Medicaid Program; Medicaid and Children's Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality, 28092-28252 [2023-08961]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 88, Number 85 (Wednesday, May 3, 2023)]
[Proposed Rules]
[Pages 28092-28252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08961]



[[Page 28091]]

Vol. 88

Wednesday,

No. 85

May 3, 2023

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 430, 438, and 457





Medicaid Program; Medicaid and Children's Health Insurance Program 
(CHIP) Managed Care Access, Finance, and Quality; Proposed Rule

Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / 
Proposed Rules

[[Page 28092]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 430, 438, and 457

[CMS-2439-P]
RIN 0938-AU99


Medicaid Program; Medicaid and Children's Health Insurance 
Program (CHIP) Managed Care Access, Finance, and Quality

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would advance CMS' efforts to improve 
access to care, quality and health outcomes, and better address health 
equity issues for Medicaid and Children's Health Insurance Program 
(CHIP) managed care enrollees. The proposed rule would specifically 
address standards for timely access to care and States' monitoring and 
enforcement efforts, reduce burden for some State directed payments and 
certain quality reporting requirements, add new standards that would 
apply when States use in lieu of services and settings (ILOSs) to 
promote effective utilization and specify the scope and nature of ILOS, 
specify medical loss ratio (MLR) requirements, and establish a quality 
rating system for Medicaid and CHIP managed care plans.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, by July 3, 2023.

ADDRESSES: In commenting, please refer to file code CMS-2439-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2439-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2439-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    John Giles, (410) 786-5545, Medicaid Managed Care.
    Laura Snyder, (410) 786-3198, Medicaid Managed Care State Directed 
Payments.
    Tara Caulder, (410) 786-8252, Medicaid Managed Care State Directed 
Payments Value-Based Initiatives and Evaluation.
    Alex Loizias, (410) 786-2435, Medicaid Managed Care State Directed 
Payments Contract Requirements.
    Andrew Wilson, (410) 786-8515, Medicaid Managed Care State Directed 
Payments Medicare Fee Schedules and Appeals Process.
    Carlye Burd, (720) 853-2780, Medicaid Managed Care Quality.
    Amanda Paige Burns, (410) 786-8030, Medicaid Quality Rating System.
    Joshua Bougie, (410) 786-8117, CHIP.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following website as soon as possible after they have been 
received: https://www.regulations.gov. Follow the search instructions on 
that website to view public comments. CMS will not post on 
Regulations.gov public comments that make threats to individuals or 
institutions or suggest that the individual will take actions to harm 
the individual. CMS continues to encourage individuals not to submit 
duplicative comments. We will post acceptable comments from multiple 
unique commenters even if the content is identical or nearly identical 
to other comments.

Table of Contents

I. Medicaid and CHIP Managed Care
    A. Background
    B. Provisions of the Proposed Regulations
    1. Access
    2. State Directed Payments
    3. Medical Loss Ratio (MLR) Standards
    4. In Lieu of Services and Settings (ILOS)
    5. Quality Assessment and Performance Improvement Program, State 
Quality Strategies and External Quality Review
    6. Quality Improvement--Quality Rating System
II. Collection of Information Requirements
III. Regulatory Impact Analysis
IV. Response to Comments
V. Regulation Text

Applicability and Complicace Timeframes

    CMS proposes that the proposed new requirements would be 
applicable, and therefore, States required to comply by the effective 
date of the final rule or as otherwise specified in regulatory text.

I. Medicaid and CHIP Managed Care

A. Background

    As of September 2022, the Medicaid program provided essential 
health care coverage to more than 83 million \1\ individuals, and, in 
2020, had annual outlays of more than $671 billion. In 2021, the 
Medicaid program accounted for 17 percent of national health 
expenditures.\2\ The program covers a broad array of health benefits 
and services critical to underserved populations, including low-income 
adults, children, parents, pregnant individuals, the elderly, and 
people with disabilities. For example, Medicaid pays for approximately 
42 percent of all births in the U.S.\3\ and is the largest payer of 
long-term services and supports (LTSS),\4\ services to treat substance 
use disorder, and services to prevent and treat the Human 
Immunodeficiency Virus.\5\
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    \1\ September 2022 Medicaid and CHIP Enrollment Snapshot. 
Accessed at https://www.medicaid.gov/medicaid/national-medicaid-chip-program-information/downloads/september-2022-medicaid-chip-enrollment-trend-snapshot.pdf.
    \2\ CMS National Health Expenditure Accounts. National Health 
Expenditures 2021 Highlights. Accessed at https://www.cms.gov/files/document/highlights.pdf.
    \3\ National Center for Health Statistics. Key Birth Statistics 
(2020 Data. Final 2022 Data forthcoming). Accessed at https://www.cdc.gov/nchs/nvss/births.htm.
    \4\ Colello, Kirsten J. Who Pays for Long-Term Services and 
Supports? Congressional Research Service. Updated June 15, 2022. 
Accessed at https://crsreports.congress.gov/product/pdf/IF/IF10343.
    \5\ Dawson, L. and Kates, J. Insurance Coverage and Viral 
Suppression Among People with HIV, 2018. September 2020. Kaiser 
Family Foundation. Accessed at https://www.kff.org/hivaids/issue-brief/insurance-coverage-and-viral-suppression-among-people-with-hiv-2018/.
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    Ensuring beneficiaries can access covered services is a crucial 
element of the Medicaid program. Depending on the State and its 
Medicaid program structure, beneficiaries access their health care 
services using a variety of care delivery systems; for example, fee-
for-service (FFS) and managed care, including through demonstrations 
and waiver programs. In 2020, 72 percent \6\

[[Page 28093]]

of Medicaid beneficiaries were enrolled in comprehensive managed care 
plans; the remaining individuals received all of their care or some 
services that have been carved out of managed care through FFS.
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    \6\ MACPAC 2022 Analysis of T-MSIS data February 2022. Exhibit 
30. Percentage of Medicaid Enrollees in Managed Care by State and 
Eligibility Group https://www.macpac.gov/wp-content/uploads/2022/12/EXHIBIT-30.-Percentage-of-Medicaid-Enrollees-in-Managed-Care-by-State-and-Eligibility-Group-FY-2020.pdf.
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    With a program as large and complex as Medicaid, to promote 
consistent access to health care for all beneficiaries across all types 
of care delivery systems in accordance with statutory requirements, 
access regulations need to be multi-factorial. Strategies to enhance 
access to health care services should reflect how people move through 
and interact with the health care system. We view the continuum of 
health care access across three dimensions of a person-centered 
framework: (1) enrollment in coverage; (2) maintenance of coverage; and 
(3) access to services and supports. Within each of these dimensions, 
accompanying regulatory, monitoring, and/or compliance actions may be 
needed to ensure access to health care is achieved and maintained.
    In early 2022, we released a request for information (RFI) \7\ to 
collect feedback on a broad range of questions that examined topics 
such as: challenges with eligibility and enrollment; ways we can use 
data available to measure, monitor, and support improvement efforts 
related to access to services; strategies we can implement to support 
equitable and timely access to providers and services; and 
opportunities to use existing and new access standards to help ensure 
that Medicaid and Children's Health Insurance Program (CHIP) payments 
are sufficient to enlist enough providers. Some of the most common 
feedback we received through the RFI related to promoting cultural 
competency in access to and the quality of services for beneficiaries 
across all dimensions of health care and using payment rates as a 
driver to increase provider participation in Medicaid and CHIP 
programs. Commenters were also interested in opportunities to align 
approaches for payment regulation and compliance across Medicaid and 
CHIP delivery systems and services.
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    \7\ CMS Request for Information: Access to Coverage and Care in 
Medicaid & CHIP. February 2022. For a full list of question from the 
RFI, see https://www.medicaid.gov/medicaid/access-care/downloads/access-rfi-2022-questions.pdf.
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    As noted above, the first dimension of access focuses on ensuring 
that eligible people are able to enroll in the Medicaid program. Access 
to Medicaid enrollment requires that a potential beneficiary know if 
they are or may be eligible for Medicaid, be aware of Medicaid coverage 
options, and be able to easily apply for and enroll in coverage. The 
second dimension of access in this continuum relates to maintaining 
coverage once the beneficiary is enrolled in the Medicaid program 
initially. Maintaining coverage requires that eligible beneficiaries 
are able to stay enrolled in the program without interruption, or that 
they know how to and can smoothly transition to other health coverage, 
such as CHIP, Exchange coverage, or Medicare, when they are no longer 
eligible for Medicaid coverage. In September 2022, we published a 
proposed rule, Streamlining the Medicaid, Children's Health Insurance 
Program, and Basic Health Program Application, Eligibility, 
Determination, Enrollment, and Renewal Processes (87 FR 54760; 
hereinafter the ``Streamlining Eligibility & Enrollment proposed 
rule'') to simplify the processes for eligible individuals to enroll 
and retain eligibility in Medicaid, CHIP, and the Basic Health Program 
(BHP).
    The third dimension, which is the focus of this proposed rule, is 
access to services and supports. This rule is focused on addressing 
additional critical elements of access: (1) potential access (for 
example, provider availability and network adequacy); (2) beneficiary 
utilization (the use of health care and health services); and (3) 
beneficiaries' perceptions and experiences with the care they did or 
did not receive. These terms and definitions build upon our previous 
efforts to examine how best to monitor access.\8\
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    \8\ Kenney, Genevieve M., Kathy Gifford, Jane Wishner, Vanessa 
Forsberg, Amanda I. Napoles, and Danielle Pavliv. ``Proposed 
Medicaid Access Measurement and Monitoring Plan.'' Washington, DC: 
The Urban Institute. August 2016. Accessed at https://www.medicaid.gov/sites/default/files/2019-12/monitoring-plan.pdf.
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    In addition to the three proposed rules (the Streamlining 
Eligibility & Enrollment proposed rule, this proposed rule on managed 
care, and Medicaid Program; Ensuring Access to Medicaid Services 
proposed rule), we are also engaged in non-regulatory activities (for 
example, best practices toolkits and technical assistance to States) to 
improve access to health care services across Medicaid delivery 
systems. As noted earlier, the Streamlining Eligibility & Enrollment 
proposed rule addresses the first two dimensions of access to health 
care: (1) enrollment in coverage and (2) maintenance of coverage. 
Through that proposed rule, we sought to streamline Medicaid, CHIP and 
BHP eligibility and enrollment processes, reduce administrative burden 
on States and applicants toward a more seamless eligibility and 
enrollment process, and increase the enrollment and retention of 
eligible individuals. Through the Ensuring Access to Medicaid Services 
proposed rule, and this proposed rule involving managed care, we 
outline additional proposed steps to address the third dimension of the 
health care access continuum: access to services, while also in this 
rule addressing quality and financing of services in the managed care 
context. We seek to address a range of access-related challenges that 
impact how beneficiaries are served by Medicaid across all of its 
delivery systems.
    The use of managed care in Medicaid has grown from 81 percent in 
2016 to 84 percent in 2020,\9\ with 72 percent of Medicaid 
beneficiaries enrolled in comprehensive managed care organizations in 
2020. We note that States may implement a Medicaid managed care 
delivery system using four Federal authorities--sections 1915(a), 
1915(b), 1932(a), and 1115(a) of the Social Security Act (the Act); 
each is described briefly below.
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    \9\ https://www.medicaid.gov/medicaid/managed-care/enrollment-report/.
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    Under section 1915(a) of the Act, States can implement a voluntary 
managed care program by executing a contract with organizations that 
the State has procured using a competitive procurement process. To 
require beneficiaries to enroll in a managed care program to receive 
services, a State must obtain approval from CMS under two primary 
authorities:
     Through a State plan amendment (SPA) that meets standards 
set forth in section 1932(a) of the Act, States can implement a 
mandatory managed care delivery system. This authority does not allow 
States to require beneficiaries who are dually eligible for Medicare 
and Medicaid (dually eligible beneficiaries), American Indians/Alaska 
Natives (except as permitted in section 1932(a)(2)(C) of the Act), or 
children with special health care needs to enroll in a managed care 
program. State plans, once approved, remain in effect until modified by 
the State.
     We may grant a waiver under section 1915(b) of the Act, 
permitting a State to require all Medicaid beneficiaries to enroll in a 
managed care delivery system, including dually eligible beneficiaries, 
American Indians/Alaska Natives, or children with special health care 
needs. After approval, a State may operate a section 1915(b) waiver for 
a 2-year period (certain waivers can be operated for up to 5

[[Page 28094]]

years if they include dually eligible beneficiaries) before requesting 
a renewal for an additional 2- (or 5-) year period.
    We may also authorize managed care programs as part of 
demonstration projects under section 1115(a) of the Act that include 
waivers permitting a State to require all Medicaid beneficiaries to 
enroll in a managed care delivery system, including dually eligible 
beneficiaries, American Indians/Alaska Natives, and children with 
special health care needs. Under this authority, States may seek 
additional flexibility to demonstrate and evaluate innovative policy 
approaches for delivering Medicaid benefits, as well as the option to 
provide services not typically covered by Medicaid. Such demonstrations 
are approvable only if it is determined that the demonstration would 
promote the objectives of the Medicaid statute and the demonstration is 
subject to evaluation.
    The above authorities all permit States to operate their Medicaid 
managed care programs without complying with the following standards of 
Medicaid law outlined in section of 1902 of the Act:
     Statewideness (section 1902(a)(1) of the Act): States may 
implement a managed care delivery system in specific areas of the State 
(generally counties/parishes) rather than the whole State;
     Comparability of Services (section 1902(a)(10)(B) of the 
Act): States may provide different benefits to people enrolled in a 
managed care delivery system; and
     Freedom of Choice (section 1902(a)(23)(A) of the Act): 
States may generally require people to receive their Medicaid services 
only from a managed care plan's network of providers or primary care 
provider.
    States that elect to operate a separate CHIP within a managed care 
delivery system do not need specific statutory authority to offer 
benefits through a managed care program. However, sections 2103(f)(3) 
and 2107(e)(1)(N) and (R) of the Act apply certain provisions of 
sections 1903 and 1932 of the Act related to Medicaid managed care to 
separate CHIPs. States that elect a Medicaid expansion CHIPs that 
operate within a managed care delivery system are subject to all 
requirements under section 1932 of the Act.
    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 (hereinafter referred to 
as ``the 2016 final rule'') that modernized the Medicaid and CHIP 
managed care regulations to reflect changes in the use of managed care 
delivery systems. The 2016 final rule aligned many of the rules 
governing Medicaid and CHIP managed care with those of other major 
sources of coverage; implemented applicable statutory provisions; 
strengthened actuarial soundness payment provisions to promote the 
accountability of managed care program rates; strengthened efforts to 
reform delivery systems that serve Medicaid and CHIP beneficiaries; and 
enhanced policies related to program integrity. The 2016 final rule 
applied many of the Medicaid managed care rules to separate CHIP, 
particularly in the areas of access, finance, and quality through 
cross-references to 42 CFR part 438.
    In the January 18, 2017 Federal Register (82 FR 5415), we published 
the ``Medicaid Program; The Use of New or Increased Pass-Through 
Payments in Medicaid Managed Care Delivery Systems'' final rule 
(hereinafter referred to as ``the 2017 final rule''). In the 2016 final 
rule, 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. On June 29th, 2016, we also 
published the CMCS Informational Bulletin (CIB) concerning ``The Use of 
New or Increased Pass-Through Payments in Medicaid Managed Care 
Delivery Systems.'' The 2017 final rule codified the information in the 
CIB as well as gave States the option to eliminate physician and 
nursing facility payments immediately or phase down these payments over 
the 5-year transition period if they prefer and specified the maximum 
amount of pass-through payments permitted annually during the 
transition periods under Medicaid managed care contract(s) and rate 
certification(s). That final rule prevented 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 2016 final rule.
    In the November 13, 2020 Federal Register (85 FR 72754), we 
published the ``Medicaid Program; Medicaid and Children's Health 
Insurance Program (CHIP) Managed Care'' final rule (hereinafter 
referred to as the ``2020 final rule'') which streamlined the Medicaid 
and CHIP managed care regulatory framework to relieve regulatory 
burdens; support State flexibility and local leadership; and promote 
transparency, flexibility, and innovation in the delivery of care. The 
rule was intended to ensure that the regulatory framework was efficient 
and feasible for States to implement in a cost-effective manner and 
ensure that States can implement and operate Medicaid and CHIP managed 
care programs without undue administrative burdens.
    Since publication of the 2020 final rule, the COVID-19 public 
health emergency (PHE) challenged States' ability to ensure 
beneficiaries' access to high-quality care, ensure adequate provider 
payment during extreme workforce challenges, and provide adequate 
program monitoring and oversight. On January 28, 2021, Executive Order 
(E.O.) 14009, Strengthening Medicaid and the Affordable Care Act, was 
signed and established the policy objective to protect and strengthen 
Medicaid and the Affordable Care Act (ACA) and to make high-quality 
health care accessible and affordable for every American, and directed 
executive departments and agencies to review existing regulations, 
orders, guidance documents, and policies to determine whether such 
agency actions are inconsistent with this policy. On April 25, 2022, 
Executive Order 14070 directed agencies with responsibilities related 
to Americans' access to health coverage to review agency actions to 
identify ways to continue to expand the availability of affordable 
health coverage, to improve the quality of coverage, to strengthen 
benefits, and to help more Americans enroll in quality health coverage. 
This proposed rule aims to fulfill Executive Orders 14009 and 14070 by 
helping States to use lessons learned from the PHE and build stronger 
managed care programs to better meet the needs of the Medicaid and CHIP 
populations by improving access to and quality of care provided.

