sec. 438.7(c)(2) for
rating periods for contracts beginning July 1, 2017, we also note that
before the May 6, 2016 final rule, states were permitted to adjust and
amend actuarially sound capitation rates retroactively under Sec.
438.6(c)(1). This final rule does not change these policies in
permitting states to adjust and amend actuarially sound capitation
rates retroactively.
Under paragraph (d)(1)(ii), as proposed and as finalized, we will
not approve a retroactive adjustment or amendment to managed care
contracts and rate certifications to add new pass-through payments or
increase existing pass-through payments, as defined in Sec. 438.6(a).
This limit only applies to retroactive adjustments to capitation rates
related to new or increased pass-through payments; other retroactive
adjustments to rates are not affected by this final rule. The existing
policy permitting states flexibility to make other changes in
capitation rates, subject to the limits on filing claims for FFP under
45 CFR 95.7 and, for contracts for rating periods after July 1, 2017,
subject to the requirements in Sec. 438.7(c)(2), remains in effect for
all other changes to capitation rates.
We also do not agree that this proposal has the added effect of
speeding up the transition periods established under the May 6, 2016
final rule. We indicated in the proposed rule that we did not intend to
speed up the rate of a state's phase down of pass-through payments;
rather, the proposed rule intended only to prevent increases in pass-
through payments and the addition of new pass-through payments beyond
what was already in place when the pass-through payment limits and
transition periods were finalized in the May 6, 2016 final rule. The
length of the transition periods remains the same under this final
rule: 10 years for hospital pass-through payments and 5 years for
physician and nursing facility pass-through payments. States that were
reliant on and using pass-through payments at the time we finalized the
May 6, 2016 final rule will continue to be eligible for the full
transition periods under this final rule. Further, this final rule will
permit states to continue pass-through payments in the same amount as
before the beginning of the transition period, unless and until, that
amount exceeds the percentage of the base amount available for the
applicable year of the transition period for hospital pass-through
payments. Our amendments to Sec. 438.6(d) only serve to prevent states
from adding new pass-through payments, or increasing the total amount
of pass-through payments, in the Medicaid managed care context.
We also do not agree that states should be provided additional time
to submit new managed care capitation rates to include new or increased
pass-through payments, because such an approach is contrary to our
policy goal of eliminating pass-through payments. We believe that
limiting the use of the transition period to states that had pass-
through payments in effect as of the effective date of the May 6, 2016
final rule (July 5, 2016) supports the policy goal of eliminating these
types of payments, while ensuring that an abrupt end to already
existing pass-through payments will not be disruptive to state health
care delivery systems and safety-net providers. Using the date of July
5, 2016 as the point by which to determine eligibility for the
transition period eliminates concern that the transition period itself
encourages states to create new or increase pass-through payments
despite our policy concerns that such payments are inconsistent with
actuarial soundness and may compromise a managed care plan's ability to
effectively direct care and implement quality improvement strategies.
Comment: Some commenters recommended that we include specific
regulatory text at Sec. 438.6(d)(1)(i) to also specify that in order
to use a transition period described under paragraph (d), a state must
demonstrate that it had pass-through payments for hospitals,
physicians, or nursing facilities ``in managed care contracts and rate
certifications for the rating period beginning before October 1, 2016,
regardless of the date of submission to CMS, if the state can
demonstrate that funding for the pass-through payment was approved by
the state's legislature prior to July 5, 2016, and that corresponding
supplemental payments were made under Medicaid fee-for-service (FFS) or
section 1115 demonstration programs for at least 10 consecutive years
prior to July 5, 2016.'' These commenters stated that this language
would ensure that a specific pass-through payment would meet the
criteria under the proposed rule.
Response: We understand the commenters' concerns regarding a
specific pass-through payment that was recently approved by their state
legislature; however, including the commenters' suggested regulatory
text at Sec. 438.6(d)(1)(i) would not comport with our policy goals.
The pass-through payment transition periods included in the May 6, 2016
final rule were intended to be used by states that already had pass-
through payments in place and would face significant disruption if
immediate compliance with Sec. 438.6(c) were required. Under the
proposed rule and this final rule, we are linking pass-through payments
permitted during the transition period to the aggregate amounts of
pass-through payments that were in place at the time the May 6, 2016
final rule became effective on July 5, 2016, which is consistent with
the intent under the May 6, 2016 final rule to eliminate pass-through
payments but provide a transition period to limit disruption to safety
net providers. Changing our proposal to include ``managed care
contracts and rate certifications for the rating period beginning
before October 1, 2016 regardless of the date of submission to CMS'' is
not consistent with the rationale in the May 6, 2016 final rule or the
November 22, 2016 proposed rule and would permit certain new or
increased pass-through payments beyond those already in place at the
time the May 6, 2016 final rule became effective on July 5, 2016.
Further, we do not believe that we should allow new or increased
pass-through payments for states with corresponding supplemental
payments that were made under Medicaid FFS or section 1115
demonstration programs prior to July 5, 2016. As we have described
throughout this rule, pass-through payments are not consistent with our
regulatory standards for actuarially sound rates because they do not
tie provider payments with the provision of services. For states with
supplemental payments that were made under Medicaid FFS or section 1115
demonstration programs prior to July 5, 2016, we believe that as part
of a state's transition to a managed care delivery system, the state
needs to integrate such FFS supplemental payments into allowable
payment structures that tie managed care payments to services and
utilization covered under the contract. Integrating the FFS
supplemental payments into allowable payment structures at the time of
the transition will ensure that the state can hold managed care plans
accountable for the cost and quality of services delivered under the
contract.
After considering the comments, we are finalizing Sec.
438.6(d)(1)(i) as proposed without revision.
[[Page 5422]]
D. Comments on Sec. 438.6(d)(1)(ii)
We proposed in paragraph (d)(1)(ii) that we would not approve a
retroactive adjustment or amendment to managed care contract(s) and
rate certification(s) to add new pass-through payments or increase
existing pass-through payments defined in Sec. 438.6(a). We noted that
we would not permit a pass-through payment amount for hospitals to
exceed the lesser of the amounts calculated under paragraph (d)(3) in
the proposed rule. We also proposed, in paragraph (d)(5), that pass-
through payment amounts to physicians and nursing facilities would be
limited to the amount in place in the managed care contracts and rate
certifications submitted pursuant to paragraph (d)(1)(i). We proposed
paragraph (d)(1)(ii) to prevent states from undermining the policy goal
of limiting the use of the transition period to states that had pass-
through payments in effect as of the effective date of the May 6, 2016
final rule. This proposed change also aligns with the policy rationale
under the May 6, 2016 final rule and the July 29, 2016 CMCS
Informational Bulletin (CIB) by prohibiting new or increased pass-
through payments in Medicaid managed care contract(s), notwithstanding
the adjustments to the base amount permitted in Sec. 438.6(d)(2). We
received the following comments in response to our proposal to revise
Sec. 438.6(d)(1)(ii).
Comment: Some commenters recommended that we address scenarios in
which states are already paying pass-through payments through their
managed care plans and were currently in the process of amending
managed care contracts and rate certifications when the proposed rule
was issued; these commenters recommended that we permit such
retroactive adjustments and amendments. Some commenters provided that
states have historically implemented retroactive rate adjustments to
capitation rates and processed routine adjustments and amendments every
year; these commenters recommended that we permit these adjustments and
amendments and address how such routine activities would fit with this
rule. Other commenters recommended that we permit retroactive
adjustments and amendments through July 1, 2017 to account for
potential increases in pass-through payments that were put into place
before this rule was issued.
Response: We do not agree that additional regulatory text is needed
to address scenarios in which states are already paying pass-through
payments through their managed care plans and were in the process of
amending managed care contracts and rate certifications at the time of
the May 6, 2016 final rule or the November 22, 2016 proposed rule. It
is unclear to us what standard we could use to implement this
recommendation while preventing new or increased pass-through payments.
We note that Sec. 438.6(d)(1)(ii), as proposed and as finalized here,
will not be a barrier to the approval of retroactive changes to managed
care contracts and rate certifications when the retroactive change does
not purport to add or increase a pass-through payment to hospitals,
physicians, or nursing facilities. Therefore, states that were in the
process of amending contracts or rates for other purposes should not be
affected by Sec. 438.6(d)(1)(ii).
States will need to meet the requirements in Sec. 438.6(d)(1)(i)
in order to use a transition period described in Sec. 438.6(d). That
means that states must be able to demonstrate pass-through payments in
managed care contracts and rate certifications under the requirements
in proposed Sec. 438.6(d)(1)(i)(A) and (B). For commenters concerned
about general adjustments and amendments unrelated to new or increased
pass-through payments, this rule does not impact those routine
activities that states undertake each year; the requirements in Sec.
438.6(d)(1)(ii), as proposed and finalized here, only limit retroactive
adjustments and amendments intended to add new pass-through payments or
increase existing pass-through payments defined in Sec. 438.6(a).
Without this provision limiting retroactive changes to pass-through
payments, a state could retroactively change a prior, submitted managed
care contract and rate certification to increase or add pass-through
payments and eliminate the restrictions on the use of the transition
periods that were proposed in the November 22, 2016 proposed rule and
finalized in this rule. Further, the adjustments to the base amount
under Sec. 438.6(d)(2) are still permitted upon finalization of this
rule; therefore, the base amount will be calculated annually and
increases in Medicaid and Medicare FFS rates will be taken into account
even though a smaller percentage of the base amount will be available
for pass-through payments. However, we would not permit a pass-through
payment amount to exceed the lesser of the amounts calculated under
paragraph (d)(3) in this rule. We are not generally restricting states
from adjusting or amending their actuarially sound capitation rates
that are unrelated to new or increased pass-through payments; the
general requirements for retroactive adjustments to capitation rates
are specified at Sec. 438.7(c)(2) and those requirements are not
changed with this final rule. Only contract actions to add or increase
pass-through payments on a retroactive basis will be denied under Sec.
438.6(d)(1)(ii); other retroactive rate changes will be evaluated and
approved pursuant to other applicable rules adopted prior to this
rulemaking.
Finally, we do not believe that we should permit retroactive
adjustments and amendments through July 1, 2017 to account for
potential increases in pass-through payments that were put into place
before this rule. This approach is not consistent with our policy,
which has been discussed in the May 6, 2016 final rule and throughout
this final rule, to eliminate pass-through payments, which are
inconsistent with our regulatory standards for actuarially sound
capitation rates.
After considering the comments, we are finalizing Sec.
438.6(d)(1)(ii) as proposed without revision.
E. Comments on Sec. 438.6(d)(3)
In paragraph (d)(3), we proposed to amend the cap on the amount of
pass-through payments to hospitals that may be incorporated into
managed care contract(s) and rate certification(s) during the
transition period for hospital payments, which will apply to rating
periods for contract(s) beginning on or after July 1, 2017.