[[Page 28095]]

    In addition, this rule proposes new standards to help States 
improve their monitoring of access to care by requiring establishment 
of new standards for appointment wait times, use of secret shopper 
surveys, use of enrollee experience surveys, and requiring States to 
submit a managed care plan analysis of payments made by plans to 
providers, for specific services, to more closely monitor plans' 
network adequacy. It also proposes provisions that would reduce burden 
for States that choose to direct MCOs, PIHPs, or PAHPs in certain ways 
to use their capitation payments to pay specified providers specified 
amounts, address impermissible redistribution arrangements related to 
State directed payments, and add clarity to the requirements related to 
medical loss ratio calculations. To improve transparency and provide 
valuable information to enrollees, providers, and CMS, this rule 
proposes to enhance existing State website requirements for content and 
ease of use. Lastly, this proposed rule would make quality reporting 
more transparent and meaningful for driving quality improvement, reduce 
burden on certain quality reporting requirements, and establish State 
requirements for implementing a Medicaid and CHIP quality rating system 
aimed at ensuring monitoring of performance by Medicaid and CHIP 
managed care plans and empowering beneficiary choice in managed care.
    Finally, we believe it is important to acknowledge the role of 
health equity within this proposed rule. Medicaid and CHIP are the 
primary source of health care coverage for over one in three people of 
color in this country. Consistent with Executive Order 13985 \10\ which 
calls for advancing equity for underserved populations, we are working 
to advance health equity across CMS programs consistent with the goals 
and objectives we have outlined in the CMS Framework for Health Equity 
2022-2032 \11\ and the HHS Equity Action Plan.\12\ That effort includes 
increasing our understanding of the needs of those we serve to ensure 
that all individuals have access to equitable care and coverage.
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    \10\ Executive Order 13985, https://www.whitehouse.gov/briefing-room/presidentialactions/2021/01/20/executive-order-advancingracial-equity-and-support-or-underservedcommunities-through-the-federal-government/.
    \11\ CMS Framework for Health Equity 2022-2032: https://www.cms.gov/files/document/cmsframework-health-equity.pdf.
    \12\ HHS Equity Action Plan, https://www.hhs.gov/sites/default/files/hhs-equity-action-plan.pdf.
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    A key part of our approach will be to work with States to improve 
measurement of health disparities through the stratification of State 
reporting on certain measures to identify potential differences in 
access, quality, and outcomes based on demographic factors like race, 
ethnicity, age, rural/urban status, disability, language, sex, sexual 
orientation, and gender identity, as well as social determinants of 
health.
    The ``Medicaid Program and CHIP; Mandatory Medicaid and Children's 
Health Insurance Program (CHIP) Core Set Reporting'' proposed rule 
appeared in the August 22, 2022 Federal Register (87 FR 51303) 
(hereinafter referred to as the``Mandatory Medicaid and CHIP Core Set 
Reporting proposed rule''). In that proposed rule, we proposed that the 
Secretary would specify, through annual subregulatory guidance, which 
measures in the Medicaid and CHIP Child Core Set, the behavioral health 
measures of the Medicaid Adult Core Set, and the Health Home Core Sets, 
States would be required to stratify, and by which factors, such as 
race, ethnicity, sex, age, rural/urban status, disability, language or 
other factors specified by the Secretary. CMS also proposed a phased-in 
timeline for stratification of measures in these Core Sets. In the 
Medicaid Program; Ensuring Access to Medicaid Services proposed rule, 
published elsewhere in the Federal Register, we also proposed a similar 
phased-in timeline and process for mandatory reporting and 
stratification of the Home and Community-Based Services (HCBS) Quality 
Measure Set.
    Measuring health disparities, reporting these results, and driving 
improvements in quality are cornerstones of the CMS approach to 
advancing health equity and also align with the CMS Strategic 
Priorities.\13\ In this proposed rule, we establish our intent to align 
with the stratification factors required for Core Set measure 
reporting, which we believe would minimize State and health plan burden 
to report stratified measures. To further reduce burden on States, we 
would permit States to report, if finalized, the same measurement and 
stratification methodologies and classifications as those proposed in 
the Mandatory Medicaid and CHIP Core Set Reporting proposed rule and 
the Ensuring Access to Medicaid Services proposed rule. We believe 
these measures and methodologies would be appropriate to include in 
States' Managed Care Program Annual Report (MCPAR) because Sec.  
438.66(e)(2)(vii) requires information on and an assessment of the 
operation of each managed care program and an evaluation of managed 
care plan performance on quality measures. Reporting these measures in 
MCPAR would minimize State and provider burden while allowing more 
robust CMS monitoring and oversight of the quality of the health care 
provided at a managed care plan and program level. We would also 
anticipate publishing additional subregulatory guidance and adding 
specific fields in MCPAR that would accommodate this measure and data 
stratification reporting to simplify the process for States.
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    \13\ CMS Strategic Plan 2022, https://www.cms.gov/cms-strategic-plan.
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B. Provisions of the Proposed Regulations

    Throughout this document, the term ``PAHP'' is used to mean a 
prepaid ambulatory health plan that does not exclusively provide non-
emergency medical transportation services. Whenever this document is 
referencing a PAHP that exclusively provides non-emergency medical 
transportation services, it is specifically addressed as a ``Non-
Emergency Medical Transportation (NEMT) PAHP.'' Throughout this 
document, the use of the term ``managed care plan'' includes managed 
care organizations (MCOs), prepaid inpatient health plans (PIHPs), and 
prepaid ambulatory health plans (PAHPs) and is used only when the 
provision under discussion applies to all three arrangements. An 
explicit reference is used in the preamble if the provision applies to 
primary care case management (PCCMs) or PCCM entities.
    For CHIP, the preamble uses ``CHIP'' when referring collectively to 
separate child health programs and Medicaid expansion programs. We use 
``separate CHIP'' specifically in reference to separate child health 
programs and also in reference to any proposed changes in subpart L of 
part 457, which are only applicable to separate child health programs 
operating in a managed care delivery system. Also note in this proposed 
rule, all proposed changes to Medicaid managed care regulations are 
equally applicable to Medicaid expansion managed care programs as 
described at Sec.  457.1200(c).1. Access (42 CFR 438.2, 438.10, 438.66, 
438.68, 438.206, 438.207, 438.214, 438.602, 457.1207, 457.1218, 
457.1230, 457.1250, 457.1285)
a. Enrollee Experience Surveys (Sec. Sec.  438.66(b) and (c), 
457.1230(b))
    In the 2016 final rule, we renamed and expanded Sec.  438.66 State 
Monitoring Requirements to ensure that States had robust systems to 
monitor their

[[Page 28096]]

managed care programs, utilize the monitoring results to make program 
improvements, and report to CMS annually the results of their 
monitoring activities. Existing regulations at Sec.  438.66(c)(5) 
require States to use the data collected from their monitoring 
activities to improve the performance of their managed care programs, 
including results from any enrollee or provider satisfaction surveys 
conducted by the State or managed care plan. Some States currently use 
surveys to gather direct input from their managed care enrollees, which 
we believe is a valuable source of information on enrollees' actual and 
perceived access to services. As a general matter, disparities in 
access to care related to demographic factors such as race, ethnicity, 
language, or disability status are, in part, a function of the 
availability of the accessible providers who are willing to provide 
care and are competent in meeting the needs of populations in medically 
underserved communities. Surveys can focus on matters that are 
important to enrollees and for which they are the best and, sometimes, 
only source of information. Patient experience surveys can also focus 
on how patients experienced or perceived key aspects of their care, not 
just on how satisfied they were with their care. For example, 
experience surveys can focus on asking patients whether or how often 
they accessed health care, barriers they encountered in accessing 
health care, and their experience including communication with their 
doctors, understanding their medication instructions, and the 
coordination of their health care needs. Some States already use 
enrollee experience surveys and report that the data is an asset in 
their efforts to assess whether the managed care program is meeting its 
enrollees' needs.
    One of the most commonly used enrollee experience survey in the 
health care industry, including for Medicare Advantage organizations, 
is the Consumer Assessment of Healthcare Providers and Systems 
(CAHPS[supreg]).\14\ CAHPS experience surveys are available for health 
plans, dental plans, and home and community-based services (HCBS) 
programs, as well as for patient experience with providers such as home 
health, condition specific care such as behavioral health, or facility-
based care such as in a nursing home. A survey specially designed to 
measure the impact of long-term services and supports (LTSS) on the 
quality of life and outcomes of enrollees is the National Core 
Indicators-Aging and Disabilities (NCI-AD[supreg]) Adult Consumer 
SurveyTM.\15\ Whichever survey is chosen by a State, it 
should complement data gathered from other network adequacy and access 
monitoring activities to provide the State with a more complete 
assessment of their managed care programs' success at meeting their 
enrollees' needs. To ensure that States' managed care program 
monitoring systems, required at Sec.  438.66(a), appropriately capture 
the enrollee experience, we propose to revise Sec.  438.66(b)(4) to 
explicitly include ``enrollee experience.'' Section 438.66(c)(5) 
currently requires States to use the results from any enrollee or 
provider satisfaction surveys they choose to conduct to improve the 
performance of its managed care program. To ensure that States have the 
data from an enrollee experience survey to include in their monitoring 
activities and improve the performance of their managed care programs, 
we propose to revise Sec.  438.66(c)(5) to require that States conduct 
an annual enrollee experience survey. To reflect this, we propose to 
revise Sec.  438.66(c)(5) to add ``an annual'' before ``enrollee'' and 
add ``experience survey conducted by the State'' after ``enrollee.'' We 
also propose to replace ``or'' with ``and'' to be explicit that use of 
provider survey results alone would not be sufficient to comply with 
Sec.  438.66(c)(5). While we encourage States and managed care plans to 
utilize provider surveys, we are not proposing to mandate them at this 
time. We believe other proposals in this rule, such as enrollee surveys 
and secret shopper surveys, may yield information that would inform our 
decision on the use of provider surveys in the future. We invite 
comment on whether we should mandate the use of a specific enrollee 
experience survey, define characteristics of acceptable survey 
instruments, and the operational considerations of enrollee experience 
surveys States use currently.
---------------------------------------------------------------------------

    \14\ The acronym ``CAHPS'' is a registered trademark of the 
Agency for Healthcare Research and Quality.
    \15\ NCI-AD Adult Consumer SurveyTM is a copyrighted 
tool.
---------------------------------------------------------------------------

    To reflect these proposals in the annual assessment of the 
operation of the managed care program report called the Managed Care 
Program Annual Report (MCPAR) required at Sec.  438.66(e), we propose 
conforming edits in Sec.  438.66(e)(2)(vii). We propose to include the 
results of an enrollee experience survey to the list of items that 
States must evaluate in their report and add ``provider'' before 
``surveys'' to distinguish them from enrollee experience surveys. 
Additionally, consistent with the transparency proposals described in 
section I.B.1.f. of this section, we propose to revise Sec.  
438.66(e)(3)(i) to require that States post the report required in 
Sec.  438.66(e)(1) on their website within 30 calendar days of 
submitting it to CMS. Currently Sec.  438.66(e)(3)(i) only requires 
that the report be posted on the State's website but does not specify a 
timeframe; we believe that adding further specificity about the timing 
of when the report should be posted would be helpful to interested 
parties and bring consistency to this existing requirement. This 
proposal is authorized by section 1902(a)(6) of the Act which requires 
that States provide reports, in such form and containing such 
information, as the Secretary may from time to time require.
    For an enrollee experience survey to yield robust, usable results, 
it should be easy to understand, simple to complete, and readily 
accessible for all enrollees that receive it; therefore, we believe 
they should meet the interpretation, translation, and tagline criteria 
in Sec.  438.10(d)(2). Therefore, we propose to add enrollee experience 
surveys as a document subject to the requirements in Sec.  
438.10(d)(2). This would ensure that enrollees that receive a State's 
enrollee experience survey would be fully notified that oral 
interpretation in any language and written translation in the State's 
prevalent languages would be readily available, and how to request 
auxiliary aids and services, if needed.
    These proposals are authorized by section 1932(b)(5) of the Act 
which requires managed care organizations to demonstrate adequate 
capacity and services by providing assurances to the State and CMS that 
it has the capacity to serve the expected enrollment in its service 
area, including assurances that it offers an appropriate range of 
services and access to preventive and primary care services for the 
population expected to be enrolled in such service area, and maintains 
a sufficient number, mix, and geographic distribution of providers of 
services. The authority for our proposals is extended to prepaid 
inpatient health plans (PIHPs) and prepaid ambulatory health plans 
(PAHPs) through regulations based on our authority under section 
1902(a)(4) of the Act. Because enrollee experience survey results would 
provide direct and candid input from enrollees, States and managed care 
plans could use the results to determine if their networks offer an 
appropriate range of services and access as well as if it provides a 
sufficient number, mix, and geographic distribution of providers to 
meet their enrollees' needs. Enrollee experience survey data would 
enable managed care plans to assess whether their networks

[[Page 28097]]

are providing sufficient capacity as experienced by their enrollees and 
that assessment would inform the assurances that the plan is required 
to provide to the State and CMS. These proposals are also authorized by 
section 1932(c)(1)(A)(i) and (iii) of the Act which require States that 
contract with MCOs to develop and implement a quality assessment and 
improvement strategy that includes: standards for access to care so 
that covered services are available within reasonable timeframes and in 
a manner that ensures continuity of care and adequate primary care and 
specialized services capacity and procedures for monitoring and 
evaluating the quality and appropriateness of care and services to 
enrollees and requirements for provision of quality assurance data to 
the State. Data from enrollee experience surveys would enable States to 
use the results to evaluate whether their plans' networks are providing 
access to covered services within reasonable timeframes and in a manner 
that ensures continuity of care. These data would also inform the 
development and maintenance of States' quality assessment and 
improvement strategies and would be critical to States' monitoring and 
evaluation of the quality and appropriateness of care and services 
provided to enrollees.
    We remind States that in addition to the mandatory external quality 
review (EQR) activities under Sec.  438.358(b), there is an existing 
optional EQR activity under Sec.  438.358(c)(2) for the administration 
or validation of consumer or provider surveys of quality of care. 
States that contract with MCOs and use external quality review 
organizations (EQROs) to administer or validate the proposed enrollee 
experience surveys may be eligible to receive up to a 75 percent 
enhanced Federal match, pursuant to Sec.  438.370, to reduce the 
financial burden of conducting or validating the proposed enrollee 
survey(s).
    We request comment on the cost and feasibility of implementing 
enrollee experience surveys for each managed care program as well as 
the extent to which States already use enrollee experience surveys for 
their managed care programs.
    We propose that States would have to comply with Sec.  438.66(b) 
and (c) no later than the first managed care plan rating period that 
begins on or after 3 years after the effective date of the final rule 
as we believe this is a reasonable timeframe for compliance. We have 
proposed this applicability date in Sec.  438.66(f).
    We did not adopt the managed care State monitoring requirements 
described at Sec.  438.66 in the 2016 final rule for separate CHIPs 
because we wished to limit administrative burden on separate CHIP 
managed care plans, which typically serve smaller populations. Since we 
did not adopt MCPAR, we do not plan to adopt the new Medicaid enrollee 
experience survey requirements proposed at Sec.  438.66(b) and (c) for 
separate CHIPs. However, States currently collect enrollee experience 
data for CHIP through annual CAHPS surveys as required at section 
2108(e)(4) of the Act. Currently, there are no requirements for States 
to use these data to evaluate their separate CHIP managed care plans 
network adequacy or to make these survey results available to 
beneficiaries to assist in selecting a managed care plan. We believe 
that enrollee experience data can provide an invaluable window into the 
performance of managed care plans and assist States in their annual 
review and certification of network adequacy for separate CHIP MCOs, 
PIHPs, and PAHPs. For this reason, we propose to amend Sec.  
457.1230(b) to require States to evaluate annual CAHPS survey results 
as part of the State's annual analysis of network adequacy as described 
in Sec.  438.207(d). Since States already collect CAHPS survey data for 
CHIP and would likely not need the same timeframe to implement as 
needed for implementing the proposed Medicaid enrollee experience 
surveys requirement, we propose for the provision at Sec.  457.1230(b) 
to be applicable 60 days after the effective date of the final rule. 
However, we are open to a later applicability date such as 1, 2, or 3 
years after the effective date of the final rule. We invite comment on 
the appropriate applicability date for this provision.
    We also believe that access to enrollee experience data is critical 
in affording separate CHIP beneficiaries the opportunity to make 
informed decisions when selecting their managed care plan(s). To this 
end, we propose at Sec.  457.1207 to require States to post comparative 
summary results of CAHPS surveys by managed care plan annually on State 
websites as described at Sec.  438.10(c)(3). The posted summary results 
must be updated annually and allow for easy comparison between the 
managed care plans available to separate CHIP beneficiaries. We seek 
public comment on other approaches to including CHIP CAHPS survey data 
for the dual purposes of improving access to managed care services and 
enabling beneficiaries to have useful information when selecting a 
managed care plan.
b. Appointment Wait Time Standards (Sec. Sec.  438.68(e), 457.1218)
    In the 2020 final rule, we revised Sec.  438.68(b)(1) and (2) by 
replacing the requirement for States to set time and distance standards 
with a more flexible requirement that States set a quantitative network 
adequacy standard for specified provider types. We explained that 
quantitative network adequacy standards that States may elect to use 
included minimum provider-to-enrollee ratios; maximum travel time or 
distance to providers; a minimum percentage of contracted providers 
that are accepting new patients; maximum wait times for an appointment; 
hours of operation requirements (for example, extended evening or 
weekend hours); and combinations of these quantitative measures. We 
encouraged States to use the quantitative standards in combination- not 
separately- to ensure that there are not gaps in access to, and 
availability of, services for enrollees. (85 FR 72802)
    Key to the effectiveness of the Medicaid and CHIP program is 
ensuring that it provides timely access to high-quality services in a 
manner that is equitable and consistent. During the COVID-19 public 
health emergency (PHE), managed care plans have faced many challenges 
ensuring access to covered services and those challenges shed light on 
opportunities for improvement in monitoring timely access. These 
challenges include workforce shortages, changes in providers' workflows 
and operating practices, providers relocating leaving shortages in 
certain areas, and shifts in enrollee utilization such as delaying or 
forgoing preventive care. Some of these challenges may become permanent 
and thus, States and managed care plans need to adjust their 
monitoring, evaluation, and planning strategies to ensure equitable 
access to all covered services.
    On February 17, 2022, we issued a request for information \16\ 
(RFI) soliciting public input on improving access in Medicaid and CHIP, 
including ways to promote equitable and timely access to providers and 
services. Barriers to accessing care represented a significant portion 
of comments received, with common themes related to providers not 
accepting Medicaid and

[[Page 28098]]

recommendations calling for us to set specific quantitative access 
standards. Many commenters urged us to consider developing a Federal 
standard for timely access to providers and services, but giving State 
Medicaid and CHIP agencies the flexibility to impose more stringent 
requirements. A recently published study \17\ examined the extent to 
which Medicaid managed care plan networks may overstate the 
availability of physicians in Medicaid, and evaluated the implications 
of discrepancies in the ``listed'' and ``true'' networks for 
beneficiary access. The authors concluded that findings suggest that 
current network adequacy standards might not reflect actual access and 
that new methods are needed that account for physicians' willingness to 
serve Medicaid patients. Another review of 34 audit studies 
demonstrated that Medicaid is associated with a 1.6-fold lower 
likelihood in successfully scheduling a primary care appointment and a 
3.3-fold lower likelihood in successfully scheduling a specialty 
appointment when compared with private insurance.\18\
---------------------------------------------------------------------------

    \16\ CMS Request for Information: Access to Coverage and Care in 
Medicaid & CHIP. February 2022. For a full list of question from the 
RFI, see https://www.medicaid.gov/medicaid/access-care/downloads/access-rfi-2022-questions.pdf.
    \17\ https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2021.01747.
    \18\ W. Hsiang, A. Lukasiewicz, and M. Gentry, ``Medicaid 
Patients Have Greater Difficulty Scheduling Health Care Appointments 
Compared With Private Insurance Patients: A Meta-Analysis,'' SAGE 
Journals, April 5, 2019, available at https://journals.sagepub.com/doi/full/10.1177/0046958019838118.
---------------------------------------------------------------------------