Specifically, we proposed to revise Sec. 438.6(d)(3) to require that
the limit on pass-through payments each year of the transition period
be the lesser of: (A) The sum of the results of paragraphs (d)(2)(i)
and (ii),\3\ as modified under the schedule in this paragraph (d)(3);
or (B) the total dollar amount of pass-through payments to hospitals
identified by the state in the managed care contract(s) and rate
certification(s) used to meet the requirement in paragraph (d)(1)(i).
This proposed language would limit the amount of pass-through payments
each contract year to the lesser of the calculation adopted in the May
6, 2016 final rule (the ``base amount''), as decreased each successive
year under
[[Page 5423]]
the schedule in this paragraph (d)(3), or the total dollar amount of
pass-through payments to hospitals identified by the state in managed
care contract(s) and rate certification(s) described in paragraph
(d)(1)(i). For example, if a state had $10 million in pass-through
payments to hospitals in the contract and rate certification used to
meet the requirement in paragraph (d)(1)(i), that $10 million figure
would be compared each year to the base amount as reduced on the
schedule described in this paragraph (d)(3); the lower number would be
used to limit the total amount of pass-through payments to hospitals
allowed for that specific contract year.
---------------------------------------------------------------------------
\3\ The portion of the base amount calculated in Sec.
438.6(d)(2)(i) is analogous to performing UPL calculations under a
FFS delivery system, using payments from managed care plans for
Medicaid managed care hospital services in place of the state's
payments for FFS hospital services under the state plan. The portion
of the base amount calculated in Sec. 438.6(d)(2)(ii) takes into
account hospital services and populations included in managed care
during the rating period that includes pass-through payments which
were in FFS two years prior.
---------------------------------------------------------------------------
We noted that this proposed language would prevent increases of
aggregate pass-through payments for hospitals during the transition
period beyond what was already in place when the pass-through payment
limits and transition periods were finalized in the May 6, 2016 final
rule. We also noted that our proposal was not intended to speed up the
rate of a state's phase down of pass-through payments; rather, the
proposed rule intended to prevent increases in pass-through payments
and the addition of new pass-through payments beyond what was already
in place when the pass-through payment limits and transition periods
were finalized given that this was the final rule's intent.
In addition, we proposed to amend paragraph (d)(3) to provide that
states must meet the requirements in paragraph (d)(1)(i) to make pass-
through payments for hospitals during the transition period. We noted
that this additional text was necessary to be consistent with our
intent, explained above, for the proposed revisions to paragraph
(d)(1). As in the May 6, 2016 final rule, we noted that pass-through
payments to hospitals must be phased out no longer than on the 10-year
schedule, beginning with rating periods for contracts that start on or
after July 1, 2017. We proposed to add the phrase ``rating periods'' to
be consistent with our approach in the May 6, 2016 final rule; we made
this revision throughout proposed paragraphs (d)(3) and (d)(5). We
received the following comments in response to our proposal to revise
Sec. 438.6(d)(3), including new paragraphs (d)(3)(i) and (ii).
Comment: Some commenters recommended that we not finalize proposed
paragraph (d)(3). Some commenters recommended that we permit increases
in pass-through payments over the 10-year transition period to give
states the maximum amount of flexibility in phasing down pass-through
payments for hospitals. Some commenters recommended that we permit new
or increased pass-through payments for states that are currently in the
process of moving hospital FFS supplemental payments into managed care,
or that we provide states that had received federal approval to
transition to managed care before this rule, the opportunity to
implement their managed care programs using the pass-through payment
transition periods and amounts established in the May 6, 2016 final
rule. Some commenters similarly recommended that we permit new or
increased pass-through payments for states with Medicaid state plan
approved UPL payments for hospitals as of July 5, 2016 and allow such
states to utilize the transition periods and amounts outlined in the
May 6, 2016 final rule.
Response: We do not agree with commenters that we should not
finalize proposed paragraph (d)(3). We have explained throughout this
rule our rationale to prevent increases of pass-through payments for
hospitals during the transition period beyond what was already in place
when the pass-through payment limits and transition periods were
finalized in the May 6, 2016 final rule.
We also do not believe that we should permit increased pass-through
payments through the 10-year transition period. The 10-year transition
period provides states with significant flexibility and time to phase
down existing pass-through payments for hospitals. We believe that we
should not allow new or increased pass-through payments for states that
are currently in the process of moving hospital FFS supplemental
payments into managed care, and that we should not permit new or
increased pass-through payments for states with Medicaid state plan
approved UPL payments for hospitals as of July 5, 2016. As we have
reiterated throughout this rule, pass-through payments are not
consistent with our regulatory standards for actuarially sound rates
because they do not tie provider payments with the provision of
services. When pass-through payments guarantee a portion of a
provider's payment and divorce the payment from service delivery, there
is little accountability for the payment and it is more challenging for
managed care plans to negotiate provider contracts with incentives
focused on outcomes and managing individuals' overall care.
Consequently, for states that are currently in the process of moving
hospital FFS supplemental payments into managed care, we believe that
integrating the FFS supplemental payments into allowable payment
structures at the time of the transition will facilitate a state's
ability to hold managed care plans accountable for the cost and quality
of services delivered under the contract. To date, we have already
provided technical assistance to states who are seeking to implement
these types of allowable payment structures and remain available to
provide future technical assistance. We will work with states to
integrate FFS supplemental payments into allowed payment structures as
states undertake transitions to managed care.