    Based on the RFI comments received, research, engagement with 
interested parties, and our experience in monitoring State managed care 
programs, we are persuaded about the need for increased oversight of 
network adequacy and overall access to care, and propose a new 
quantitative network adequacy standard. Specifically, we propose to 
redesignate existing Sec.  438.68(e) regarding publication of network 
adequacy standards to Sec.  438.68(g) and create a new Sec.  438.68(e) 
titled ``Appointment wait time standards.''
    In Sec.  438.68(e)(1)(i) through (iv), we propose that States 
develop and enforce wait time standards for routine appointments for 
four types of services: outpatient mental health and substance use 
disorder (SUD)-adult and pediatric, primary care- adult and pediatric, 
obstetrics and gynecology (OB/GYN), and an additional type of service 
determined by the State (in addition to the three listed) in an 
evidence-based manner for Medicaid. We include ``If covered in the 
MCO's, PIHP's, or PAHP's contract'' before the first three service 
types (paragraphs (e)(1)(i) through (iii)) to be clear that standards 
only need to be developed and enforced if the service is covered by the 
managed care plan's contract, but the forth service (paragraph 
(e)(1)(iv)) must be one that is covered by the plan's contract. For 
example, we understand that primary care and OB/GYN is likely not 
covered by a behavioral health PIHP; therefore, a State would not be 
required to set appointment wait time standards for primary care and 
OB/GYN for the behavioral health PIHP and would only have to set 
appointment wait time standards for mental health and SUD as well as 
one State-selected provider type. To ensure that our proposal to have 
States set appointment wait time standards for mental health and SUD as 
well as one State-selected provider type for behavioral PIHPs and PAHPs 
is feasible, we request comment on whether behavioral health PIHPs and 
PAHPs include provider types other than mental health and SUD in their 
networks. Although we believe behavioral health PIHPs and PAHPs may 
include other provider types, we want to validate our understanding. We 
propose to adopt the proposed wait time standards for separate CHIP 
through an existing cross-reference at Sec.  457.1218. We are proposing 
primary care, OB/GYN, and mental health and SUD because they are 
indicators of core population health; therefore, we believe proposing 
to require States to set appointment wait time standards for them would 
have the most impact on access to care for Medicaid and CHIP managed 
care enrollees.
    At Sec.  438.68(e)(1)(iv), we propose that States select a provider 
type in an evidence-based manner to give States the opportunity to use 
an appointment wait time standard to address an access challenge in 
their local market. We are not proposing to specify the type of 
evidence to be used in this rule; rather, we defer to States to 
consider multiple sources, such as encounter data, appeals and 
grievances, and provider complaints, as well as to consult with their 
managed care plans to select a provider type. We believe proposing that 
States select one of the provider types subject to an appointment wait 
time standard would encourage States and managed care plans to analyze 
network gaps effectively and then innovate new ways to address the 
challenges that impede timely access. States would identify the 
provider type(s) they choose in existing reporting in MCPAR, per Sec.  
438.66(e), and the Network Adequacy and Access Assurances Report, per 
Sec.  438.207(d).
    To be clear that the appointment wait time standards proposed in 
Sec.  438.68(e) cannot be the quantitative network adequacy standard 
required in Sec.  438.68(b)(1), we propose to add ``. . . , other than 
for appointment wait times . . .'' in Sec.  438.68(b)(1). We are not 
proposing to define routine appointments in this rule; rather, we defer 
to States to define it as they deem appropriate. We encourage States to 
work with their managed care plans and their network providers to 
develop a definition of ``routine'' that would reflect usual patterns 
of care and current clinical standards. We acknowledge that defining 
``urgent'' and ``emergent'' for appointment wait time standards could 
be much more complex given the standards of practice by specialty and 
the patient-specific considerations necessary to determine those 
situations. We invite comments on defining these terms should we 
undertake additional rulemaking in the future. We clarify that setting 
appointment wait time standards for routine appointments as proposed at 
Sec.  438.68(e)(1) would be a minimum; States are encouraged to set 
additional appointment wait time standards for other types of 
appointments. For example, States may consider setting appointment wait 
time standards for emergent or urgent appointments as well.
    To provide States with flexibility to develop appointment wait time 
standards that reflect the needs of their Medicaid and CHIP managed 
care populations and local provider availability while still setting a 
level of consistency, we propose maximum appointment wait times at 
Sec.  438.68(e)(1): State developed appointment wait times must be no 
longer than 10 business days for routine outpatient mental health and 
substance use disorder appointments in Sec.  438.68(e)(1)(i) and no 
longer than 15 business days for routine primary care in Sec.  
438.68(e)(1)(ii) and OB/GYN appointments in Sec.  438.68(e)(1)(iii). We 
are not proposing a maximum appointment wait time standard for the 
State-selected provider type. These proposed maximum timeframes were 
informed by standards for the individual insurance Marketplace 
established under the Affordable Care Act that will begin in 2024 of 10 
business days for behavioral health and 15 business days for primary 
care services; we note that we elected not to adopt the Marketplace's 
appointment wait time standard of 30 business days for non-urgent 
specialist appointments as we believe focusing on primary care, OB/GYN, 
and mental health and SUD is the most appropriate starting place for 
Medicaid managed care standards. These proposed timeframes were also

[[Page 28099]]

informed by engagement with interested parties, including comments in 
response to the RFI. We are proposing to require appointment wait times 
for routine appointments only in this rule as we believe that providers 
utilize more complex condition and patient-specific protocols and 
clinical standards of care to determine scheduling for urgent and 
emergent care. We may address standards for other types of appointments 
in future rulemaking and hope that information from the use of 
appointment wait time standards for routine appointments may inform 
future proposals.
    In developing this proposal, we considered appointment wait time 
standards between 30-calendar days and 45-calendar days. Some 
interested parties stated that these standards would be more 
appropriate for routine appointments and would more accurately reflect 
current appointment availability for most specialties. However, we 
believe 30-calendar days and 45-calendar days as the maximum wait time 
may be too long as a standard; we understand it may be a realistic 
timeframe currently for some specialist appointments but we were not 
convinced that they should be the standard for outpatient mental health 
and substance use disorder, primary care, and OB/GYN appointments. We 
invite comment on aligning with the Marketplace standards at 10- and 
15-business days, or whether wait time standards should differ, and if 
so, what standards would be the most appropriate.
    To make the appointment wait time standards as effective as 
possible, we defer to States on whether and how to vary appointment 
wait time standards for the same provider type; for example, by adult 
versus pediatric, telehealth versus in-person, geography, service type, 
or other ways. However, wait time standards must, at a minimum, reflect 
the timing proposed in Sec.  438.68(e)(1). We encourage States to 
consider the unique access needs of certain enrollees when setting 
their appointment wait time standards to facilitate obtaining 
meaningful results when assessing managed care plan compliance with the 
standards.
    As a general principle, we seek to align across Medicaid managed 
care, CHIP managed care, the Marketplace, and Medicare Advantage (MA) 
when reasonable to build consistency for individuals that may change 
coverage over time and to enable more effective and standardized 
comparison and monitoring across programs. Proposing 90 percent 
compliance with 10- and 15- business day maximum appointment wait time 
standards would be consistent with standards set for Marketplace plans 
for plan year 2024.\19\ However, we note that for MA, CMS expects MA 
plans to set reasonable standards for primary care services for 
urgently needed services or emergencies immediately; services that are 
not emergency or urgently needed, but in need of medical attention 
within one week; and routine and preventive care within 30 days.\20\
---------------------------------------------------------------------------

    \19\ https://www.cms.gov/sites/default/files/2022-04/Final-2023-Letter-to-Issuers_0.pdf.
    \20\ MCM Chapter 4 (www.cms.gov).
---------------------------------------------------------------------------

    To ensure that managed care plans' contracts reflect their 
obligation to comply with the appointment wait time standards, we 
propose to revise Sec.  438.206(c)(1)(i) to include appointment wait 
time standards as a required provision in MCO, PIHP, and PAHP contracts 
for Medicaid, which is included in separate CHIP regulations through an 
existing cross-reference at Sec.  457.1230(a). We believe this is 
necessary since our proposal at Sec.  438.68(e)(1) to develop and 
enforce appointment wait time standards is a State responsibility; 
proposing this revision to Sec.  438.206(c)(1)(i) would specify the 
corresponding managed care plan responsibility.
    We propose to revise the existing applicability date in Sec.  
438.206(d) for Medicaid, which is applicable for separate CHIPs through 
an existing cross-reference at Sec.  457.1230(a) and a proposed cross-
reference at Sec.  457.1200(d), to reflect that States would have to 
comply with Sec.  438.206(c)(1)(i) no later than the first managed care 
plan rating period that begins on or after 4 years after the effective 
date of the final rule. We believe this is a reasonable timeframe for 
compliance.
    Current requirements at Sec.  438.68(c)(1) and (2) for Medicaid, 
and through a cross-reference at Sec.  457.1218 for separate CHIP, 
direct States to consider twelve elements when developing their network 
adequacy standards. We remind States that Sec.  438.68(c)(1)(ix) 
includes the availability and use of telemedicine, e-visits, and/or 
other evolving and innovative technological solutions as an element 
that States must consider when developing their network adequacy 
standards. Services delivered via telehealth seek to improve a 
patient's health through two-way, real time interactive communication 
between the patient, and the provider. Services delivered in this 
manner can, for example, be used for assessment, diagnosis, 
intervention, consultation, and supervision across distances. Services 
can be delivered via telehealth across all populations served in 
Medicaid including, but not limited to children, individuals with 
disabilities, and older adults. States have broad flexibility to cover 
telehealth through Medicaid and CHIP, including the methods of 
communication (such as telephonic or video technology commonly 
available on smart phones and other devices) to use.\21\ States need to 
balance the use of telehealth with the availability of providers that 
can provide in-person care and enrollees' preferences for receiving 
care to ensure that they establish network adequacy standards under 
Sec.  438.68 that accurately reflect the practical use of both types of 
care in their State. Therefore, States should review encounter data to 
gauge telehealth use by enrollees over time and the availability of 
telehealth appointments by providers and account for that information 
when developing their appointment wait time standards. We also remind 
States that they have broad flexibility with respect to covering 
services provided via telehealth and may wish to include quantitative 
network adequacy standards or specific appointment wait time standards 
for telehealth in addition to in-person appointment standards, as 
appropriate based on current practices and the extent to which network 
providers offer telehealth services. Although States have broad 
flexibility in this area, we remind States of their responsibility 
under section 504 of the Rehabilitation Act and section 1557 of the 
Affordable Care Act to ensure effective communications for patients 
with disabilities for any telehealth services that are offered and to 
provide auxiliary aids and services at no cost to the individual to 
ensure that individuals with disabilities are able to access and 
utilize services provided via telehealth; we also remind States of 
their responsibilities under Title VI of the Civil Rights Act of 1964, 
including the obligation to take reasonable steps to ensure meaningful 
language access for persons with limited English proficiency when 
providing telehealth services.\22\
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    \21\ https://www.medicaid.gov/medicaid/benefits/downloads/medicaid-chip-telehealth-toolkit.pdf.
    \22\ US Department of Justice, Civil Rights Division and 
Department of Health and Human Services, Office for Civil Rights, 
``Guidance on Nondiscrimination in Telehealth: Federal Protections 
to Ensure Accessibility to People with Disabilities and Limited 
English Proficient Persons,'' July 29, 2022, available online at 
https://www.hhs.gov/civil-rights/for-individuals/disability/guidance-on-nondiscrimination-in-telehealth/.
---------------------------------------------------------------------------

    Current Medicaid regulations at Sec.  438.68(e), and through a 
cross-reference at Sec.  457.1218 for separate

[[Page 28100]]

CHIP, require States to publish the network adequacy standards required 
by Sec.  438.68(b)(1) and (2) on their websites and to make the 
standards available upon request at no cost to enrollees with 
disabilities in alternate formats or through the provision of auxiliary 
aids and services. To ensure transparency and inclusion of the new 
proposed appointment wait time standards in this provision, we propose 
several revisions: to redesignate Sec.  438.68(e) to Sec.  438.68(g); 
to replace ``and'' with a comma after ``(b)(1);'' add ``(b)'' before 
``(2)'' for clarity; and add a reference to (e) after ``(b)(2).'' We 
believe these changes make the sentence clearer and easier to read. 
Lastly, Sec.  438.68(e) currently includes ``. . . the website required 
by Sec.  438.10.'' For additional clarity in redesignated Sec.  
438.68(g), we propose to replace ``438.10'' with ``Sec.  438.10(c)(3)'' 
to help readers more easily locate the requirements for State websites. 
These proposed changes apply equally to separate CHIP managed care 
through existing cross-references at Sec. Sec.  457.1218 and 457.1207.
    At Sec.  438.68(e)(2), which is included in separate CHIP 
regulations through an existing cross-reference at Sec.  457.1218, we 
propose that managed care plans would be deemed compliant with the 
standards established in paragraph (e)(1) when secret shopper results, 
described in section I.B.1.c. of this rule, reflect a rate of 
appointment availability that meets State established standards at 
least 90 percent of the time. By proposing a minimum compliance rate 
for appointment wait time standards, we would provide States with 
leverage to hold their managed care plans accountable for ensuring that 
their network providers offer timely appointments. Further, ensuring 
timely appointment access 90 percent of the time would be an important 
step toward helping States ensure that the needs of their Medicaid and 
CHIP populations are being met timely. As with any provision of part 
438 and subpart L of part 457, we may require States to take corrective 
action to address noncompliance.
    To ensure that appointment wait time standards would be an 
effective measure of network adequacy, we believe we need some 
flexibility to add provider types to address new access or capacity 
issues at the national level. Therefore, at Sec.  438.68(e)(3), which 
is included in separate CHIP regulations through an existing cross-
reference at Sec.  457.1218, we propose that CMS may select additional 
types of appointments to be added to Sec.  438.68(e)(1) after 
consulting with States and other interested parties and providing 
public notice and opportunity to comment. From our experience with the 
COVID-19 PHE as well as multiple natural disasters in recent years, we 
believe it prudent to explicitly state that we may utilize this 
flexibility as we deem appropriate in the future.
    We recognize that situations may arise when an MCO, PIHP, or PAHP 
may need an exception to the State established provider network 
standards, including appointment wait times. Section 438.68(d) 
currently provides that, to the extent a State permits an exception to 
any of the provider-specific network standards, the standard by which 
an exception would be evaluated and approved must be specified in the 
MCO, PIHP, or PAHP contract and must be based, at a minimum, on the 
number of providers in that specialty practicing in the MCO's, PIHP's, 
or PAHP's service area. We propose to make minor grammatical revisions 
to Sec.  438.68(d)(1) by deleting ``be'' before the colon and inserting 
``be'' as the first word of Sec.  438.68(d)(1)(i) and (ii), which is 
included in separate CHIP regulations through an existing cross-
reference at Sec.  457.1218. We also propose to add a new standard at 
Sec.  438.68(d)(1)(iii) for Medicaid, and through an existing cross-
reference at Sec.  457.1218 for separate CHIP, for reviews of exception 
requests, which would require States to consider the payment rates 
offered by the MCO, PIHP, or PAHP to providers included in the provider 
group subject to the exception. Managed care plans sometimes have 
difficulty building networks that meet network adequacy standards due 
to low payment rates. We believe that States should consider whether 
this component is a contributing factor to a plan's inability to meet 
the standards required by Sec.  438.68(b)(1) and (2) and (e), when 
determining whether a managed care plan should be granted an exception. 
We remind States of their obligation at Sec.  438.68(d)(2) to monitor 
enrollee access on an ongoing basis to the provider types in managed 
care networks that operate under an exception and report their findings 
as part of the annual Medicaid MCPAR required at Sec.  438.66(e).
    Our proposal for States to develop and enforce appointment wait 
time standards proposed at Sec.  438.68(e) and the accompanying secret 
shopper surveys of plan's compliance with them (described in section 
I.B.1.c. of this proposed rule) proposed at Sec.  438.68(f) are 
authorized by section 1932(b)(5) of the Act, and is extended to PIHPs 
and PAHPs through regulations based on our authority under section 
1902(a)(4) of the Act, and authorized for CHIP through section 
2103(f)(3) of the Act. We believe that secret shopper surveys could 
provide unbiased, credible, and representative data on how often 
network providers are offering routine appointments within the State's 
appointment wait time standards and these data would aid managed care 
plans as they assess their networks, pursuant to Sec.  438.207(b), and 
provide an assurance to States that their networks have the capacity to 
serve the expected enrollment in their service area and that it offers 
appropriate access to preventive and primary care services for their 
enrollees. States should find the results of the secret shopper surveys 
a rich source of information to assess compliance with the components 
of their quality strategy that address access to care and determine 
whether covered services are available within reasonable timeframes, as 
required in section 1932(c)(1)(A)(i) of the Act and required for CHIP 
through section 2103(f)(3) of the Act.
    Section 1932(d)(5) of the Act requires that, no later than July 1, 
2018, contracts with MCOs and PCCMs, as applicable, must include a 
provision that providers of services or persons terminated (as 
described in section 1902(kk)(8) of the Act) from participation under 
this title, title XVIII, or title XXI must be terminated from 
participating as a provider in any network. Although States have had to 
comply with this provision for several years, we believe we should 
reference this important provision in 42 CFR part 438, as well as use 
our authority under section 1902(a)(4) of the Act to apply it to PIHPs 
and PAHPs. To do this, we propose a new Sec.  438.214(d)(2) to reflect 
that States must ensure through their MCO, PIHP, and PAHP contracts 
that providers of services or persons terminated (as described in 
section 1902(kk)(8) of the Act) from participation under this title, 
title XVIII, or title XXI must be terminated from participating as a 
provider in any Medicaid managed care plan network.
    We propose that States would have to comply with Sec.  
438.68(b)(1), (e), and (g) no later than the first MCO, PIHP, or PAHP 
rating period that begins on or after 3 years after the effective date 
of the final rule as we believe this is a reasonable timeframe for 
compliance. We propose that States would have to comply with Sec.  
438.68(f) no later than the first MCO, PIHP, or PAHP rating period that 
begins on or after 4 years after the effective date of the final rule. 
We propose that States would have to comply with Sec.  438 (d)(1)(iii) 
no later than the first MCO, PIHP, or PAHP rating period that begins on 
or after 2

[[Page 28101]]

years after the effective date of the final rule. We have proposed 
these applicability dates in Sec.  438.68(h) for Medicaid, and for 
separate CHIPs through an existing cross-reference at Sec.  457.1218 
and a proposed cross-reference at Sec.  457.1200(d).
c. Secret Shopper Surveys (Sec. Sec.  438.68(f), 457.1207, 457.1218)
    We recognize that in some States and for some services, Medicaid 
beneficiaries face significant gaps in access to care. Evidence 
suggests that in some localities and for some services, it takes 
Medicaid beneficiaries longer to access medical appointments compared 
to individuals with other types of health coverage.\23\ This may be 
exacerbated by difficulties in accessing accurate information about 
managed care plans' provider networks; although Medicaid and CHIP 
managed care plans are required to make regular updates to their online 
provider directories in accordance with Sec. Sec.  438.10(h)(3) and 
457.1207 respectively, analyses of these directories suggest that a 
significant share of provider listings include inaccurate information 
on, for example, how to contact the provider, the provider's network 
participation, and whether the provider is accepting new patients.\24\ 
Relatedly, analyses have shown that the vast majority of services 
delivered to Medicaid beneficiaries are provided by a small subset of 
health providers listed in managed care plan provider directories, with 
a substantial share of listed providers delivering little or no care 
for Medicaid beneficiaries.\25\ Some measures of network adequacy may 
not be as meaningful as intended if providers are ``network providers'' 
because they have a contract with a managed care plan, but in practice 
are not actually accepting new Medicaid enrollees or impose a cap on 
the number of Medicaid enrollees they will see.
---------------------------------------------------------------------------

    \23\ W. Hsiang, A. Lukasiewicz, and M. Gentry, ``Medicaid 
Patients Have Greater Difficulty Scheduling Health Care Appointments 
Compared With Private Insurance Patients: A Meta-Analysis,'' SAGE 
Journals, April 5, 2019, available at https://journals.sagepub.com/doi/full/10.1177/0046958019838118.
    \24\ A. Burman and S. Haeder, ``Directory Accuracy and Timely 
Access in Maryland's Medicaid Managed Care Program,'' Journal of 
Health Care for the Poor and Underserved, available at https://pubmed.ncbi.nlm.nih.gov/35574863/; A. Bauman and S. Haeder, 
``Potemkin Protections: Assessing Provider Directory Accuracy and 
Timely Access for Four Specialties in California,'' Journal of 
Health Politics, Policy and Law, 2022, available at https://pubmed.ncbi.nlm.nih.gov/34847230/.
    \25\ A. Ludomirsky, et. al., ``In Medicaid Managed Care 
Networks, Care is Highly Concentrated Among a Small Percentage of 
Physicians,'' Health Affairs, May 2022, available at https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2021.01747.
---------------------------------------------------------------------------