Comment: Some commenters recommended that we withdraw all caps and
limits on the ``base amount'' for hospitals and allow states the
flexibility to adjust pass-through payment amounts to reflect
significant programmatic changes and increases in the managed care
population. These commenters provided that if the base amount increases
from one year to the next, the ``total dollar amount'' limit should
also be permitted to increase at the same percentage. Some commenters
similarly recommended a ``per-member per-month'' (PMPM) basis rather
than a total dollar amount limitation on the maximum amount of pass-
through payments for hospitals. Other commenters stated the concern
that this proposed rule is effectively limiting the maximum amount of
pass-through payments to the amount in place prior to the final rule's
compliance date and would give state Medicaid programs and hospitals no
time to transition these payments.
Response: We do not agree that we should withdraw all caps and
limits on the base amount for hospitals, and we do not agree that the
``total dollar amount'' limit should be permitted to increase, or that
we should permit PMPM increases, as these approaches could have the
effect of permitting increased pass-through payments for hospitals,
which would be counter to our stated policy goals. We believe that
adopting these recommendations would complicate the required transition
of pass-through payments to permissible provider payment models and
delay the development of permissible and accountable payment approaches
that are based on the utilization and delivery of services or the
quality and outcomes of services. We also note that states can
implement allowed payment structures to reflect significant
programmatic changes and increases in the managed care population.
In the June 1, 2015 proposed rule and the May 6, 2016 final rule,
we discussed how the payment structures permitted under Sec. 438.6(c)
tied payments to services while permitting states to reward quality in
the provision of
[[Page 5424]]
services, assure minimum payment rates, or develop delivery system
reform. One advantage of using an allowed payment mechanism to address
changes in the managed care population is that such a structure would
allow states and managed care plans to link payments to significant
programmatic changes. Linking provider payments to utilization and
outcomes under a managed care plan's control facilitates a state's
ability to hold managed care plans accountable for the quality,
utilization, and cost of care provided to beneficiaries.
We agree with commenters that this final rule limits the maximum
amount of pass-through payments to the amount in place on the effective
date of the May 6, 2016 final rule (July 5, 2016). However, we do not
agree that this final rule eliminates the transition period for
existing pass-through payments. This final rule does not change the
transition periods established under the May 6, 2016 final rule. This
final rule provides a new maximum amount of pass-through payments for
hospitals in order to prevent new or increased pass-through payments.
States that were reliant on and using pass-through payments at the time
we finalized the May 6, 2016 final rule will continue to be eligible
for the full transition periods under this final rule. This final rule
does not accelerate the transition period for states compared to the
May 6, 2016 final rule.
Comment: Some commenters stated that Sec. 438.6(d) of the May 6,
2016 final rule allowed for specific calculations and adjustments to
the base amount to determine the upper limit of pass-through payments
for hospitals. These commenters stated that Sec. 438.6(d) allowed
states to account for changes in the demographics, service mix,
enrollment, and utilization of Medicaid managed care beneficiaries
beginning July 1, 2017. These commenters stated concerns that the
proposed rule eliminates these flexibilities by artificially limiting
``the total dollar amount'' of pass-through payments without accounting
for the permitted adjustments in the May 6, 2016 final rule.
Response: We understand commenters' concerns regarding the base
amount calculations and permitted adjustments at Sec. 438.6(d)(2) in
the May 6, 2016 final rule. This final rule does not modify the
adjustments to the base amount permitted under Sec. 438.6(d)(2);
however, this final rule does not permit a pass-through payment amount
to exceed the lesser of the amounts calculated under paragraph (d)(3)
in this final rule, as we believe such a flexibility could have the
effect of permitting increased pass-through payments for hospitals. We
believe that increasing pass-through payments will complicate the
required transition of pass-through payments to permissible provider
payment models and delay the development of permissible and accountable
payment approaches that are based on the utilization and delivery of
services or the quality and outcomes of services.
Under Sec. 438.6(d)(2), states can account for changes in the
demographics, service mix, enrollment, and utilization in their
Medicaid managed care programs (see 81 FR 27591). States can also
account for changes in the demographics, service mix, enrollment, and
utilization through permissible payment mechanisms. One advantage of
using an allowed payment mechanism to address changes in the managed
care population (such as demographics, service mix, enrollment, or
utilization) is that such a structure would allow states and managed
care plans to link new and increased funding to the corresponding
increase in services that result from the programmatic changes or
increased population. Linking provider payments to utilization and
outcomes under a managed care plan's control facilitates a state's
ability to hold managed care plans accountable for the quality,
utilization, and cost of care provided to beneficiaries. Therefore, we
do not agree that the proposed rule, which is finalized here,
eliminates these flexibilities. Also, as described throughout this
final rule, the ``total dollar amount'' limit for pass-through payments
was established under paragraphs (d)(3) and (d)(5) for hospitals,
physicians, and nursing facilities because we did not intend states to
begin additional or new pass-through payments, or to increase existing
pass-through payments.
After considering the comments, we are finalizing Sec. 438.6(d)(3)
as proposed without revision.
F. Comments on Sec. 438.6(d)(5)
We proposed to revise Sec. 438.6(d)(5) to be consistent with the
proposed revisions in Sec. 438.6(d)(1)(i) and to limit the total
dollar amount of pass-through payments that is available each contract
year for physicians and nursing facilities. We noted that we were not
proposing to implement a phase-down for pass-through payments to
physicians or nursing facilities. We proposed that for states that meet
the requirements in paragraph (d)(1)(i), rating periods for contracts
beginning on or after July 1, 2017 through rating periods for contracts
beginning on or after July 1, 2021, may continue to require pass-
through payments to physicians or nursing facilities under the MCO,
PIHP, or PAHP contract; such pass-through payments may be no more than
the total dollar amount of pass-through payments for each category
identified in the managed care contracts and rate certifications used
to meet the requirement in paragraph (d)(1)(i). We proposed to add the
phrase ``rating periods'' to be consistent with our approach in the May
6, 2016 final rule; we made this revision throughout proposed
paragraphs (d)(3) and (d)(5). We received the following comments in
response to our proposal to revise Sec. 438.6(d)(5).
Comment: Some commenters recommended that we not finalize the
``total dollar amount'' limit on pass-through payments over the 5-year
transition period for physicians and nursing facilities because such a
limit does not recognize significant programmatic changes and increases
in the managed care population. Commenters recommended that we continue
to allow increases over the 5-year transition period to give states the
maximum amount of flexibility in phasing down pass-through payments.
Some commenters also recommended that we permit new or increased pass-
through payments for states that are currently in the process of moving
physician or nursing facility FFS supplemental payments into managed
care, or that we provide states that had received federal approval to
transition to managed care before this rule, the opportunity to
implement their managed care programs using the pass-through payment
transition periods and amounts established in the May 6, 2016 final
rule.
Response: As noted above, we believe the lack of an affirmative
limit on pass-through payments at the total amount of prior pass-
through payments identified under paragraph (d)(1)(i) will permit
states to increase pass-through payments to physicians and nursing
facilities, which is contrary to our policy goals for eliminating these
types of payments. This final rule will encourage states to use the
other, permissible payment types described in Sec. 438.6(c) in
directing payments to nursing facilities and physicians. We explained
throughout this final rule our rationale for prohibiting increases of
pass-through payments during the transition period beyond what was
already in place when the pass-through payment limits and transition
periods were finalized in the May 6, 2016 final rule. We reiterate that
states can
[[Page 5425]]
implement allowed, accountable payment structures to reflect
significant programmatic changes and increases in the managed care
population. One advantage of using an allowed payment mechanism to
address the changes is that such a structure would allow states and
managed care plans to link new and increased funding to the
corresponding increased utilization resulting from the programmatic
changes or increased population. Additionally, the 5-year transition
period provides states with significant flexibility and time to phase
down existing pass-through payments for physicians and nursing
facilities.
Consistent with our response for hospital FFS supplemental
payments, we do not believe that we should allow new or increased pass-
through payments for states that are currently in the process of moving
physician or nursing facility FFS supplemental payments into managed
care. As we have provided throughout this rule, pass-through payments
are not consistent with our interpretation of the statutory requirement
for actuarial soundness and our regulatory standards for actuarially
sound rates because they do not tie provider payments with the
provision of services. For states that are currently in the process of
moving physician or nursing facility FFS supplemental payments into
managed care, we believe that integrating the FFS supplemental payments
into allowable payment structures at the time of the transition will
ensure that the state can hold managed care plans accountable for the
cost and quality of services delivered under the contract.
We did not receive any comments on our proposal to use the phrase
``rating period'' in Sec. 438.6(d)(3) and (5). After considering the
comments, we are finalizing Sec. 438.6(d)(5) as proposed without
revision.
III. Provisions of the Final Regulations
As a result of the public comments received under the proposed
rule, this final rule incorporates the provisions of the proposed rule
without revision.
IV. Collection of Information Requirements
This final rule will not impose any new or revised information
collection, reporting, recordkeeping, or third-party disclosure
requirements or burden. Our revision of Sec. 438.6(d) will not impose
any new or revised IT system requirements or burden because the
existing regulation at Sec. 438.7 requires the rate certification to
document special contract provisions under Sec. 438.6. Consequently,
there is no need for review by the Office of Management and Budget
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.).
V. Regulatory Impact Analysis
A. Statement of Need
As discussed in the May 6, 2016 final rule, the proposed rule, and
this final rule, we have significant concerns that pass-through
payments have negative consequences for the delivery of services in the
Medicaid program. The existence of pass-through payments may affect the
amount that a managed care plan is willing or able to pay for the
delivery of services through its base rates or fee schedule. In
addition, pass-through payments may make it more difficult to implement
quality initiatives or to direct beneficiaries' utilization of services
to higher quality providers because a portion of the capitation rate
under the contract is independent of the services delivered and outside
of the managed care plan's control. Put another way, when the fee
schedule for services is set below the normal market, or negotiated
rate, to account for pass-through payments, moving utilization to
higher quality providers can be difficult because there may not be
adequate funding available to incentivize the provider to accept the
increased utilization. When pass-through payments guarantee a portion
of a provider's payment and divorce the payment from service delivery,
it is more challenging for managed care plans to negotiate provider
contracts with incentives focused on outcomes and managing individuals'
overall care.
We realize that some pass-through payments have served as a
critical source of support for safety-net providers who provide care to
Medicaid beneficiaries. Several commenters raised this issue in
response to the June 1, 2015 proposed rule.\4\ Therefore, in response
to some commenters' request for a delayed implementation of the
limitation on directed payments and to address concerns that an abrupt
end to these payments could create significant disruptions for some
safety-net providers who serve Medicaid managed care enrollees, we
included in the May 6, 2016 final rule a delay in the compliance date
and a transition period for existing pass-through payments to
hospitals, physicians, and nursing facilities. These transition periods
begin with the compliance date, and were designed and finalized to
enable affected providers, states, and managed care plans to transition
away from existing pass-through payments. Such payments could be
transitioned into payments tied to covered services, value-based
payment structures, or delivery system reform initiatives without
undermining access for the beneficiaries; alternatively, states could
step down such payments and devise other methods to support safety-net
providers to come into compliance with Sec. 438.6(c) and (d).