    To add a greater level of validity and accuracy to States' efforts 
to measure network adequacy and access, we propose to require States to 
use secret shopper surveys as part of their monitoring activities. 
Secret shopper surveys are a form of research that can provide high-
quality data and actionable feedback to States and managed care plans 
and can be performed either as ``secret'' meaning the caller does not 
identify who they are performing the survey for or ``revealed'' meaning 
the caller identifies the entity for which they are performing the 
survey. While both types of surveys can produce useful results, we 
believe the best results are obtained when the survey is done as a 
secret shopper and the caller pretends to be an enrollee (or their 
representative) trying to schedule an appointment. Results from these 
surveys should be unbiased, credible, and reflect what it is truly like 
to be an enrollee trying to schedule an appointment, which is a 
perspective not usually provided by, for example, time and distance 
measures or provider-to-enrollee ratios. Many States and managed care 
plans currently use some type of survey to monitor access; however, we 
believe there should be some consistency to their use for Medicaid 
managed care programs to enable comparability.
    To ensure consistency, we propose a new Sec.  438.68(f), and 
propose to require that States use independent entities to conduct 
annual secret shopper surveys of managed care plan compliance with 
appointment wait time standards proposed at Sec.  438.68(e) and the 
accuracy of certain data in all managed care plans' electronic provider 
directories required at Sec.  438.10(h)(1). These proposed changes 
apply equally to separate CHIPs through existing cross-references at 
Sec. Sec.  457.1218 and 457.1207. We believe that the entity that 
conducts these surveys must be independent of the State Medicaid or 
CHIP agency and its managed care plans subject to the survey to ensure 
unbiased results. Therefore, at Sec.  438.68(f)(3)(i), we propose to 
consider an entity to be independent of the State if it is not part of 
the State Medicaid agency and, at Sec.  438.68(f)(3)(ii), to consider 
an entity independent of a managed care plan subject to a secret 
shopper survey if the entity is not an MCO, PIHP, or PAHP; is not owned 
or controlled by any of the MCOs, PIHPs, or PAHPs subject to the 
surveys; and does not own or control any of the MCOs, PIHPs, or PAHPs 
subject to the surveys. Given the valuable data the proposed secret 
shopper surveys could provide States, we believe requiring the use of 
an independent entity to conduct the surveys would be critical to 
ensure unbiased results.
    We also propose to require States to use secret shopper surveys to 
determine the accuracy of certain provider directory information in 
MCOs', PIHPs', and PAHPs' most current electronic provider directories 
at Sec.  438.68(f)(1)(i). Since we believe that paper directory usage 
is dwindling due to the ever-increasing use of electronic devices and 
because electronic directory files are usually used to produce paper 
directories, we are not requiring secret shopper validation of paper 
directories. Rather, we propose in Sec.  438.68(f)(1)(i)(A) through (C) 
to require surveys of electronic provider directory data for primary 
care providers, OB/GYN providers, and outpatient mental health and 
substance use disorder providers, if they are included in the managed 
care plan's provider directories. We are proposing these provider types 
because they are the provider types with the highest utilization in 
many Medicaid managed care programs.
    To ensure that a secret shopper survey can be used to validate 
directory data for every managed care plan, we propose in Sec.  
438.68(f)(1)(i)(D) to require secret shopper surveys for provider 
directory data for the provider type selected by the State for its 
appointment wait time standards in Sec.  438.68(e)(1)(iv). We recognize 
that the State-chosen provider type may vary across managed care plan 
types and thus, States may have to select multiple provider types to 
accommodate all of their managed care programs. For example, a State 
may select a provider type from their MCOs' directories that is not a 
provider type included in their mental health PIHP's directories; just 
as the State may select a provider type from their behavioral health 
PIHPs' directories that is not a provider type included in their dental 
PAHPs' directories. We note that the State-chosen provider type cannot 
vary among plans of the same type within the same managed care program. 
Although this degree of variation between States would limit 
comparability, we believe that the value of validating provider 
directory data outweighs this limitation and that having results for 
provider types that would be important to State specific access issues 
would be a rich source of data for States to evaluate managed care plan 
performance and require the impacted plan to implement timely 
remediation, if needed.
    At Sec.  438.68(f)(1)(ii)(A) through (D), we propose to require 
that States use

[[Page 28102]]

independent entities to conduct annual secret shopper surveys to verify 
the accuracy of four pieces of data in each MCO, PIHP, or PAHP 
electronic provider directory required at Sec.  438.10(h)(1): the 
active network status with the MCO, PIHP, or PAHP; the street address 
as required at Sec.  438.10(h)(1)(ii); the telephone number as required 
at Sec.  438.10(h)(1)(iii); and whether the provider is accepting new 
enrollees as required at Sec.  438.10(h)(1)(vi). We believe these are 
the most critical pieces of information that enrollees rely on when 
seeking network provider information. Inaccuracies in this information 
can have a tremendously detrimental effect on enrollees' ability to 
access care since finding providers that are not in the managed care 
plan's network, have inaccurate addresses and phone numbers, or finding 
providers that are not accepting new patients listed in a plan's 
directory can delay their ability to contact a network provider and 
ultimately, receive care.
    To maximize the value of using secret shopper surveys to validate 
provider directory data, identified errors must be corrected as quickly 
as possible. Therefore, at Sec.  438.68(f)(1)(iii) and (iv) 
respectively, we propose that States must receive information on all 
provider directory data errors identified in secret shopper surveys no 
later than 3 business days from identification by the entity conducting 
the secret shopper survey and that States must then send that data to 
the applicable managed care plan within 3 business days of receipt. We 
also propose in Sec.  438.68(f)(1)(iii) that the information sent to 
the State must be ``sufficient to facilitate correction'' to ensure 
that enough detail is provided to enable the managed care plans to 
quickly investigate the accuracy of the data and make necessary 
corrections. We note that States could delegate the function of 
forwarding the information to the managed care plans to the entity 
conducting the secret shopper surveys so that the State and managed 
care plans receive the information at the same time. This would hasten 
plans' receipt of the information as well as alleviate State burden. To 
ensure that managed care plans use the data to update their electronic 
directories, we propose at Sec.  438.10(h)(3)(iii) to require MCOs, 
PIHPs, and PAHPs to use the information from secret shopper surveys 
required at Sec.  438.68(f)(1) to obtain corrected information and 
update provider directories no later than the timeframes specified in 
Sec.  438.10(h)(3)(i) and (ii), and included in separate CHIP 
regulations through an existing cross-reference at Sec.  457.1207. 
While updating provider directory data after it has been counted as an 
error in secret shopper survey results would not change a managed care 
plan's compliance rate, it would improve provider directory accuracy 
more quickly and thus, improve access to care for enrollees.
    To implement section 5123 of the Consolidated Appropriations Act of 
2023,\26\ we propose to revise Sec.  438.10(h)(1) by adding 
``searchable'' before ``electronic form'' to require that managed care 
plan electronic provider directories be searchable. We also propose to 
add paragraph (ix) to Sec.  438.10(h)(1) to require that managed care 
plan provider directories include information on whether each provider 
offers covered services via telehealth. These proposals would align the 
text in Sec.  438.10(h) with section 1932(a)(5) of the Act, as amended 
by section 5123 of the Consolidated Appropriations Act of 2023. Section 
5123 of the Consolidated Appropriations Act of 2023 specifies that the 
amendments to section 1932(a)(5) of the Act will take effect on July 1, 
2025; therefore, we propose that States would have to comply with the 
revisions to Sec.  438.10(h)(1) and new (h)(1)(ix) by July 1, 2025.
---------------------------------------------------------------------------

    \26\ BILLS-117hr2617enr.pdf (congress.gov).
---------------------------------------------------------------------------

    Our proposals for a secret shopper survey of provider directory 
data proposed at Sec.  438.68(f)(1) are authorized by section 
1932(a)(5)(B)(i) of the Act for Medicaid and through section 2103(f)(3) 
of the Act for CHIP, which require each Medicaid MCO to make available 
the identity, locations, qualifications, and availability of health 
care providers that participate in their network. The authority for our 
proposals is extended to PIHPs and PAHPs through regulations based on 
our authority under section 1902(a)(4) of the Act. We propose that 
secret shopper surveys include verification of certain providers' 
active network status, street address, telephone number, and whether 
the provider is accepting new enrollees; these directory elements 
reflect the identity, location, and availability, as required for 
Medicaid in section 1932(a)(5)(B)(i) of the Act and required for CHIP 
through section 2103(f)(3) of the Act. Although the statute does not 
explicitly include ``accurate'' to describe ``the identity, locations, 
qualifications, and availability of health care providers,'' we believe 
it is the intent of the text and therefore, utilizing secret shopper 
surveys to identify errors in provider directories would help managed 
care plans ensure the accuracy of the information in their directories. 
Further, our proposal at Sec.  438.10(h)(3)(iii) for managed care plans 
to use the data from secret shopper surveys to make timely corrections 
to their directories would also be consistent with statutory intent to 
reflect accurate identity, locations, qualifications, and availability 
information. Secret shopper survey results would provide vital 
information to help managed care plans fulfill their obligations to 
make the identity, locations, qualifications, and availability of 
health care providers that participate in the network available to 
enrollees and potential enrollees.
    We believe using secret shopper surveys could also be a valuable 
tool to help States meet their enforcement obligations of appointment 
wait time standards, required in Sec.  438.68(e). Secret shopper 
surveys are perhaps the most commonly used tool to assess health care 
appointment availability and can produce unbiased, actionable results. 
At Sec.  438.68(f)(2), we propose to require States to determine each 
MCO's, PIHP's, and PAHP's rate of network compliance with the 
appointment wait time standards proposed in Sec.  438.68(e)(1). We also 
propose in Sec.  438.68(f)(2)(i) that, after consulting with States and 
other interested parties and providing public notice and opportunity to 
comment, we may select additional provider types to be added to secret 
shopper surveys of appointment wait time standards. We believe that 
after reviewing States' assurances of compliance and accompanying 
analyses of secret shopper survey results as proposed at Sec.  
438.207(d), and through an existing cross-reference at Sec.  
457.1230(b) for separate CHIP, we may propose additional provider types 
be subject to secret shopper surveys in future rulemaking.
    In section I.B.1.b. of this proposed rule, we explained that States 
need to balance the use of telehealth with the availability of 
providers that can provide in-person care and enrollees' preferences 
for receiving care to ensure that they establish network adequacy 
standards under Sec.  438.68(e) that accurately reflect the practical 
use of telehealth and in-person appointments in their State. To ensure 
that States reflect this, in Sec.  438.68(f)(2)(ii), we propose that 
appointments offered via telehealth only be counted towards compliance 
with appointment wait time standards if the provider also offers in-
person appointments and that telehealth visits offered during the 
secret shopper survey be separately identified in the survey results. 
We believe it would be appropriate to prohibit managed care plans from 
meeting appointment wait time standards with telehealth

[[Page 28103]]

appointments alone and by separately identifying telehealth visits in 
the results because this would help States determine if the type of 
appointments being offered by providers is consistent with expectations 
and enrollees' needs. We note that this proposal is consistent with the 
requirement for QHPs beginning in 2024.\27\ Managed care encounter data 
in Transformed Medicaid Statistical Information system (T-MSIS) 
reflects that most care is still provided in-person and that use of 
telehealth has quickly returned to near pre-pandemic levels. We believe 
by explicitly proposing to limit the counting of telehealth visits to 
meet appointment wait time standards, as well as the segregation of 
telehealth and in-person appointment data, secret shopper survey 
results would produce a more accurate reflection of what enrollees 
actually experience when attempting to access care. We considered 
aligning appointment wait times and telehealth visits with the process 
used by MA for demonstrating overall network adequacy, which permits MA 
organizations to receive a 10-percentage point credit towards the 
percentage of beneficiaries residing within published time and distance 
standards for the applicable provider specialty type and county when 
the plan includes one or more telehealth providers that provide 
additional telehealth benefits. However, we believe our proposal would 
provide States and CMS with more definitive data to assess the use of 
telehealth and enrollee preferences and would be the more appropriate 
method to use at this time. We request comment on this proposal.
---------------------------------------------------------------------------

    \27\ https://www.cms.gov/sites/default/files/2022-04/Final-2023-Letter-to-Issuers_0.pdf.
---------------------------------------------------------------------------

    Our proposal for secret shopper surveys of plans' compliance with 
appointment wait time standards proposed at Sec.  438.68(f)(2) is 
authorized by section 1932(b)(5) of the Act for Medicaid and through 
section 2103(f)(3) of the Act for CHIP, because secret shopper surveys 
could provide unbiased, credible, and representative data on how often 
network providers are offering routine appointments within the State's 
appointment wait time standards. This data should aid managed care 
plans as they assess their networks, pursuant to Sec.  438.207(b), and 
provide an assurance to States that their networks have the capacity to 
serve the expected enrollment in their service area. States should find 
the results of the secret shopper surveys a rich source of information 
to assess compliance with the components of their quality strategy that 
address access to care and determine whether covered services are 
available within reasonable timeframes, as required in section 
1932(c)(1)(A)(i) of the Act for Medicaid and section 2103(f)(3) of the 
Act for CHIP.
    It is critical that secret shopper survey results be obtained in an 
unbiased manner using professional techniques that ensure objectivity. 
To reflect this, we propose at Sec.  438.68(f)(3) that any entity that 
conducts secret shopper surveys must be independent of the State 
Medicaid agency and its managed care plans subject to a secret shopper 
survey. In Sec.  438.68(f)(3)(i) and (ii), we propose the criteria for 
an entity to be considered independent: Section 438.68(f)(3)(i) 
proposes that an entity cannot be a part of any State governmental 
agency to be independent of a State Medicaid agency and Sec.  
438.68(f)(3)(ii) proposes that to be independent of the managed care 
plans subject to the survey, an entity would not be an MCO, PIHP, or 
PAHP, would not be owned or controlled by any of the MCOs, PIHPs, or 
PAHPs subject to the surveys, and would not own or control any of the 
MCOs, PIHPs, or PAHPs subject to the surveys. We propose to define 
``independent'' by using criteria that is similar, but not as 
restrictive, as the criteria used for independence of enrollment 
brokers and specified at Sec.  438.810(b)(1). We believe this 
consistency in criteria would make it easier for States to evaluate the 
suitability of potential survey entities. We remind States that the 
optional EQR activity at Sec.  438.358(c)(5) could be used to conduct 
the secret shopper surveys proposed at Sec.  438.68(f) and for secret 
shopper surveys conducted for MCOs, States may be able to receive 
enhanced Federal financial participation (FFP), pursuant to Sec.  
438.370.
    Secret shopper surveys can be conducted in many ways, using varying 
levels of complexity and gathering a wide range of information. We want 
to give States flexibility to design their secret shopper surveys to 
produce results that not only validate managed care plans' compliance 
with provider directory data accuracy as proposed at Sec.  438.68(f)(1) 
and appointment wait time standards at Sec.  438.68(f)(2), but also 
provide States the opportunity to collect other information that would 
assist them in their program monitoring activities and help them 
achieve programmatic goals. To provide this flexibility, we are 
proposing a limited number of methodological standards for the required 
secret shopper surveys. In Sec.  438.68(f)(4), we propose that secret 
shopper surveys would have to be completed for a statistically valid 
sample of providers and: (1) use a random sample; and (2) include all 
areas of the State covered by the MCO's, PIHP's, or PAHP's contract. We 
believe these would be the most basic standards that all secret shopper 
surveys would have to meet to produce useful results that enable 
comparability between plans and among States. We propose in Sec.  
438.68(f)(4)(iii) that secret shopper surveys to determine plan 
compliance with appointment wait time standards would have to be 
completed for a statistically valid sample of providers to be clear 
that a secret shopper surveys must be administered to the number 
providers identified as statistically valid for each plan. To ensure 
consistency, equity, and context to the final compliance rate for each 
plan, we believe it would be important that inaccurate provider 
directory data not reduce the number of surveys administered. 
Therefore, as a practical matter, if the initial data provided by a 
State to the entity performing the survey does not permit surveys to be 
completed for a statistically valid sample, the State would need to 
provide additional data to enable completion of the survey for an 
entire statistically valid sample. We do not believe this provision 
would need to apply to secret shopper surveys of provider directory 
data proposed in paragraph (f)(1) since the identification of incorrect 
directory data is the intent of those surveys and should be reflected 
in a plan's compliance rate.
    Because we believe secret shopper survey results can produce 
valuable data for States, managed care plans, enrollees and other 
interested parties, we propose at Sec.  438.68(f)(5), that the results 
of these surveys would be reported to CMS and posted on the State's 
website. Specifically, at Sec.  438.68(f)(5)(i), we propose that the 
results of the secret shopper surveys of provider directory data 
validation at Sec.  438.68(f)(1) and appointment wait time standards at 
Sec.  438.68(f)(2) would be reported to CMS annually using the content, 
form, and submission times proposed in Sec.  438.207(d). At Sec.  
438.68(f)(5)(ii), we propose that States post the results on the 
State's website required at Sec.  438.10(c)(3) within 30 calendar days 
of the State submitting them to CMS. We believe using the existing 
report required at Sec.  438.207(d) would lessen burden on States, 
particularly since we published the Network Adequacy and Access 
Assurances Report template \28\ in July 2022 and are also developing an 
electronic reporting portal to facilitate States' submissions. We 
anticipate

[[Page 28104]]

revising the data fields in the Network Adequacy and Access Assurances 
Report \29\ to include specific fields for secret shopper results, 
including the provider type chosen by the State as required in Sec.  
438.68(e)(1)(iv) and (f)(1)(i)(D). This proposal is authorized by 
section 1902(a)(6) of the Act which requires that States provide 
reports, in such form and containing such information, as the Secretary 
may from time to time require.
---------------------------------------------------------------------------

    \28\ https://www.medicaid.gov/medicaid/managed-care/downloads/network-assurances-template.xlsx.
    \29\ https://www.medicaid.gov/medicaid/managed-care/guidance/
medicaid-and-chip-managed-care-reporting/
index.html#NETWORK:~:text=Report.%20%C2%A0The%20current-
,excel%20template,-(XLSX%2C%20218.99%20KB.
---------------------------------------------------------------------------

    We recognize that implementing secret shopper surveys would be a 
significant undertaking, especially for States not already using them; 
but we believe that the data produced by successful implementation of 
them would be a valuable addition to States' and CMS' oversight 
efforts. As always, technical assistance would be available to help 
States effectively implement and utilize secret shopper surveys. We 
invite comment on the type of technical assistance that would be most 
useful for States as well as States' best practices and lessons learned 
from using secret shopper surveys.
    We also propose that States would have to comply with Sec.  
438.68(f) no later than the first MCO, PIHP, or PAHP rating period that 
begins on or after 4 years after the effective date of the final rule.
d. Assurances of Adequate Capacity and Services--Provider Payment 
Analysis (Sec. Sec.  438.207(b), 457.1230(b))
    We believe there needs to be greater transparency in Medicaid and 
CHIP provider payment rates in order for States and CMS to monitor and 
mitigate payment-related access barriers. There is considerable 
evidence that Medicaid payment rates, on average, are lower than 
Medicare and commercial rates for the same services and that provider 
payment influences access, with low rates of payment limiting the 
network of providers willing to accept Medicaid patients, capacity of 
those providers who do participate in Medicaid, and investments in 
emerging technology among providers that serve large numbers of 
Medicaid beneficiaries. However, there is no standardized, 
comprehensive, cross-State comparative data source available to assess 
Medicaid and CHIP payment rates across clinical specialties, health 
plans, and States. Given that a critical component of building a 
managed care plan network is payment, low payment rates can harm access 
to care for Medicaid and CHIP enrollees in a number of ways. Evidence 
suggests that low Medicaid physician fees limit physicians' 
participation in the program, particularly for behavioral health and 
primary care providers.30 31 Relatedly, researchers have 
found that increases in the Medicaid payment rates are directly 
associated with increases in provider acceptance of new Medicaid 
patients. In short, two key drivers of access--provider network size 
and capacity--are inextricably linked with Medicaid provider payment 
levels and acceptance of new Medicaid patients.32 33 While 
many factors affect provider participation, given the important role 
rates play in assuring access, greater transparency is needed to 
understand when and to what extent provider payment may influence 
access in State Medicaid and CHIP programs to specific provider types 
or for Medicaid and CHIP beneficiaries enrolled in specific plans.
---------------------------------------------------------------------------