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\4\ Available at: https://www.gpo.gov/fdsys/pkg/FR-2015-06-01/pdf/2015-12965.pdf.
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However, as noted previously, the transition period and delayed
enforcement date caused some confusion regarding increased and new
pass-through payments. The May 6, 2016 final rule inadvertently created
a strong incentive for states to move swiftly to put pass-through
payments into place in order to take advantage of the pass-through
payment transition periods established in the May 6, 2016 final rule.
Contrary to our discussion in the May 6, 2016 final rule regarding the
statutory requirements in section 1903(m) of the Act and regulations
for actuarially sound capitation rates, some states expressed interest
in developing new and increased pass-through payments for their
respective Medicaid managed care programs as a result of the May 6,
2016 final rule. In response to this interest, we published the July
29, 2016 CMCS Informational Bulletin (CIB) to quickly address questions
regarding the May 6, 2016 final rule's intent regarding states' ability
to increase or add new pass-through payments under Medicaid managed
care plan contracts and capitation rates, and to describe our plan for
monitoring the transition of pass-through payments to approaches for
provider payment under Medicaid managed care programs that are based on
the delivery of services, utilization, and the outcomes and quality of
the delivered services.
We noted in the CIB that the transition from one payment structure
to another requires robust provider and stakeholder engagement,
agreement on approaches to care delivery and payment, establishing
systems for measuring outcomes and quality, planning efforts to
implement changes, and evaluating the potential impact of change on
Medicaid financing mechanisms. Whether implementing value-based payment
structures, implementing other delivery system reform initiatives, or
eliminating pass-through payments, there will be transition issues for
states coming into compliance; adequately working through transition
issues, including ensuring adequate base rates, is central to both
delivery system reform and to strengthening access, quality, and
efficiency in the Medicaid program. We
[[Page 5426]]
stressed that the purpose and intention of the transition periods is to
acknowledge that pass-through payments existed prior to the May 6, 2016
final rule and to provide states, network providers, and managed care
plans time and flexibility to integrate existing pass-through payment
arrangements into permissible payment structures.
As we noted in the CIB and throughout this final rule, we believe
that adding new or increased pass-through payments for hospitals,
physicians, or nursing facilities, beyond what was included as of July
5, 2016, into Medicaid managed care contracts exacerbates a problematic
practice that is inconsistent with our interpretation of statutory and
regulatory requirements, complicates the required transition of these
pass-through payments to permissible and accountable payment approaches
that are based on the utilization and delivery of services to enrollees
covered under the contract, or the quality and outcomes of such
services, and reduces managed care plans' ability to effectively use
value-based purchasing strategies and implement provider-based quality
initiatives. In the CIB, we signaled the possible need, and our intent,
to further address this policy in future rulemaking and link pass-
through payments through the transition period to the amounts of pass-
through payments in place at the time the Medicaid managed care rule
was effective on July 5, 2016.
B. Overall Impact
We have examined the impacts of this final rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22,
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4,
1999), and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) Having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). We estimate that this final rule is ``economically significant''
as measured by the $100 million threshold, and hence a major rule under
the Congressional Review Act.
The May 6, 2016 final rule included a RIA (81 FR 27830). During
that analysis, we did not project a significant fiscal impact for Sec.
438.6(d). When we reviewed and analyzed the May 6, 2016 final rule, we
concluded that states would have other mechanisms to build in the
amounts currently provided through pass-through payments in approvable
ways, such as approaches consistent with Sec. 438.6(c). If a state was
currently building in $10 million in pass-through payments to hospitals
under their current managed care contracts, we assumed that the state
would incorporate the $10 million into their managed care rates in
permissible ways rather than spending less in Medicaid managed care.
While it is possible that this would be more difficult for states with
relatively larger amounts of pass-through payments, the long transition
period provided under the May 6, 2016 final rule to phase out pass-
through payments should help states to integrate existing pass-through
payments into actuarially sound capitation rates through permissible
Medicaid financing structures, including enhanced fee schedules or the
other approaches consistent with Sec. 438.6(c) that tie managed care
payments to services and utilization covered under the contract.
A number of states have integrated some form of pass-through
payments into their managed care contracts for hospitals, nursing
facilities, and physicians. In general, the size and number of the
pass-through payments for hospitals has been more significant than for
nursing facilities and physicians. We noted in the May 6, 2016 final
rule (81 FR 27589) a number of reasons provided by states for using
pass-through payments in their managed care contracts. As of the
effective date of the May 6, 2016 final rule, we estimate that at least
eight states have implemented approximately $105 million in pass-
through payments for physicians annually; we estimate that at least
three states have implemented approximately $50 million in pass-through
payments for nursing facilities annually; and we estimate that at least
16 states have implemented approximately $3.3 billion in pass-through
payments for hospitals annually. These estimates are somewhat
uncertain, as before the final rule, we did not have regulatory
requirements for states to document and describe pass-through payments
in their managed care contracts or rate certifications. The amount of
pass-through payments often represents a significant portion of the
overall capitation rate under a managed care contract. We have seen
pass-through payments that have represented 25 percent, or more, of the
overall managed care contract and 50 percent of individual rate cells.
The rationale for these pass-through payments in the development of the
capitation rates is often not transparent, and it is not clear what the
relationship of these pass-through payments is to the provision of
services or the requirement for actuarially sound rates.