    \30\ Holgash K, Heberlein M. Physician acceptance of new 
Medicaid patients. Washington (DC): Medicaid and CHIP Payment and 
Access Commission; 2019 Jan 24. Available from https://www.macpac.gov/wp-content/uploads/2019/01/Physician-Acceptance-of-New-Medicaid-Patients.pdf.
    \31\ Zuckerman S, Skopec L, and Aarons J. Medicaid Physician 
Fees Remained Substantially Below Fees Paid by Medicare in 2019. 
Health Aff (Millwood). 2021;40(2). doi:10.1377/hlthaff.2020.00611.
    \32\ National Bureau of Economic Research, ``Increased Medicaid 
Reimbursement Rates Expand Access to Care,'' October 2019, available 
at https://www.nber.org/bh-20193/increased-medicaid-reimbursement-rates-expand-access-care.
    \33\ Zuckerman S, Skopec L, and Aarons J. Medicaid Physician 
Fees Remained Substantially Below Fees Paid by Medicare in 2019. 
Health Aff (Millwood). 2021;40(2). doi:10.1377/hlthaff.2020.00611.
---------------------------------------------------------------------------

    We also believe that greater transparency and oversight is 
warranted as managed care payments have grown significantly as a share 
of total Medicaid payments; in FY 2021, the Federal government spent 
nearly $250 billion on payments to managed care plans.\34\ With this 
growth, we seek to develop, use, and facilitate State use of data to 
generate insights into important, provider rate related indicators of 
access. Unlike fee-for-service (FFS) Medicaid and CHIP programs, 
managed care plans generally have the ability to negotiate unique 
reimbursment rates for individual providers. Generally, unless imposed 
by States through a State directed payment or mandated by statute (such 
as Federally qualified health centers payment requirements established 
under section 1902(bb) of the Act), there are no Federal regulatory or 
statutory minimum or maximum limits on the payment rates a managed care 
plan can negotiate with a network provider. As such, there can be 
tremendous variation among plans' payment rates, and we often do not 
have sufficient visibility into those rates to perform analyses that 
would promote a better understanding of how these rates are impacting 
access. Section 438.242(c)(3) for Medicaid, and through cross-reference 
at Sec.  457.1233(d) for separate CHIP, requires managed care plans to 
submit to the State all enrollee encounter data, including allowed 
amounts and paid amounts, that the State is required to report to CMS. 
States are then required to submit those data to T-MSIS as required in 
Sec.  438.818 for Medicaid, and through cross-reference at Sec.  
457.1233(d) for separate CHIP. However, variation in the quantity and 
quality of T-MSIS data, particularly for data on paid amounts, remains. 
We believe that provider payment rates in managed care are inextricably 
linked with provider network sufficiency and capacity and seek to 
propose a process through which managed care plans must report, and 
States must review and analyze, managed care payment rates to providers 
as a component of States' responsibility to ensure network adequacy and 
enrollee access consistent with State and Federal standards. Linking 
payment levels to quality of care is consistent with a strategy that we 
endorsed in our August 22, 2022 CIB \35\ urging States to link Medicaid 
payments to quality measures to improve the safety and quality of care.
---------------------------------------------------------------------------

    \34\ Congressional Budget Office, ``Baseline Projections--
Medicaid,'' May 2022, available at https://www.cbo.gov/system/files/2022-05/51301-2022-05-medicaid.pdf.
    \35\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib08222022.pdf.
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    To ensure comparability in managed care plans' payment analyses, we 
propose to require a payment analysis that managed care plans would 
submit to States per Sec.  438.207(b)(3) and States would review and 
include in the assurance and analysis to CMS per Sec.  438.207(d). 
Specifically, we propose to replace the periods at the end of Sec.  
438.207(b)(1) and (2) with semi-colons and add ``and'' after Sec.  
438.207(b)(2) to make clear that (b)(1) through (3) would all be 
required for Medicaid managed care, and for separate CHIP through an 
existing cross-reference at Sec.  457.1230(b).
    At Sec.  438.207(b)(3) for Medicaid, and for separate CHIP through 
an existing cross-reference at Sec.  457.1230(b), we propose to require 
that MCOs, PIHPs, and PAHPs submit annual documentation to the State 
that demonstrates a payment analysis showing their level of payment for 
certain services, if covered by the managed care plan's contract. We

[[Page 28105]]

propose that the analysis would use paid claims data from the immediate 
prior rating period to ensure that all payments are captured, including 
those that are negotiated differently than a plan's usual fee schedule. 
We also believe it is important to use claims data to ensure that 
utilization would be considered to prevent extremely high or low 
payments from inappropriately skewing the results. We acknowledge that 
paid claims data would likely not be complete within 180 days of the 
end of a rating period, which is when this analyis is proposed to be 
reported by the State in Sec.  438.207(d)(3)(ii). However, we believe 
that the data would be sufficiently robust to produce a reasonable 
percentage that reflects an appropriate weighting to each payment based 
on actual utilization and could be provided to the State far enough in 
advance of the State submitting its reporting to CMS to be 
incorporated. We believe this analysis of payments would provide States 
and CMS with vital information to assess the adequacy of payments to 
providers in managed care programs, particularly when network 
deficiencies or quality of care issues are identified or grievances are 
filed by enrollees regarding access or quality.
    In Sec.  438.207(b)(3)(i) for Medicaid, and for separate CHIP 
through an existing cross-reference at Sec.  457.1230(b), we propose to 
require that each MCO, PIHP, and PAHP would use paid claims data from 
the immediate prior rating period to determine the total amount paid 
for evaluation and management current procedural terminology (CPT) 
codes for primary care, OB/GYN, mental health, and SUD services. Due to 
the unique payment requirements in section 1902(bb) of the Act for 
Federally qualified health centers and rural health clinics, we propose 
in Sec.  438.207(b)(3)(iv) to exclude these provider types from the 
analysis. We further propose that this analysis provide the percentage 
that results from dividing the total amount the managed care plan paid 
by the published Medicare payment rate for the same codes on the same 
claims. Meaning, the payment analysis would reflect the comparison of 
how much the managed care plan paid for the evaluation and managment 
CPT codes to the published Medicare payment rates including claim-
specific factors such as provider type, geographic location where the 
service was rendered, and the site of service. In Sec.  
438.207(b)(3)(i)(A) for Medicaid, and for separate CHIP through an 
existing cross-reference at Sec.  457.1230(b), we also propose that the 
plans would include in the analysis separate total amounts paid and 
separate comparison percentages to Medicare for primary care, OB/GYN, 
mental health, and substance use disorder services for ease of analysis 
and clarity. Lastly in Sec.  438.207(b)(3)(i)(B) for Medicaid, and for 
separate CHIP through an existing cross-reference at Sec.  457.1230(b), 
we propose that the percentages would have to be reported separately if 
they differ between adult and pediatric services. We believe the 
proposals in Sec.  438.207(b)(3)(i)(A) and (B) would ensure sufficient 
detail in the data to enable more granular analysis across plans and 
States as well as to prevent some data from obscuring issues with other 
data. For example, if payments for adult primary care are significantly 
lower than pediatric primary care, providing separate totals and 
comparison percentages would prevent the pediatric data from 
artificially inflating the adult totals and percentages. We believe 
this level of detail would be necessary to prevent misinterpretation of 
the data.
    We propose in Sec.  438.207(b)(3)(ii) for Medicaid, and for 
separate CHIP through an existing cross-reference at Sec.  457.1230(b), 
to require that the payment analysis provide the total amount paid for 
homemaker services, home health aide services, and personal care 
services and the percentage that results from dividing the total amount 
paid by the amount the State's Medicaid or CHIP FFS program would have 
paid for the same claims. We propose two differences between this 
analysis and the analysis in Sec.  438.207(b)(3)(i): first, this 
analysis would use all codes for the services as there are no 
evaluation and management CPT codes for these LTSS; and second, we 
propose the comparison be to Medicaid or CHIP FFS payment rates, as 
applicable, due to the lack of comparable Medicare rates for these 
services. We propose these three services as we believe these have high 
impact to help keep enrollees safely in the community and avoid 
institutionalization. Again, we believe this analysis of payment rates 
would be important to provide States and CMS with information to assess 
the adequacy of payments to providers in managed care programs, 
particularly when enrollees have grievances with services approved in 
their care plans not being delivered or not delivered in the authorized 
quantity. We request comment on whether in-home habilitation provided 
to enrollees with IDD should be added to this analysis.
    We believe that managed care plans could perform the analyses in 
Sec.  438.207(b)(3)(i) and (ii) by: (1) Identifying paid claims in the 
prior rating period for each required service type; (2) identifying the 
appropriate codes and aggregating the payment amounts for the required 
service types; and (3) calculating the total amount that would be paid 
for the same codes on the claims at 100 percent of the appropriate 
published Medicare rate, or Medicaid/CHIP FFS rate for the analysis in 
Sec.  438.207(b)(3)(ii), applicable on the date of service. For the 
aggregate percentage, divide the total amount paid (from 2. above) by 
the amount for the same claims at 100 percent of the appropriate 
published Medicare rate or Medicaid/CHIP FFS, as appropriate (from 3. 
above). We believe this analysis would require a manageable number of 
calculations using data readily available to managed care plans.
    To ensure that the payment analysis proposed in paragraph (b)(3) is 
appropriate and meaningful, we propose at Sec.  438.207(b)(3)(iii) for 
Medicaid, and for separate CHIP through an existing cross-reference at 
Sec.  457.1230(b), to exclude payments for claims for the services in 
(b)(3)(i) for which the managed care plan is not the primary payer. A 
comparison to payment for cost sharing only or payment for a claim for 
which another payer paid a portion would provide little, if any, useful 
information.
    The payment analysis proposed at Sec.  438.207(b)(3) is authorized 
by sections 1932(c)(1)(A)(ii) and 2103(f)(3) of the Act, which requires 
States' quality strategies to include an examination of other aspects 
of care and service directly related to the improvement of quality of 
care. The authority for our proposals is extended to PIHPs and PAHPs 
through regulations based on our authority under section 1902(a)(4) of 
the Act. Because the proposed payment analysis would generate data on 
each managed care plan's payment levels for certain provider types as a 
percent of Medicare or Medicaid FFS rates, States could use the 
analysis in their examination of other aspects of care and service 
directly related to the improvement of quality of care, particularly 
access. Further, sections 1932(c)(1)(A)(iii) and 2103(f)(3) of the Act 
authorizes the proposals in this section as enabling States to compare 
payment data among managed care plans in their program could provide 
useful data to fulfill their obligations for monitoring and evaluating 
quality and appropriateness of care.
    We also propose to revise Sec.  438.207(f) to reflect that States 
would have to comply with Sec.  438.207(b)(3) no later than the first 
rating period that begins on or after 2 years after the effective date

[[Page 28106]]

of the final rule as we believe this is a reasonable timeframe for 
compliance.
e. Assurances of Adequate Capacity and Services Reporting (Sec. Sec.  
438.207(d), 457.1230(b))
    Currently at Sec.  438.207(d), States are required to review the 
documentation submitted by their managed care plans, as required at 
Sec.  438.207(b), and then submit to CMS an assurance of their managed 
care plans' compliance with Sec. Sec.  438.68 and 438.206. To make 
States' assurances and analyses more comprehensive, we propose to 
revise Sec.  438.207(d) to explicitly require States to include the 
results from the secret shopper surveys proposed in Sec.  438.68(f) 
(see section I.B.1.c. of this proposed rule) and included in separate 
CHIP regulations through an existing cross-reference at Sec.  
457.1230(b). We also propose to require States to include the payment 
analysis proposed in Sec.  438.207(b)(3) (see section I.B.1.d. of this 
proposed rule) to their assurance and analyses reporting. Additionally, 
on July 6, 2022, we published a CIB \36\ that provided a reporting 
template Network Adequacy and Access Assurances Report \37\ for the 
reporting required at Sec.  438.207(d). To be clear that States would 
have to use the published template, we propose to explicitly require 
that States submit their assurance of compliance and analyses required 
in Sec.  438.207(d) in the ``format prescribed by CMS.'' The published 
template would fulfill this requirement as would future versions 
including any potential electronic formats. We believe the revision 
proposed in Sec.  438.207(d) would be necessary to ensure consistent 
reporting to CMS and enable effective analysis and oversight. Lastly, 
because we propose new requirements related to the inclusion of the 
payment analysis and the timing of the submission of this reporting to 
CMS, we propose to redesignate the last sentence in Sec.  438.207(d) as 
Sec.  438.207(d)(1) and create a new Sec.  438.207(d)(2) and (3).
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    \36\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib07062022.pdf.
    \37\ https://www.medicaid.gov/medicaid/managed-care/downloads/network-assurances-template.xlsx.
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    In Sec.  438.207(d)(2) for Medicaid and included in separate CHIP 
regulations through an existing cross-reference at Sec.  457.1230(b), 
we propose that the States' analysis required in Sec.  438.207(d)(1) 
must include the payment analysis required of plans in Sec.  
438.207(b)(3) and provide the elements specified in paragraphs 
(d)(2)(i) and (ii). Specifically, Sec.  438.207(d)(2)(i) proposes to 
require States to include the data submitted by each plan and Sec.  
438.207(d)(2)(ii) proposes to require States to use the data from its 
plans' reported payment analysis percentages and weight them using the 
member months associated with the applicable rating period to produce a 
Statewide payment percentage for each service type. We believe these 
data elements would provide valuable new data to support States' 
assurances of network adequacy and access and we would revise the 
Network Adequacy and Access Assurances Report template published in 
July 2022 to add fields for States to easily report these data. We 
remind States that Sec.  438.66(a) and (b) require States to have a 
monitoring system for all of their managed care programs and include 
all aspects, including the performance of their managed care plans in 
the areas of availability and accessibility of services, medical 
management, provider network management, and appeals and grievances. 
Accordingly, States should have ample data from their existing 
monitoring activities and which would be supplemented by the proposal 
requirements in this rule, to improve the performance of their managed 
care programs for all covered services, as required in Sec.  438.66(c). 
Because concerns around access to primary care, mental health, and SUD 
services have been raised nationally, we expect States to review and 
analyze their plans' data holistically to provide a robust, 
comprehensive analysis of the adequacy of each plan's network and level 
of realistic access and take timely action to address deficiencies.
    Section 438.207(d) was codified in 2002 (67 FR 41010) as part of 
the implementing regulations for section 1932(b)(5) of the Act 
``Demonstration of Adequate Capacity and Services.'' In the 2016 final 
rule, we made minor revisions to the language but did not address the 
timing of States' submission of their assurance and analysis. Given the 
July 2022 release of the Network Adequacy and Access Assurances Report 
template for the assurance and analysis, we believe it would be 
appropriate to clarify this important aspect of the reporting 
requirement. To simplify the submission process and enable States and 
CMS to allot resources most efficiently, we propose to establish 
submission times in Sec.  438.207(d)(3)(i) through (iii) that 
correspond to the times for managed care plans to submit documentation 
to the State in Sec.  438.207(c)(1) through (3). Specifically for 
Medicaid, we propose that States submit their assurance and analysis at 
Sec.  438.207(d)(3): (1) at the time it submits a completed readiness 
review, as specified at Sec.  438.66(d)(1)(iii); (2) on an annual basis 
and no later than 180 calendar days after the end of each contract 
year; and (3) any time there has been a significant change as specified 
in Sec.  438.207(c)(3) and with the submission of the associated 
contract. We also propose in Sec.  438.207(d)(3) that States must post 
the report required in Sec.  438.207(d) on their website within 30 
calendar days of submission to CMS. We believe the information in this 
report would be important information for interested parties to have 
access to on a timely basis and 30 calendar days seems adequate for 
States to post the report after submitting.
    Since we did not adopt the MCPAR requirements for separate CHIP 
managed care in the 2016 final rule, we are also not adopting the 
proposed submission timeframe at Sec.  438.207(d)(3)(i). However, we 
propose for separate CHIPs to align with Medicaid for the proposed 
network adequacy analysis submission timeframes at Sec.  
438.207(d)(3)(ii) and (iii) through the existing cross-reference at 
Sec.  457.1230(b).
    In Sec.  438.207(e), we propose a conforming revision to add a 
reference to the secret shopper evaluations proposed at Sec.  438.68(f) 
as part of the documentation that States must make available to CMS, 
upon request, and included in separate CHIP regulations through an 
existing cross-reference at Sec.  457.1230(b). We believe this would be 
necessary as the current text of Sec.  438.207(e) only addresses the 
documentation provided by the managed care plans.
    Sections 1932(b)(5) and 2103(f)(3) of the Act require Medicaid and 
CHIP MCOs to demonstrate adequate capacity and services by providing 
assurances to the State and CMS, as specified by the Secretary, that it 
has the capacity to serve the expected enrollment in its service area, 
including assurances that it offers an appropriate range of services 
and access to preventive and primary care services for the population 
expected to be enrolled in such service area, and maintains a 
sufficient number, mix, and geographic distribution of providers of 
services. The authority for our proposals is extended to PIHPs and 
PAHPs through regulations based on our authority under section 
1902(a)(4) of the Act. Our proposals to require States to include the 
secret shopper surveys proposed in Sec.  438.68(f) as well as the 
reimbursment analysis proposed in Sec.  438.207(b)(3) to their 
assurance and analyses reporting proposed at Sec.  438.207(d) are 
authorized by section 1932(b)(5) of the Act for Medicaid and