Since the publication of the May 6, 2016 final rule, we received a
formal proposal from one state regarding $250 to $275 million in pass-
through payments to hospitals; we have been working with the state to
identify permissible implementation options for their proposal,
including under Sec. 438.6(c), and tie such payments to the
utilization and delivery of services (as well as the outcomes of
delivered services). We heard informally that two additional states are
working to develop pass-through payment mechanisms to increase total
payments to hospitals by approximately $10 billion cumulatively. We
also heard informally from one state regarding a $200 million proposal
for pass-through payments to physicians. We also continue to receive
inquiries from states, provider associations, and consultants who are
developing formal proposals to add new pass-through payments, or
increase existing pass-through payments, and incorporate such payments
into Medicaid managed care rates. These state proposals have not been
approved to date. While it is
[[Page 5427]]
difficult for us to conduct a detailed quantitative analysis given this
considerable uncertainty and lack of data, we believe that without this
final rulemaking, states will continue to ramp-up pass-through payments
in ways that are not consistent with the pass-through payment
transition periods established in the May 6, 2016 final rule.
Since we cannot produce a detailed quantitative analysis, we have
developed a qualitative discussion for this RIA. We believe there are
many benefits with this regulation, including consistency with our
interpretation and implementation of the statutory requirements in
section 1903(m) of the Act and regulations for actuarially sound
capitation rates, improved transparency in rate development processes,
permissible and accountable payment approaches that are based on the
utilization and delivery of services to enrollees covered under the
contract, or the quality and outcomes of such services, and improved
support for delivery system reform that is focused on improved care and
quality for Medicaid beneficiaries. We believe that the costs of this
regulation to state and federal governments will not be significant; we
currently review and work with states on managed care contracts and
rates, and because pass-through payments exist today, any additional
costs to state or federal governments should be negligible.
Relative to the current baseline, this final rule builds on the May
6, 2016 final rule and may further reduce the likelihood of increases
in or the development of new pass-through payments, which could reduce
state and federal government transfers to hospitals, physicians, and
nursing facilities. However, states may instead increase or develop
actuarially sound payments that link provider reimbursement with
services covered under the contract or associated quality outcomes.
Because we lack sufficient information to forecast the eventual overall
impact of the May 6, 2016 final rule on state pass-through payments, we
provide only a qualitative discussion of the impact of this final rule
on avoided transfers. Given the potential for avoided transfers, we
believe this final rule is economically significant as defined by
Executive Order 12866.
We received the following comment on the proposed overall impact
and regulatory impact analysis.
Comment: One commenter stated concern that we did not provide, in
the proposed rule and to the public, a careful and transparent analysis
of the anticipated quantitative consequences of this economically
significant regulatory action. This commenter recommended that we
withdraw the proposed rule until such a quantitative analysis is
completed.
Response: The commenter did not provide any substantive information
with which to conduct such an analysis. As stated in the proposed rule,
it is difficult for us to conduct a detailed quantitative analysis
given the considerable uncertainty and lack of data discussed above;
however we continue to believe that without this final rulemaking,
states will continue to ramp-up pass-through payments in ways that are
not consistent with the pass-through payment transition periods
established in the May 6, 2016 final rule. We solicited and received no
substantive suggestions on doing such an analysis. Since we cannot
produce a detailed quantitative analysis, we have developed a
qualitative discussion for this final rule.
After considering the comments, we are finalizing the regulatory
impact analysis as proposed without revision.
C. Anticipated Effects
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and small governmental
jurisdictions. Small entities are those entities, such as health care
providers, having revenues between $7.5 million and $38.5 million in
any 1 year. Individuals and states are not included in the definition
of a small entity. We do not believe that this final rule will have a
significant economic impact on a substantial number of small
businesses.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis for any rule that may have a significant
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 604
of the RFA. For purposes of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is located outside a
Metropolitan Statistical Area and has fewer than 100 beds. We do not
anticipate that the provisions in this final rule will have a
substantial economic impact on small rural hospitals. We are not
preparing analysis for either the RFA or section 1102(b) of the Act
because we have determined, and the Secretary certifies, that this
final rule will not have a significant economic impact on a substantial
number of small entities or a significant impact on the operations of a
substantial number of small rural hospitals in comparison to total
revenues of these entities.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2016, that
is approximately $146 million. This final rule does not mandate any
costs (beyond this threshold) resulting from (A) imposing enforceable
duties on state, local, or tribal governments, or on the private
sector, or (B) increasing the stringency of conditions in, or
decreasing the funding of, state, local, or tribal governments under
entitlement programs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a rule that imposes substantial direct
requirements or costs on state and local governments, preempts state
law, or otherwise has federalism implications. Since this final rule
does not impose any costs on state or local governments, the
requirements of Executive Order 13132 are not applicable. In accordance
with the provisions of Executive Order 12866, this final rule was
reviewed by the Office of Management and Budget.
We did not receive comments on the proposed anticipated effects for
the revisions to Sec. 438.6(d) and finalize our analysis in this rule.
D. Alternatives Considered
During the development of this final rule, we assessed all
regulatory alternatives and discussed in the preamble of the proposed
rule a few alternatives that we considered. First, in discussing our
revisions to paragraphs (d)(1)(i) and (ii) in the proposed rule, we
considered linking eligibility for the transition period to those
states with pass-through payments for hospitals, physicians, or nursing
facilities that were in approved (not just submitted for our review and
approval) managed care contract(s) and rate certification(s) only for
the rating period covering July 5, 2016. We noted in the proposed rule
that we believed such an approach was not administratively feasible for
states or us because it did not recognize the nuances of the timing and
approval processes. We believe our approach under this final rule
provides the appropriate parameters and conditions for pass-through
payments in managed care contract(s) and rate certification(s) during
the transition period.