[[Page 28107]]

authorized for CHIP through section 2103(f)(3) of the Act because the 
States' reports reflect the documentation and assurances provided by 
their managed care plans of adequate capacity, an appropriate range of 
services, and access to a sufficient number, mix, and geographic 
distribution of network providers. Sections 1932(b)(5) and 2103(f)(3) 
of the Act also require that the required assurances be submitted to 
CMS in a time and manner determined by the Secretary; that information 
is proposed in Sec.  438.207(d)(3)(i) through (iii) and corresponds to 
the requirements for submission of documenation from managed care plans 
in Sec.  438.207(c)(3).
    We also propose to revise Sec.  438.207(g) to reflect that States 
would have to comply with paragraph (d)(2) no later than the first 
managed care plan rating period that begins on or after 2 years after 
the effective date of the final rule and paragraph (d)(3) no later than 
the first managed care plan rating period that begins on or after 1 
year after the effective date of the final rule. We propose that States 
would not be held out of compliance with the requirements of paragraphs 
(e) of this section prior to the first MCO, PIHP, or PAHP rating period 
that begins on or after 4 years after the effective date of the final 
rule, so long as they comply with the corresponding standard(s) 
codified in paragraph (e) contained in the 42 CFR, parts 430 to 481, 
most recently published before the final rule. We propose that States 
would have to comply with paragraph (f) no later than the first managed 
care plan rating period that begins on or after 4 years after the 
effective date of the final rule. We believe these are reasonable 
timeframes for compliance given the level of new burden imposed by 
each.
f. Remedy Plans To Improve Access (Sec.  438.207(f))
    For FFS programs, we rely on Sec.  447.203(b)(8) to require States 
to submit corrective action plans when access to care issues are 
identified. Because of the numerous proposals in this rule that would 
strengthen States' monitoring and enforcement of access requirements 
and the importance of timely remediation of access issues, we believe 
we should have a similar process set forth in part 438 for managed care 
programs. In Sec.  438.68(e), we propose a process that would require 
States to carefully develop and enforce their managed care plans' use 
of appointment wait time standards to ensure access to care for 
Medicaid managed care enrollees. As proposed in a new Sec.  438.207(f), 
when the State, MCO, PIHP, PAHP, or CMS identifies any access issues, 
including any access issues with the standards specified in Sec. Sec.  
438.68 and 438.206, the State would be required to submit a plan to 
remedy the access issues consistent with this proposal. If we determine 
that an access issue revealed under monitoring and enforcement rises to 
the level of a violation of access requirements under section 
1932(c)(1)(A)(i) of the Act, as incorporated in section 
1903(m)(2)(A)(xii) of the Act, we have the authority to disallow 
Federal financial participation (FFP) for the payments made under the 
State's managed care contract for failure to ensure adequate access to 
care. We intend to closely monitor any State remedy plans that would be 
needed under this proposal to ensure that both us and States would 
adequately and appropriately address emerging access issues in Medicaid 
managed care programs. Using Sec.  447.203(b)(8) as a foundation, we 
propose to redesignate existing Sec.  438.207(f) as Sec.  438.207(g) 
and propose a new requirement for States to submit remedy plans in new 
Sec.  438.207(f), titled Remedy plans to improve access. In Sec.  
438.207(f)(1), we propose that when the State, MCO, PIHP, PAHP, or CMS 
identifies an issue with a managed care plan's performance with regard 
to any State standard for access to care under this part, including the 
standards at Sec. Sec.  438.68 and 438.206, States would follow the 
steps set forth in paragraphs (i) through (iv). First, in paragraph 
(1)(i), States would have to submit to CMS for approval a remedy plan 
no later than 90 calendar days following the date that the State 
becomes aware of an MCO's, PIHP's, or PAHP's access issue. We believe 
90 calendar days would be sufficient time for States to effectively 
assess the degree and impact of the issue and develop an effective set 
of steps including timelines for implementation and completion, as well 
as responsible parties. In Sec.  438.207(f)(1)(ii), we propose that the 
State would have to develop a remedy plan to address the identified 
issue that if addressed could improve access within 12 months and that 
identifies specific steps, timelines for implementation and completion, 
and responsible parties. We believe 12 months would be a reasonable 
amount of time for States and their managed care plans to implement 
actions to address the access issue and improve access to services by 
enrollees of the MCO, PIHP, or PAHP. We do not propose to specify that 
the remedy plan would be implemented by the managed care plans or the 
State; rather, we propose that the remedy plan would identify the 
responsible party required to make the access improvements at issue, 
which would often include actions by both States and their managed care 
plans. Additionally, we believe this proposal acknowledges that certain 
steps that may be needed to address provider shortages can only be 
implemented by States. For example, changing scope of practice laws to 
enable more providers to fill gaps in access or joining interstate 
compacts to enable providers to practice geographically due to the 
opportunity to hold one multistate license valid for practice in all 
compact States, streamlined licensure requirements, reduced expenses 
associated with obtaining multiple single-State licenses, and the 
creation of systems that enable electronic license application 
processes. Lastly, in Sec.  438.207(f)(1)(ii), we propose some 
approaches that States could consider to address the access issue, such 
as increasing payment rates to providers, improving outreach and 
problem resolution to providers, reducing barriers to provider 
credentialing and contracting, providing for improved or expanded use 
of telehealth, and improving the timeliness and accuracy of processes 
such as claim payment and prior authorization.
    We propose in Sec.  438.207(f)(1)(iii) to require States to ensure 
that improvements in access are measurable and sustainable. We believe 
it would be critical that the remedy plan produce measurable results in 
order to monitor progress and, ultimately, bring about the desired 
improvements in access under the managed care plan. We also propose 
that the improvements in access achieved by the actions be sustainable 
so that enrollees would be able to continue receiving the improved 
access to care and managed care plans would continue to ensure its 
provision. In paragraph (f)(1)(iv) of this section, we propose that 
States submit quarterly progress updates to CMS on implementation of 
the remedy plan so that we would be able to determine if the State was 
making reasonable progress toward completion and that the actions in 
the plan are effective. Not properly monitoring progress of the remedy 
plan could significantly lessen the effectiveness of it and allow 
missed opportunities to make timely revisions and corrections.
    Lastly, in paragraph (f)(2) of this section we propose that if the 
remedy plan required in paragraph (f)(1) of this section does not 
address the managed care plan's access issue within 12 months, we may 
require the State to continue to take steps to address the

[[Page 28108]]

issue for another 12 months and may require revision to the remedy 
plan. We believe proposing that we be able to extend the duration of 
actions to improve access and/or require the State to make revision to 
the remedy plan would be critical to ensuring that the State's and 
managed care plans' efforts are effective at addressing the identified 
access issue.
    These proposals are authorized by section 1902(a)(4)(A) of the Act, 
which provides for methods of administration found necessary by the 
Secretary for the proper and efficient operation of the plan as we 
believe States taking timely action to address identified access issues 
is fundamental and necessary to the operation of an effective and 
efficient Medicaid program. The proposal for States to submit quarterly 
progress reports is authorized by section 1902(a)(6) of the Act which 
requires that States provide reports, in such form and containing such 
information, as the Secretary may from time to time require. Lastly, we 
believe these proposals are also authorized by section 1932(c)(1)(A)(i) 
and (iii) of the Act which require States that contract with MCOs to 
develop and implement a quality assessment and improvement strategy 
that includes (and extended to PIHPs and PAHPs through regulations 
based on our authority under section 1902(a)(4) of the Act): standards 
for access to care so that covered services are available within 
reasonable timeframes and in a manner that ensures continuity of care 
and adequate primary care and specialized services capacity and 
procedures for monitoring and evaluating the quality and 
appropriateness of care and services to enrollees and requirements for 
provision of quality assurance data to the State. Implementing timely 
actions to address managed care plan access issues would be an integral 
operational component of a State's quality assessment and improvement 
strategy.
g. Transparency (Sec. Sec.  438.10(c), 438.602(g), 457.1207, 457.1285)
    In the 2016 final rule, we finalized Sec.  438.10(c)(3) for 
Medicaid, which is included in separate CHIP regulations through cross-
reference at Sec.  457.1207, which required States to operate a website 
that provides specific information, either directly or by linking to 
individual MCO, PIHP, PAHP, or PCCM entity websites. A State's website 
may be the single most important resource for information about its 
Medicaid program and there are multiple requirements for information to 
be posted on a State's website throughout 42 CFR part 438. Current 
regulations at Sec.  438.10(c)(6)(ii) require certain information to be 
``prominent and readily accessible'' and Sec.  438.10(a) defines 
``readily accessible'' as ``electronic information and services which 
comply with modern accessibility standards such as section 508 
guidelines, section 504 of the Rehabilitation Act, and W3C's Web 
Content Accessibility Guidelines (WCAG) 2.0 AA and successor 
versions.'' Despite these requirements, we have received input from 
numerous and varied interested parties since the 2016 final rule about 
how challenging it can be to locate regulatorily required information 
on some States' websites.
    There is variation in how ``user-friendly'' States' websites are, 
with some States making navigation on their website fairly easy and 
providing information and links that are readily available and 
presenting required information on one page. However, we have not found 
this to be the case for most States. Some States have the required 
information scattered on multiple pages that requires users to click on 
many links to locate the information they seek. While such websites may 
meet the current minimum standards in part 438, they do not meet our 
intent of providing one place for interested parties to look for all 
required information. Therefore, we believe revisions are necessary to 
ensure that all States' websites required by Sec.  438.10(c)(3) provide 
a consistent and easy user experience. We acknowledge that building 
websites is a complex and costly endeavor that requires consideration 
of many factors, but we believe that States and managed care plans 
share an obligation to build websites that quickly and easily meet the 
needs of interested parties without undue obstacles. We note that State 
and managed care plan websites must be compliant with civil rights 
laws, including the Americans with Disabilities Act (ADA), section 504 
of the Rehabilibation Act, Title VI of the Civil Rights Act of 1964, 
and section 1557 of the Affordable Care Act. In this proposed rule, we 
believe that there are several minimal qualities that all websites 
should include, such as being able to:
     Function quickly and as expected by the user;
     Produce accurate results;
     Use minimal, logical navigation steps;
     Use words and labels that users are familiar with for 
searches;
     Allow access, when possible, without conditions such as 
establishment of a user account or password;
     Provide reasonably comparable performance on computers and 
mobile devices;
     Provide easy access to assistance via chat; and
     Provide multilingual content for individuals with LEP.
    We also believe that States and managed care plans should utilize 
web analytics to track website utilization and inform design changes. 
States should create a dashboard to regularly quantify website traffic, 
reach, engagement, sticking points, and audience characteristics. Given 
the critical role that websites fill in providing necessary and desired 
program information, we believe proposing additional requirements on 
States' websites are appropriate.
    We acknowledge that States and managed care plans may have 
information accessible through their websites that is not public 
facing; for example, enrollee specific protected health information. 
Proper security mechanisms should continue to be utilized to prevent 
unauthorized access to non-public facing information, such as the 
establishment of a user account and password or entry of other 
credentials. Data security must always be a priority for States and 
managed care plans and the proposals in Sec.  438.10(c)(3) in no way 
diminish that obligation for States.
    To increase the effectiveness of States' websites and add some 
consistency to website users' experence, we propose in Sec.  
438.10(c)(3) to revise ``websites'' to ``web pages'' in the reference 
to managed care plans. We propose this change to clarify that if States 
provide required content on their website by linking to individual MCO, 
PIHP, PAHP, or PCCM entity websites, the link on the State's site would 
have to be to the specific page that includes the requested 
information. We believe this would prevent States from showing links to 
a landing page for the managed care plan that then leaves the user to 
start searching for the specific information needed. Next, we propose 
to add ``States must:'' to paragraph (c)(3) before the items specified 
in new (c)(3)(i) through (iv). In Sec.  438.10(c)(3)(i), we propose to 
require that all information, or links to the information, required in 
this part to be posted on the State's website, be available from one 
page. We believe that when website users have to do repeated searches 
or click through multiple pages to find information, they are more 
likely to give up trying to locate it. As such, we have carefully 
chosen the information that is required in 42 CFR part 438 to be posted 
on States' websites to ensure effective

[[Page 28109]]

communication of information and believe it represents an important 
step toward eliminating common obstacles for States' website users.
    At Sec.  438.10(c)(3)(ii), we propose to require that States' 
websites use clear and easy to understand labels on documents and links 
so that users can easily identify the information contained in them. We 
believe that using terminology and the reading grade level consistent 
with that used in other enrollee materials, such as handbooks and 
notices, would make the website more familiar and easy to read for 
enrollees and potential enrollees. Similar to having all information on 
one page, using clear labeling would reduce the likelihood of users 
having to make unncessary clicks as they search for specific 
information.
    In Sec.  438.10(c)(3)(iii), we propose to require that States check 
their websites at least quarterly to verify that they are functioning 
as expected and that the information is the most currently available. 
Malfunctioning websites or broken links can often render a website 
completely ineffective, so monitoring a website's performance and 
content is paramount. While we are proposing that a State's website be 
checked for functionality and information timeliness no less than 
quarterly, we believe this is a minimum standard and that States should 
implement continual monitoring processes to ensure the accuracy of 
their website's performance and content.
    Lastly, in Sec.  438.10(c)(3)(iv), to enable maximum effectiveness 
of States' websites, we propose to require that States' websites 
explain that assistance in accessing the information is available at no 
cost to them, including information on the availability of oral 
interpretation in all languages and written translation in each 
prevalent non-English language, alternate formats, auxiliary aids and 
services, and a toll-free TTY/TDY telephone number. This proposal is 
consistent with existing information requirements in Sec.  438.10(d) 
and section 1557 of the Affordable Care Act. Clear provision of this 
information would help to ensure that all users have access to States' 
websites and can obtain assistance when needed.
    The Medicaid managed care website transparency revisions proposed 
at Sec.  438.10(c)(3)(i) through (iv) would apply to separate CHIP 
through the existing cross-reference at Sec.  457.1207.
    To help States monitor their website for required content, we 
propose to revise Sec.  438.602(g) to contain a more complete list of 
information. While we believe the list proposed in Sec.  438.602(g) 
would help States verify their website's compliance, we clarify that a 
requirement to post materials on a State's website in 42 CFR part 438 
or any other Federal regulation but omitted from Sec.  438.602(g), is 
still in full force and effect. Further, requirements on States to post 
specific information on their websites intentionally remain throughout 
42 CFR part 438 and are not replaced, modified, or superceded by the 
items proposed in Sec.  438.602(g)(5) through (12). Currently Sec.  
438.602(g) specifies four types of information that States must post on 
their websites; we propose to add nine more as (g)(5) through (g)(13): 
(5) enrollee handbooks, provider directories, and formularies required 
at Sec.  438.10(g), (h), and (i); (6) information on rate ranges 
required at Sec.  438.4(c)(2)(iv); (7) reports required at Sec. Sec.  
438.66(e) and 438.207(d); (8) network adequacy standards required at 
Sec.  438.68(b)(1) and (2), and (e); (9) secret shopper survey results 
required at Sec.  438.68(f); (10) State directed payment evaluation 
reports required in Sec.  438.6(c)(2)(v)(C); (11) links to all required 
Application Programming Interfaces including as specified in Sec.  
431.60(d) and (f); (12) quality related information required in 
Sec. Sec.  438.332(c)(1), 438.340(d), 438.362(c) and 438.364(c)(2)(i); 
and (13) documentation of compliance with requirements in subpart K--
Parity in Mental Health and Substance Use Disorder Benefits. Although 
we are proposing to itemize these nine types of information in Sec.  
438.602(g)(5) through (13), we note that all but the following three 
are currently required to be posted on States' websites: the report at 
Sec.  438.207(d), secret shopper survey results at Sec.  438.68(f), and 
State directed payment evaluation reports at Sec.  438.6(c)(2)(v)(C). 
Lastly, in Sec.  438.10(c)(3), we propose to make the list of website 
content more complete by removing the current references to paragraphs 
(g) through (i) only and including a reference to Sec.  438.602(g) and 
``elsewhere in this part.''
    We propose to revise Sec.  438.10(j) to reflect that States would 
have to comply with Sec.  438.10(c)(3) no later than the first managed 
care plan rating period that begins on or after 2 years after the 
effective date of the final rule and that States would have to comply 
with Sec.  438.10(d)(2) no later than the first managed care plan 
rating period that begins on or after 3 years after the effective date 
of the final rule. Lastly, we propose that States must comply with 
Sec.  438.10(h)(3)(iii) no later than the first managed care plan 
rating period that begins on or after 4 years after the effective date 
of the final rule. We believe these proposed compliance dates would 
provide reasonable time for compliance given the varying levels of 
State and managed care plan burden.
    We propose to add Sec.  438.602(j) to require States to comply with 
Sec.  438.602(g)(5) through (13) no later than the first managed care 
plan rating period that begins on or after 2 years after the effective 
date of the final rule. We believe this is a reasonable timeframe for 
compliance.
    For separate CHIP managed care, we currently require States to 
comply with the transparency requirements at Sec.  438.602(g) through 
an existing cross-reference at Sec.  457.1285. We propose to align with 
Medicaid in adopting most of the consolidated requirements for posting 
on a State's website proposed at Sec.  438.602(g)(5) through (13) for 
separate CHIP.
    We propose to adopt the provision at Sec.  438.602(g)(5) (which 
specifies that States must post enrollee handbooks, provider 
directories, and formularies on the State's website) because 
requirements at Sec.  438.10(g) through (i) are currently required for 
separate CHIP through an existing cross-reference at Sec.  457.1207.
    We do not plan to adopt the provision at Sec.  438.602(g)(6) (which 
requires that States must post information on rate ranges on their 
websites) because we do not regularly review rates for separate CHIP.
    We propose to adopt the provision at Sec.  438.602(g)(7) (which 
specifies that States must post their assurances of network adequacy on 
the State's website) since the proposed network adequacy reporting at 
Sec.  438.207(d) would apply to separate CHIP through an existing 
cross-reference at Sec.  457.1230(b) (see section I.B.1.e. of this 
proposed rule). Since we did not adopt the managed care program annual 
reporting requirements at Sec.  438.66(e) for separate CHIP, we propose 
to exclude this reporting requirement at Sec.  457.1230(b).
    We propose to adopt the provision at Sec.  438.602(g)(8) (which 
requires State network adequacy standards to be posted on the State's 
website) for separate CHIP because we propose to adopt the new 
appointment wait time reporting requirements through an existing cross-
reference at Sec.  457.1230(b) (see section I.B.1.e. of this proposed 
rule), though we propose to exclude references to LTSS as not 
applicable to separate CHIP.
    We propose to adopt the provision at Sec.  438.602(g)(9) (which 
specifies that States must post secret shopper survey results on the 
State's website) for separate CHIP network access reporting to align 
with our proposed adoption of

[[Page 28110]]

secret shopper reporting at Sec.  438.68(f) through an existing cross-
reference at Sec.  457.1218 (see section I.B.1.c. of this proposed 
rule).
    We do not propose to adopt the provision at Sec.  438.602(g)(10) 
(which directs States to post SDP evaluation reports on the State's 
website) because State directed payments are not applicable to separate 
CHIP.
    We propose to adopt the provision at Sec.  438.602(g)(11) (which 
specifies that States must post required information for Application 
Programming Interfaces on the State's website) given the existing 
requirements at Sec.  457.1233(d).
    We propose to adopt the provision at Sec.  438.602(g)(12) (which 
requires States to post quality-related information on the State's 
website) for separate CHIP as required through cross-references at 
Sec.  457.1240(c) and (e), as well as the applicable EQR report through 
a cross-reference at Sec.  457.1250(a). However, we propose to exclude 
the reference to Sec.  438.362(c) since MCO EQR exclusion is not 
applicable to separate CHIP.
    We propose to adopt the provision at Sec.  438.602(g)(13) (which 
requires States to post documentation of compliance with parity in 
mental health and substance use disorder benefits on the State's 
website) for separate CHIP through the existing cross-reference at 
Sec.  457.1285. However, we propose to replace the reference to subpart 
K of part 438 with CHIP parity requirements at Sec.  457.496 in 
alignment with contract requirements at Sec.  457.1201(l).
    We propose to amend Sec.  457.1285 to state, the State must comply 
with the program integrity safeguards in accordance with the terms of 
subpart H of part 438 of this chapter, except that the terms of 
Sec. Sec.  438.66(e), 438.362(c), 438.602(g)(6) and (10), 438.604(a)(2) 
and 438.608(d)(4) and references to LTSS of this chapter do not apply 
and that references to subpart K under part 438 should be read to refer 
to parity requirements at Sec.  457.496.
    Our proposals for requirements for States' websites at Sec.  
438.10(c)(3) and the list proposed in Sec.  438.602(g) are authorized 
by sections 1932(a)(5)(A) and 2103(f)(3) of the Act for Medicaid and 
which require each State, enrollment broker, or managed care entity to 
provide all enrollment notices and informational and instructional 
materials in a manner and form which may be easily understood by 
enrollees and potential enrollees. The authority for our proposals is 
extended to PIHPs and PAHPs through regulations based on our authority 
under section 1902(a)(4) of the Act. We believe that our proposals 
would make States' websites easier to use by incorporating easily 
understood labels, having all information accessible from one page, 
verifying the accurate functioning of the site, and clearly explaining 
the availability of assistance--all of which would directly help States 
fulfill their obligation to provide informational materials in a manner 
and form which may be easily understood.
h. Terminology (Sec. Sec.  438.2, 438.3(e), 438.10(h), 438.68(b), 
438.214(b))
    Throughout 42 CFR part 438, we use ``behavioral health'' to mean 
mental health and SUD. However, it is an imprecise term that does not 
capture the full array of conditions that are intended to be included, 
and some in the SUD treatment community have raised concerns with its 
use. It is important to use clear, unambiguous terms in regulatory 
text. Therefore, we propose to change ``behavioral health'' throughout 
42 CFR part 438 as described here. In the definition of PCCM entity at 
Sec.  438.2 and for the provider types that must be included in 
provider directories at Sec.  438.10(h)(2)(iv), we propose to replace 
``behavioral health'' with ``mental health and substance use 
disorder;'' for the provider types for which network adequacy standards 
must be developed in Sec.  438.68(b)(1)(iii), we propose to remove 
``behavioral health'' and the parentheses; and for the provider types 
addressed in credentialing policies at Sec.  438.214(b), we propose to 
replace ``behavioral'' with ``mental health.'' We also propose in the 
definition of PCCM entity at Sec.  438.2 to replace the slash between 
``health systems'' and ``providers'' with ``and'' for grammatical 
accuracy.
    Similarly, we also propose to change ``psychiatric'' to ``mental 
health'' in Sec.  438.3(e)(2)(v) and Sec.  438.6(e). We believe that 
``psychiatric'' does not capture the full array of services that can be 
provided by IMDs.
    These proposals are authorized by section 1902(a)(4)(A) of the Act, 
which provides for methods of administration found necessary by the 
Secretary for the proper and efficient operation of the plan, because 
use of clear, unambiguous terms in regulatory text is imperative for 
proper and efficient operation of the plan.
2. State Directed Payments (42 CFR 438.6, 438.7, 430.3)
a. Background
    Section 1903(m)(2)(A) of the Act requires contracts between States 
and MCOs to provide payment under a risk-based contract for services 
and associated administrative costs that are actuarially sound. CMS has 
historically used our authority under section 1902(a)(4) of the Act to 
apply the same requirements to contracts between States and PIHPs or 
PAHPs. Under risk-based managed care arrangements with the State, 
Medicaid managed care plans have the responsibility to negotiate 
payment rates with providers. Subject to certain exceptions, States are 
generally not permitted to direct the expenditures of a Medicaid 
managed care plan under the contract between the State and the plan or 
to make payments to providers for services covered under the contract 
between the State and the plan (Sec. Sec.  438.6 and 438.60, 
respectively). However, there are circumstances in which a State may 
believe that requiring managed care plans to make specified payments to 
health care providers is an important tool in furthering the State's 
overall Medicaid program goals and objectives; for example, funding to 
ensure certain minimum payments are made to safety net providers to 
ensure access to care, funding to enhance behavioral health care 
providers as mandated by State legislative directives, or funding for 
quality payments to ensure providers are appropriately rewarded for 
meeting certain program goals. Because this type of State direction 
reduces the plan's ability to effectively manage costs, CMS, in the 
2016 final rule, established specific exceptions to the general rule 
prohibiting States from directing the expenditures of MCOs, PIHPs and 
PAHPs at Sec.  438.6(c)(1)(i) through (iii). These exceptions came to 
be known as State directed payments (SDPs).
    The current regulations at Sec.  438.6(c) specify the parameters 
for how and when States may direct the expenditures of their Medicaid 
managed care plans and the associated requirements and prohibitions on 
such arrangements. Permissible SDPs include directives that certain 
providers of the managed care plan participate in value-based 
purchasing (VBP) models, that certain providers participate in multi-
payer or Medicaid-specific delivery system reform or performance 
improvement initiatives, or that the managed care organization adhere 
to certain fee schedule requirements (for example, minimum fee 
schedules, maximum fee schedules, and uniform dollar or percentage 
increases). Among other requirements, Sec.  438.6(c) requires SDPs to 
be based on the utilization and delivery of services under the managed 
care contract and expected to advance at least one of the objectives in 
the State's managed care quality strategy.
    All SDPs must be included in all applicable managed care 
contract(s) and described in all applicable rate certification(s) as 
noted in Sec.  438.7(b)(6).

[[Page 28111]]

Further, Sec.  438.6(c)(2)(ii) requires that most SDPs be approved in 
writing prior to implementation.\38\ To obtain written prior approval, 
States must submit a ``preprint'' form to CMS to document how the SDP 
complies with the Federal requirements outlined in Sec.  438.6(c).\39\ 
States must obtain written approval of certain SDPs in order for CMS to 
approve the corresponding Medicaid managed care contract(s) and rate 
certifications(s). States were required to comply with this prior 
approval requirement for SDPs no later than the rating period for 
Medicaid managed care contracts starting on or after July 1, 2017.
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    \38\ State directed payments that are minimum fee schedules for 
network providers that provide a particular service under the 
contract using State plan approved rates as defined in Sec.  
438.6(a) are not subject to the written prior approval requirement 
at Sec.  438.6(c)(2)(ii); however, they must comply with the 
requirements currently at Sec.  438.6(c)(2)(ii)(A) through (F) 
(other than the requirement for prior written approval) and be 
appropriately documented in the managed care contract(s) and rate 
certification(s).
    \39\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
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    Each SDP preprint submitted to CMS is reviewed by a Federal review 
team to ensure that the payments comply with the regulatory 
requirements in Sec.  438.6(c) and other applicable law. The Federal 
review team consists of subject matter experts from various components 
and groups within CMS, which regularly include those representing 
managed care policy and operations, quality, and actuarial science. 
Over time, these reviews have expanded to include subject matter 
experts on financing of the non-Federal share and demonstration 
authorities when needed. The CMS Federal review team works diligently 
to ensure a timely review and that standard operating procedures are 
followed for a consistent and thorough review of each preprint. Most 
preprints are reviewed on an annual basis; SDPs that are for VBP 
arrangements, delivery system reform, or performance improvement 
initiatives and that meet additional criteria in the Federal 
regulations are eligible for multi-year approval.
    CMS has issued guidance to States regarding SDPs on multiple 
occasions. In November 2017, CMS published the initial preprint form 
\40\ along with guidance for States on the use of SDPs.\41\ In May 
2020, CMS published guidance on managed care flexibilities to respond 
to the COVID-19 public health emergency (PHE), including how States 
could use SDPs in support of their COVID-19 response efforts.\42\ In 
January 2021, CMS published additional guidance for States to clarify 
existing policy, and also issued a revised preprint form that States 
must use for rating periods beginning on or after July 1, 2021.\43\ The 
revised preprint form is more comprehensive compared to the initial 
preprint, and it is designed to systematically collect the information 
that CMS identified as necessary as part of our review of SDPs to 
ensure compliance with the Federal regulatory requirements.\44\ This 
includes identification of the estimated total dollar amount for the 
SDP, an analysis of provider reimbursement rates for the class(es) of 
providers that the SDP is targeting, and information about the sources 
of the non-Federal share used to finance the SDP.
---------------------------------------------------------------------------

    \40\ https://www.medicaid.gov/sites/default/files/2020-02/438-preprint.pdf.
    \41\ https://www.medicaid.gov/sites/default/files/federal-policy-guidance/downloads/cib11022017.pdf.
    \42\ https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib051420.pdf.
    \43\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
    \44\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
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    Since Sec.  438.6(c) was issued in the 2016 final rule, States have 
requested approval for an increasing number of SDPs. The scope, size, 
and complexity of the SDP arrangements submitted by States for approval 
has also grown steadily and quickly. In calendar year 2017, CMS 
received 36 preprints for our review and approval from 15 States. In 
contrast, in calendar year 2021, CMS received 223 preprints from 39 
States. For calendar year 2022, CMS received 298 preprints from States. 
In total, as of December 2022, CMS has reviewed more than 1,100 SDP 
proposals and approved 993 proposals since the 2016 final rule was 
issued.\45\
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    \45\ The number of proposals includes initial preprints, 
renewals and amendments. An individual SDP program could represent 
multiple SDP proposals as described here (that is, an initial 
application, 1 renewal, and 3 amendments).
---------------------------------------------------------------------------

    SDPs also represent a notable amount of spending. The Medicaid and 
CHIP Payment and Access Commission (MACPAC) reported that CMS approved 
SDP arrangements in 37 States, with spending exceeding more than $25 
billion in 2020.\46\ The U.S. Government Accountability Office (GAO) 
also reported that at least $20 billion has been approved by CMS for 
preprints with payments to be made on or after July 1, 2021, across 79 
approved preprints.\47\ Our internal analysis of all SDPs approved from 
when Sec.  438.6(c) was issued in the 2016 final rule through March 
2022 estimates that the total spending for each SDP approved for the 
most recent rating period for States is nearly $48 billion \48\ 
(Federal and State) with at least half being dollars that States are 
requiring be paid in addition to the rates negotiated between the plans 
and providers. The aforementioned nearly $48 billion is an annual 
figure.\49\
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    \46\ Medicaid and CHIP Payment and Access Commission, ``Report 
to Congress on Medicaid and CHIP,'' June 2022, available at https://www.macpac.gov/wp-content/uploads/2022/06/MACPAC_June2022-WEB-Full-Booklet_FINAL-508-1.pdf. Projected payment amounts are for the most 
recent rating period, which may differ from calendar year or fiscal 
year 2020.
    \47\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
    \48\ This data point is an estimate and reflective of the most 
recent approval for all unique payment arrangements that have been 
approved through March 31, 2022 under CMS' standard review process. 
Rating periods differ by State; some States operating their managed 
care programs on a calendar year basis while others operate on a 
State fiscal year basis, which most commonly is July to June. The 
most recent rating period for which the SDP was approved as of March 
2022 also varies based on the review process reflective of States 
submitting proposals later than recommended (close to or at the end 
of the rating period), delays in State responses to questions, and/
or reviews taking longer due to complicated policy concerns (for 
example, financing).
    \49\ As part of the revised preprint form, States are asked to 
identify if the payment arrangement requires plans to pay an amount 
in addition to negotiated rates vs. limiting or replacing negotiated 
rates. Approximately half of the total dollars identified for the 
SDP actions included were identified by States for payment 
arrangements that required plans to pay an amount in addition to the 
rates negotiated between the plan and provider(s) rates.
---------------------------------------------------------------------------

    As the volume of SDP preprint submissions and total dollars flowing 
through SDPs continues to increase, CMS recognizes the importance of 
ensuring that SDPs are contributing to Medicaid quality goals and 
objectives as part of our review process, as well as ensuring that SDPs 
are developed and implemented with appropriate fiscal and program 
integrity guardrails. The proposed changes in this notice of proposed 
rulemaking are intended to ensure the following policy goals:
    (1) Medicaid managed care enrollees receive access to high-quality 
care under SDP payment arrangements;
    (2) SDPs are appropriately linked to Medicaid quality goals and 
objectives for the providers participating in the SDP payment 
arrangements; and
    (3) CMS and States have the appropriate fiscal and program 
integrity guardrails in place to strengthen the accountability and 
transparency of SDP payment arrangements.
    We are issuing this proposal based on our authority to interpret 
and implement section 1903(m)(2)(A)(iii) of the Act, which requires 
contracts between States and MCOs to provide

[[Page 28112]]

payment under a risk-based contract for services and associated 
administrative costs that are actuarially sound and our authority under 
section 1902(a)(4) of the Act to establish methods of administration 
for Medicaid that are necessary for the proper and efficient operation 
of the State plan. As explained in the 2016 final rule, regulation of 
SDPs is necessary to ensure that Medicaid managed care plans have 
sufficient discretion to manage the risk of covering the benefits 
outlined in their contracts, which is integral to ensuring that 
capitation rates are actuarially sound as defined in Sec.  438.4 (81 FR 
27582). We have historically relied on section 1902(a)(4) of the Act to 
extend the same requirements adopted under section 1903(m)(2)(A)(iii) 
of the Act for MCOs related to actuarially sound capitation rates to 
PIHPs and PAHPs. Where a proposal is also based on interpreting and 
implementing other authority, we note that in the applicable 
explanation of the proposed policy.
    We did not adopt the Medicaid managed care SDP requirements 
described at Sec.  438.6 in the 2016 final rule for separate CHIPs 
because there was no statutory requirement to do so and we wished to 
limit the scope of new regulations and administrative burden on 
separate CHIP managed care plans. For similar reasons, we are not 
proposing to adopt the new Medicaid managed care SDP requirements 
proposed at Sec. Sec.  438.6 and 438.7 for separate CHIPs.
    We are proposing to define State directed payments as a contract 
arrangement that directs an MCO's, PIHP's, or PAHP's expenditures under 
paragraphs (c)(1)(i) through (iii) of this section. We are proposing 
this definition as it is currently used by States and CMS in standard 
interactions as well as in published guidance to describe these 
contract requirements. Defining this term also improves the readability 
of the related regulations. We have also proposed to rename the header 
for this section to ``State Directed Payments under MCO, PIHP, or PAHP 
contracts'' reflect this term.
    In addition, we are proposing several revisions to Sec.  438.6 to 
further specify and add to the existing requirements and standards for 
SDPs. First, we are proposing revisions, including: expanding the scope 
of Sec.  438.6(c) consistent with recent guidance; exempting SDPs that 
establish payment rate minimums at 100 percent of the Medicare rate 
from written prior approval; incorporating SDPs for non-network 
providers in certain circumstances; setting new procedures and 
timeframes for the submission of SDPs and related documentation; 
codifying and further specifying standards and documentation 
requirements on total payment rates; further specifying and 
strengthening existing requirements related to financing as well as the 
connection to the utilization and delivery of services; updating and 
providing flexibilities for States to pursue VBP through managed care; 
strengthening evaluation requirements and other areas; and addressing 
how SDPs are incorporated into capitation rates or reflected in 
separate payment terms. The proposed regulatory provisions include both 
new substantive standards and new documentation and contract term 
requirements. In addition, we are proposing a new appeal process for 
States that are dissatisfied with CMS's determination related to a 
specific SDP preprint and new oversight and monitoring standards. In 
recognition of the scope of changes we are proposing, some of which 
will require significant time for States to implement, we are proposing 
a series of applicability dates over a roughly 5-year period for 
compliance. These applicability dates are discussed later in section 
I.B.2.p. of this proposed rule.
    We solicit feedback on our proposals.
    A more detailed outline of the remaining parts of this section is 
provided below:

b. Contract Requirements Considered to be SDPs (Grey Area Payments)
c. Medicare Exemption, SDP Standards and Prior Approval (Sec.  
438.6(c)(1)(iii)(B), (c)(2), and (c)(5)(iii)(A)(5))
d. Non-Network Providers (Sec.  438.6(c)(1)(iii))
e. SDP Submission Timeframes (Sec.  438.6(c)(2)(viii) and (ix))
f. Standard for Total Payment Rates for each SDP, Establishment of 
Payment Rate Limitations for certain SDPs and Expenditure Limit for All 
SDPs (Sec.  438.6(c)(2)(ii)(I) and (c)(2)(iii))
g. Financing (Sec.  438.6(c)(2)(ii)(G) and (H))
h. Tie to Utilization and Delivery of Services for Fee Schedule 
Arrangements (Sec.  438.6(c)(2)(vii))
i. Value-Based Payments and Delivery System Reform Initiatives (Sec.  
438.6(c)(2)(vi))
j. Quality and Evaluation (Sec.  438.6(c)(2)(ii)(D) and (F), (c)(2)(iv) 
and (v), and (c)(7))
k. Contract Term Requirements (Sec.  438.6(c)(5))
l. Including SDPs in Rate Certifications and Separate Payment Terms 
(Sec. Sec.  438.6(c)(2)(ii)(J), (c)(6), and 438.7(f))
m. SDPs included through Adjustments to Base Capitation Rates (Sec.  
438.7(c)(4) through (6))
n. Appeals (Sec.  430.3(d))
o. Reporting Requirements to Support Oversight (Sec.  438.6(c)(4))
p. Applicability Dates (Sec.  438.6(c)(4), 438.6(c)(8), and 438.7(g)(2) 
and (3))
b. Contract Requirements Considered To Be SDPs (Grey Area Payments)
    Under Sec.  438.6(c), States are not permitted to direct the 
expenditures of a Medicaid managed care plan under the contract between 
the State and the plan unless it is an SDP that complies with Sec.  
438.6(c), is permissible in a specific provision under Title XIX, is 
permissible through an implementing regulation of a Title XIX provision 
related to payments to providers, or is a permissible pass-through 
payment that meets requirements in Sec.  438.6(d). States are also not 
permitted to make payments directly to providers for services covered 
under the contract between the State and a managed care plan as 
specified in Sec.  438.60.
    In our November 2017 CMCS Informational Bulletin (CIB) entitled 
``Delivery System and Provider Payment Initiatives under Medicaid 
Managed Care Contracts,'' we noted instances where States may include 
general contract requirements for provider payments that would not be 
subject to approval under Sec.  438.6(c) as long as the State was not 
mandating a specific payment methodology or amounts under the 
contract.\50\ We also noted that these types of contract requirements 
would not be pass-through payments subject to the requirements under 
Sec.  438.6(d), as we believed they maintained a link between payment 
and the delivery of services. One scenario in the CIB described 
contract language generally requiring managed care plans to make 20 
percent of their provider payments as VBP or alternative payment 
arrangements when the State does not mandate a specific payment 
methodology and the managed care plan retains the discretion to 
negotiate with network providers the specific terms for the amount, 
timing, and mechanism of such VBP or alternative payment arrangements. 
We continue to believe that this scenario does not meet the criteria 
for an SDP nor a pass-through payment but as our thinking has evolved, 
we believe that the aforementioned VBP scenario represents the State 
imposing a quality metric on the managed care plans rather than the 
providers. We believe that this specific

[[Page 28113]]

type of contractual condition and measure of plan accountability is 
permissible, so long as it meets the requirements for an incentive 
arrangement under Sec.  438.6(b)(2) or, a withhold arrangement under 
Sec.  438.6(b)(3).
---------------------------------------------------------------------------

    \50\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib11022017.pdf.
---------------------------------------------------------------------------