Second, in discussing our revisions to paragraphs (d)(3) and (d)(5)
in the proposed rule, we described that the
[[Page 5428]]
aggregate amounts of pass-through payments in each provider category
would be used to set applicable limits for the provider type during the
transition period, without regard to the specific provider(s) that
received a pass-through payment. We considered proposing that the state
should be limited by amount and recipient during the transition period;
however, this narrower policy would be more limiting than originally
intended under the May 6, 2016 final rule when the pass-through payment
transition periods were finalized. We requested comment on our
alternative proposals.
We did not receive comments on the alternative proposals to revise
Sec. 438.6(d) and, as noted above, are finalizing the proposed
amendments to Sec. 438.6(d).
E. Accounting Statement
As discussed in this RIA, the benefits, costs, and transfers of
this final regulation are identified in table 1 as qualitative impacts
only.
Table 1--Accounting Statement
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
Category Primary Low estimate High estimate ------------------------------------------------ Notes
estimate Year dollars Discount rate Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified.......................... Benefits include: Consistency with the statutory requirements in section 1903(m) of the Act and regulations
for actuarially sound capitation rates; improved transparency in rate development processes; greater
incentives for payment approaches that are based on the utilization and delivery of services to enrollees
covered under the contract, or the quality and outcomes of such services; and improved support for delivery
system reform that is focused on improved care and quality for Medicaid beneficiaries.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified.......................... Costs to state or federal governments should be negligible.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transfers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified.......................... Relative to the current baseline, this final rule builds on the May 6, 2016 final rule and may further reduce
the likelihood of increases in or the development of new pass-through payments, which could reduce state and
federal government transfers to hospitals, physicians, and nursing facilities. Given the potential for avoided
transfers, we believe this final rule is economically significant as defined by Executive Order 12866.
--------------------------------------------------------------------------------------------------------------------------------------------------------
List of Subjects in 42 CFR Part 438
Grant programs--health, Medicaid, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 438--MANAGED CARE
0
1. The authority citation for part 438 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
2. Section 438.6 is amended by revising paragraphs (d)(1), (3), and (5)
to read as follows:
Sec. 438.6 Special contract provisions related to payment.
* * * * *
(d) * * * (1) General rule. States may continue to require MCOs,
PIHPs, and PAHPs to make pass-through payments (as defined in paragraph
(a) of this section) to network providers that are hospitals,
physicians, or nursing facilities under the contract, provided the
requirements of this paragraph (d) are met. States may not require
MCOs, PIHPs, and PAHPs to make pass-through payments other than those
permitted under this paragraph (d).
(i) In order to use a transition period described in this paragraph
(d), a State must demonstrate that it had pass-through payments for
hospitals, physicians, or nursing facilities in:
(A) Managed care contract(s) and rate certification(s) for the
rating period that includes July 5, 2016, and were submitted for CMS
review and approval on or before July 5, 2016; or
(B) If the managed care contract(s) and rate certification(s) for
the rating period that includes July 5, 2016 had not been submitted to
CMS on or before July 5, 2016, the managed care contract(s) and rate
certification(s) for a rating period before July 5, 2016 that had been
most recently submitted for CMS review and approval as of July 5, 2016.
(ii) CMS will not approve a retroactive adjustment or amendment,
notwithstanding the adjustments to the base amount permitted in
paragraph (d)(2) of this section, to managed care contract(s) and rate
certification(s) to add new pass-through payments or increase existing
pass-through payments defined in paragraph (a) of this section.
* * * * *
(3) Schedule for the reduction of the base amount of pass-through
payments for hospitals under the MCO, PIHP, or PAHP contract and
maximum amount of permitted pass-through payments for each year of the
transition period. For States that meet the requirement in paragraph
(d)(1)(i) of this section, pass-through payments for hospitals may
continue to be required under the contract but must be phased out no
longer than on the 10-year schedule, beginning with rating periods for
contract(s) that start on or after July 1, 2017. For rating periods for
contract(s) beginning on or after July 1, 2027, the State cannot
require pass-through payments for hospitals under a MCO, PIHP, or PAHP
contract. Until July 1, 2027, the total dollar amount of pass-through
payments to hospitals may not exceed the lesser of:
(i) A percentage of the base amount, beginning with 100 percent for
rating periods for contract(s) beginning on or after July 1, 2017, and
decreasing by 10 percentage points each successive year; or
(ii) The total dollar amount of pass-through payments to hospitals
identified in the managed care contract(s) and rate certification(s)
used to meet the requirement of paragraph (d)(1)(i) of this section.
* * * * *
(5) Pass-through payments to physicians or nursing facilities. For
States that meet the requirement in paragraph (d)(1)(i) of this
section, rating
[[Page 5429]]
periods for contract(s) beginning on or after July 1, 2017 through
rating periods for contract(s) beginning on or after July 1, 2021, may
continue to require pass-through payments to physicians or nursing
facilities under the MCO, PIHP, or PAHP contract of no more than the
total dollar amount of pass-through payments to physicians or nursing
facilities, respectively, identified in the managed care contract(s)
and rate certification(s) used to meet the requirement of paragraph
(d)(1)(i) of this section. For rating periods for contract(s) beginning
on or after July 1, 2022, the State cannot require pass-through
payments for physicians or nursing facilities under a MCO, PIHP, or
PAHP contract.
Dated: January 3, 2017.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
Dated: January 10, 2017.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2017-00916 Filed 1-17-17; 8:45 am]
BILLING CODE 4120-01-P