    The other scenario described the State contractually implementing a 
general requirement for Medicaid managed care plans to increase 
provider payment for covered services provided to Medicaid enrollees 
covered under the contract, where the State did not mandate a specific 
payment methodology or amount(s) and managed care plans retain the 
discretion for the amount, timing, and mechanism for making such 
provider payments. At the time, we believed that these areas of 
flexibility for the plan would be sufficient to exclude the State's 
contract requirement from the scope of Sec.  438.6(c). However, as we 
have continued to review managed care contracts and rate certifications 
since November 2017, we have grown increasingly concerned that 
excluding the latter type of vague contractual requirement for 
increased provider payment from the requirements of Sec.  438.6(c) 
created an unintended loophole in regulatory oversight, presenting a 
significant program integrity risk. For example, some States include 
general contract requirements for significant increases to provider 
payments that require the State to add money to the capitation rates 
paid to the managed care plans as part of rate development for a 
specific service (for example, hospital services) but without any 
further accountability to ensure that the additional funding included 
in the capitation payments is paid to providers for a specific service 
or benefit provided to a specific enrollee covered under the contract. 
While this is similar to the definition of pass-through payment in 
Sec.  438.6(a), these contractual requirements do not meet all of the 
other requirements in Sec.  438.6(d) to be permissible pass-through 
payments. We commonly refer to these types of contractual arrangements 
as ``grey area payments'' as they do not completely comply with Sec.  
438.6(c) nor Sec.  438.6(d).
    Upon reflection and based on our experience since the 2017 CIB, we 
concluded that general contractual requirements to increase provider 
payment rates circumvent the intent of the 2016 final rule and the 
subsequent 2017 Pass-Through Payment Final Rule to improve the fiscal 
integrity of the program and ensure the actuarial soundness of all 
capitation rates.\51\ As we stated in the preamble of the 2016 final 
rule ``[w]e believe that the statutory requirement that capitation 
payments to managed care plans be actuarially sound requires that 
payments under the managed care contract align with the provision of 
services to beneficiaries covered under the contract. . . . In our 
review of managed care capitation rates, we have found pass-through 
payments being directed to specific providers that are generally not 
directly linked to delivered services or the outcomes of those 
services. These pass-through payments are not consistent with 
actuarially sound rates and do not tie provider payments with the 
provision of services.'' Further, ``[a]s a whole, [42 CFR] Sec.  
438.6(c) maintains the MCO's, PIHP's, or PAHP's ability to fully 
utilize the payment under that contract for the delivery and quality of 
services by limiting States' ability to require payments that are not 
directly associated with services delivered to enrollees covered under 
the contract.''
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    \51\ https://www.federalregister.gov/documents/2017/01/18/2017-00916/medicaid-program-the-use-of-new-or-increased-pass-through-payments-in-medicaid-managed-care-delivery.
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    In January 2021, we published SMDL #21-001,\52\ through which we 
sought to close the unintentional loophole created in the November 2017 
CIB and realign our implementation of the regulation with the original 
intent of the 2016 final rule and the 2017 final rule. The 2021 SMDL 
provides that if a State includes a general contract requirement for 
provider payment that provides for or adds an amount to the provider 
payment rates, even without directing the specific amount, timing or 
methodology for the payments, and the provider payments are not clearly 
and directly linked specifically to the utilization and delivery of a 
specific service or benefit provided to a specific enrollee, then CMS 
will require the contractual requirement to be modified to comply with 
Sec.  438.6(c) or (d) beginning with rating periods that started on or 
after July 1, 2021. We maintain this interpretation. At this time, we 
also believe it is important to further specify our stance that any 
State direction of a managed care plan's payments to providers, 
regardless of specificity or even if tied specifically to utilization 
and delivery of services, is prohibited unless Sec.  438.6(c) or (d) 
permits the arrangement. State wishing to impose quality requirements 
or thresholds on managed care plans, such as the requirement that a 
certain percentage of provider payments be provided through a VBP 
arrangement, must do so within the parameters of Sec.  438.6(b). We do 
not believe any changes are needed to the regulation text in Sec.  
438.6(c) or (d) to reflect this reinterpretation and clarification 
because this preamble provides an opportunity to again bring this 
important information to States' attention; CMS will continue this 
narrower interpretation of Sec.  438.6(c) and (d). We solicit comments 
on whether additional clarification about these grey area payments is 
necessary or, if revision to the regulation text would be helpful.
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    \52\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
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c. Medicare Exemption, SDP Standards and Prior Approval (Sec.  
438.6(c)(1)(iii)(B), Sec.  438.6(c)(2), and Sec.  
438.6(c)(5)(iii)(A)(5))
    In Sec.  438.6(c), States are permitted to direct managed care 
plans' expenditures under the contract as specified in Sec.  
438.6(c)(1)(i) through (iii), subject to written prior approval based 
on complying with the requirements in Sec.  438.6(c)(2). In the 
preamble to the 2020 final rule, we noted our observation that a 
significant number of proposals submitted by States for review under 
Sec.  438.6(c)(2) required managed care plans to adopt minimum fee 
schedules specified under an approved methodology in the Medicaid State 
plan. In response, we adopted several revisions to Sec.  438.6(c) in 
the 2020 final rule.\53\ We defined ``State plan approved rates'' in 
Sec.  438.6(a) as ``amounts calculated for specific services 
identifiable as having been provided to an individual beneficiary 
described under CMS approved rate methodologies in the Medicaid State 
plan,'' and excluded supplemental payments that are paid in addition to 
State plan approved rates. We also revised Sec.  438.6(c)(1)(iii)(A) to 
explicitly address SDPs that are a minimum fee schedule for network 
providers that provide a particular service under the contract using 
State plan approved rates and revised Sec.  438.6(c)(2)(ii) to exempt 
these specific SDP arrangements from the written prior approval 
requirement. However, SDPs described in paragraph Sec.  
438.6(c)(1)(iii)(A) must comply with the requirements currently at 
Sec.  438.6(c)(2)(ii)(A) through (F) (other than the requirement for 
written prior approval) and be appropriately documented in the managed 
care contract(s) and rate certification(s).
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    \53\ https://www.federalregister.gov/documents/2020/11/13/2020-24758/medicaid-program-medicaid-and-childrens-health-insurance-program-chip-managed-care.

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[[Page 28114]]

    This piece of the 2020 final rule was, in part, intended to 
eliminate unnecessary and duplicative review processes in an effort to 
promote efficient and effective administration of the Medicaid program. 
This rule improved States' efforts to timely implement certain SDP 
arrangements that meet their local goals and objectives without drawing 
upon State staff time unnecessarily. We continue to believe exempting 
payment arrangements based on an approved State plan rate methodology 
from written prior approval does not increase program integrity risk or 
create a lack of Federal oversight. We continue to review the 
corresponding managed care contracts and rate certifications which 
include these SDPs. The State plan review and approval process ensures 
that Medicaid State plan approved rates are consistent with efficiency, 
economy, and quality of care and are sufficient to enlist enough 
providers so that care and services are available under the plan, at 
least to the extent that such care and services are available to the 
general population in the geographic area, as required under section 
1902(a)(30) of the Act.
    As we have continued to review and approve SDPs since the 2020 
final rule, we believe this same rationale applies to SDPs that adopt a 
minimum fee schedule using Medicare approved rates for providers that 
provide a particular service under the contract. Medicare rates are 
developed under Title XVIII of the Act and there are annual rulemakings 
associated with Medicare payment for benefits available under Parts A 
and B in the Medicare Fee-for-Service (FFS) program. Additionally, 
section 1852(a)(2) of the Act provides that Medicare Advantage plans 
pay out-of-network providers at least the amount payable under FFS 
Medicare for benefits available under Parts A and B, taking into 
account cost sharing and permitted balance billing.\54\ These 
considerations mean that prior written approval by CMS is not necessary 
to ensure that the standards for SDPs in current Sec.  438.6(c)(2) are 
met.
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    \54\ See also 42 CFR 422.100(b) and 422.214 and guidance in the 
``MA Payment Guide for Out of Network Payments'', April 15, 2015, 
available at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/downloads/oonpayments.pdf.
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    Consistent with how we have considered State plan rates to be 
reasonable, appropriate, and attainable under Sec. Sec.  438.4 and 
438.5, Medicare approved rates too meet this same threshold. Therefore, 
we are proposing to exempt SDPs that adopt a minimum fee schedule based 
on total published Medicare payment rates from written prior approval 
as it would be unnecessary and duplicative. We propose to amend Sec.  
438.6(c) to provide specifically for SDPs that require use of a minimum 
fee schedule using FFS Medicare payment rates.
    First, we propose to add a new definition to Sec.  438.6(a) for 
``total published Medicare payment rate'' as amounts calculated as 
payment for specific services that have been developed under Title 
XVIII Part A and Part B. We propose to re-designate the existing Sec.  
438.6(c)(1)(iii)(B) through (D) as Sec.  438.6(c)(1)(iii)(C) through 
(E), respectively, and add a new Sec.  438.6(c)(1)(iii)(B) explicitly 
recognizing SDP arrangements that are a minimum fee schedule using a 
total published Medicare payment rate in effect no more than 3 years 
prior to the start of the rating period as a permissible type of SDP. 
We are also proposing to revise proposed re-designated paragraph 
(c)(1)(iii)(C) to take into account the proposed new category of SDPs 
that use one or more total published Medicare payment rates. As part of 
the proposals for paragraphs (c)(1)(iii)(A) through (E), we also 
propose to streamline the existing regulation text to eliminate the 
phase ``as defined in paragraph (a)'' as unnecessary; we expect that 
interested parties and others who read these regulations will read them 
completely and recognize when defined terms are used.
    We also propose to restructure Sec.  438.6(c)(2) and amend its 
paragraph heading to Standards for State directed payments as discussed 
fully in later sections. As part of this restructuring, we propose to 
re-designate part of the provision in Sec.  438.6(c)(2)(ii) to Sec.  
438.6(c)(2)(i) to describe which SDPs require written prior approval. 
This revision includes proposing a conforming revision in Sec.  
438.6(c)(2)(i) to reflect the re-designation of Sec.  
438.6(c)(1)(iii)(B) through (D) as (c)(1)(iii)(C) through (E). This 
revision will ensure that that SDPs described in paragraph 
(c)(1)(iii)(B) along with the SDPs described in paragraph 
(c)(1)(iii)(A), are not included in the written prior approval 
requirement. States that adopt a minimum fee schedule using 100 percent 
of total published Medicare payment rates will still need to document 
these SDPs in the corresponding managed care contracts and rate 
certifications and those types of SDPs must still comply with 
requirements for all SDPs other than prior written approval by CMS, 
just as minimum fee schedules tied to State plan approved rates 
described in paragraph (c)(1)(iii)(A) must comply. SDPs described under 
paragraphs (c)(1)(iii)(A) and (B) would still need to comply with the 
standards listed in the proposed restructured Sec.  438.6(c)(2)(ii). 
(See sections II.2.f. through l. for proposed new requirements and 
revisions to existing requirements for all SDPs to be codified in 
paragraph (c)(2)(ii).)
    Our proposal to exempt certain SDPs from written prior approval 
from CMS is specific to SDPs that require the Medicaid managed care 
plan to use a minimum fee schedule that is equal 100 percent of the 
total published Medicare payment rate. SDP arrangements that use a 
different percentage (whether higher or lower than 100 percent) of a 
total published Medicare payment rate as the minimum payment amount or 
are simply based off of an incomplete total published Medicare payment 
rate would be included in the SDPs described in paragraph 
(c)(1)(iii)(C). Our review of SDPs includes ensuring that they will 
result in provider payments that are reasonable, appropriate, and 
attainable, and will not negatively impact access to care. Accordingly, 
we believe that SDPs that propose provider payment rates that are 
incomplete or either above or below 100 percent of total published 
Medicare payment rates may not always meet these criteria and thus, 
should remain subject to written prior approval by CMS.
    We are also not proposing to remove the written prior approval 
requirement for SDPs for provider rates tied to a Medicare fee schedule 
in effect more than 3 years prior to the start of the rating period. 
This is reflected in our proposed revision to redesignated paragraph 
(c)(1)(iii)(C) to describe fee schedules for providers that provide a 
particular service under the contract using rates other than the State 
plan approved rates or one or more total published Medicare payment 
rates described in proposed new paragraph (c)(1)(iii)(B). We propose 
the limit of 3 years to be consistent with how Sec.  438.5(c)(2) 
requires use of data that is at least that recent for rate development. 
Our review of SDPs includes ensuring that they will result in provider 
payments that are reasonable, appropriate, and attainable, and will not 
negatively impact access to care. Accordingly, we believe that SDPs 
that propose provider payment rates tied to a total published Medicare 
payment rate in effect more than 3 years prior to the start of the 
rating period may not always meet these criteria and thus, should 
remain subject to written prior approval by CMS.
    We solicit public comments on our proposal to specifically address 
SDPs

[[Page 28115]]

that are for minimum fee schedules using 100 percent of the amounts in 
a total published Medicare payment rate for providers that provide a 
particular service provided that the total published Medicare payment 
rate was in effect no more than 3 years prior to the start of the 
rating period and on our proposal to exempt these specific types of SDP 
arrangements from the prior written approval requirement in Sec.  
438.6(c)(2)(ii).
    We are also proposing to add new Sec.  438.6(c)(5) (with the 
paragraph heading Requirements for Medicaid Managed Care Contract Terms 
for State directed payments), for oversight and audit purposes. 
Proposed new paragraph (c)(5)(iii)(A)(5) would require the managed care 
plan contract to include certain information about the Medicare fee 
schedule used in the SDP, regardless of whether the SDP was granted an 
exemption from written prior approval under Sec.  438.6(c)(1)(iii)(B). 
That is, for SDPs which use total published Medicare payment rates, the 
contract would need to specify which Medicare fee schedule(s) the State 
directs the managed care plan to use and any relevant and material 
adjustments due to geography, such as rural designations, and provider 
type, such as Critical Access Hospital or Sole Community Hospital 
designation.
    The managed care contract would also need to identify the time 
period for which the Medicare fee schedule is in effect as well as the 
rating period for which it is used for the SDP. Consistent with Sec.  
438.6(c)(1)(iii)(B), the Medicare fee schedule must be in effect no 
more than 3 years prior to the start of the rating period for the 
services provided in the arrangement. This 3-year requirement is 
similar to Sec.  438.5 rate setting, under which data that the actuary 
relies upon must be from the 3 most recent years that have been 
completed, prior to the rating period for which rates are being 
developed. For example, should a State seek to implement a Sec.  
438.6(c)(1)(iii)(B) fee schedule in calendar year 2025, the Medicare 
fee schedule must have been in effect for purposes of Medicare payment 
at least at the beginning of calendar year 2021.
    Requiring sufficient language in the contract regarding the 
Medicare fee schedule would provide clarity to CMS, managed care plans, 
and providers regarding the explicit Medicare payment methodology being 
used under the contract. For broader discussion of Sec.  438.6(c)(5), 
see section I.B.2.k. of this proposed rule.
    We request comment on other material or significant information 
about a Medicare fee schedule that would need to be included to ensure 
the managed care contract sufficiently describes this type of SDP.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on our proposals.
d. Non-Network Providers (Sec.  438.6(c)(1)(iii))
    We are proposing to remove the term ``network'' from the 
descriptions of SDP arrangements in current (and revised as proposed) 
Sec.  438.6(c)(1)(iii). Existing regulations specify that for a State 
to require an MCO, PIHP or PAHP to implement a fee schedule under Sec.  
438.6(c)(1)(iii), the fee schedule must be limited to ``network 
providers.'' This limitation is not included in Sec.  438.6(c)(1)(i) or 
(ii) for SDP arrangements that are VBP and multi-payer or Medicaid-
specific delivery system reform or performance improvement initiatives. 
In our experience working with States, limiting the descriptions of SDP 
arrangements subject to Sec.  438.6(c)(iii) to those that involve only 
network providers has proven to be too narrow and has created an 
unintended barrier to States' and CMS' policy goals to ensure access to 
quality care for beneficiaries.
    In the 2016 final rule, we finalized current Sec.  438.6(c)(1)(iii) 
to include ``network'' before ``providers'' in this provision.\55\ As 
previously noted, the regulation at Sec.  438.6(c)(1) generally 
prohibits States from directing the MCO's, PIHP's or PAHP's 
expenditures under the contract unless it meets one of the exceptions 
(as provided in a specific provision in Title XIX, in another 
regulation implementing a Title XIX provision related to payment to 
providers, a SDP that complies with Sec.  438.6(c), or a pass-through 
payment that complies with Sec.  438.6(d)). Therefore, the inclusion of 
the word ``network'' in the SDP arrangement descriptions in the 2016 
final rule has prevented States from including contract requirements to 
direct their Medicaid managed care plans on how to pay non-network 
providers.
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    \55\ https://www.federalregister.gov/d/2016-09581/p-1269.
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    In our work with States over the years, some States have noted 
concerns with the requirement that permissible SDPs only apply (or 
include) payments by Medicaid managed care plans to network providers. 
States have noted that limiting SDPs to network providers is 
impractical in large and diverse States. Several States had, prior to 
rulemaking, pre-existing contractual requirements with managed care 
plans that required a specific level of payment (such as the State's 
Medicaid FFS rates) for non-network providers. This aligns with our 
experience working with States as well, and we note section 
1932(b)(2)(D) of the Act requires that non-network providers furnishing 
emergency services must accept as payment in full an amount equal to 
the Medicaid State plan rate for those services. Some States have 
historically required plans to pay non-network providers at least the 
Medicaid State plan approved rate or another rate established in the 
managed care contract. Many States with enrollees on their borders rely 
on providers in neighboring States to deliver specialty services, such 
as access to children's hospitals.
    While we support States' and plans' efforts to develop strong 
provider networks and to focus their efforts on providers who have 
agreed to participate in plan networks, executing network agreements 
with every provider may not always be feasible for plans. For example, 
in large hospital systems, it may be impractical for every plan to 
obtain individual network agreements with each rounding physician 
delivering care to Medicaid managed care enrollees. In such instances, 
States may have an interest in ensuring that their Medicaid managed 
care plans pay non-network providers at a minimum level to avoid access 
to care concerns. We have also encountered situations in which States 
opt to transition certain benefits, which were previously carved out 
from managed care, from fee-for-service into managed care. In these 
instances, States would like to require their managed care plans to pay 
out-of-network providers a minimum fee schedule in order to maintain 
access to care while allowing plans and providers adequate time to 
negotiate provider agreements and provider payment rates for the newly 
incorporated services. Consequently, we are proposing these changes to 
provide States a tool to direct payment to non-network providers as 
well as network providers.
    Therefore, we are proposing to remove the term ``network'' from the 
descriptions of permissible SDP arrangements in Sec.  438.6(c)(1)(iii). 
Under this proposal, the permissible SDPs are described as payment 
arrangements or amounts ``for providers that provide a particular 
service under the contract'' and this will permit States to direct 
payments under their managed care contracts for both network and non-
network providers, subject to the requirements in paragraph (c). We 
note

[[Page 28116]]

that, as proposed, all of the standards and requirements under Sec.  
438.6(c) would still be applicable to SDPs that direct payment 
arrangements for non-network providers.
    Finally, as pass-through payments (PTPs) are separate and distinct 
from SDPs, we are maintaining the phrase ``network provider'' in Sec.  
438.6(d)(1) and (6). Existing PTPs are subject to a time-limited 
transition period and in accordance with Sec.  438.6(d)(3) and (5), 
respectively, hospital PTPs must be fully eliminated by no later than 
the rating period beginning July 1, 2027 and NF and physician services 
PTPs were required to have been eliminated by no later than the rating 
period July 1, 2022 with the exceptions of pass-through payments for 
States transitioning services and populations in accordance with Sec.  
438.6(d)(6). Therefore, we do not believe that it is appropriate or 
necessary to eliminate the word ``network'' from Sec.  438.6(d).
    We solicit public comments on our proposal. In particular, we seek 
comment on whether this change would result in negative unintended 
consequences.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
e. SDP Submission Timeframes (Sec.  438.6(c)(2)(viii) and (ix))
    Since we established the ability for States to direct the 
expenditures of their managed care plans in the 2016 final rule, we 
have encouraged States to submit their requests for written prior 
approval 90 days in advance of the start of the rating period whenever 
possible. We also recommend that States seek technical assistance from 
CMS in advance of formally submitting the preprint for review to CMS 
for more complicated proposals to facilitate the review process.
    Submitting 90 days in advance of the rating period provides CMS and 
the State time to work through the written prior approval process 
before the State includes the SDP in their managed care plan contracts 
and the associated rate certifications. If States include SDPs in 
managed care contracts and capitation rates before we issue written 
prior approval, any changes to the SDP made as a result of the review 
process would likely then necessitate contract and rate amendments,\56\ 
creating additional work for States, actuaries, CMS, and managed care 
plans. Submitting SDP preprints at least 90 days in advance of the 
rating period can help reduce the need for subsequent contract and rate 
amendments to address any inconsistencies between the contracts and 
rate certifications and approved SDPs. State directed payments that are 
not submitted 90 days in advance of the affected rating period also 
cause delays in the approval of managed care contracts and rates 
because those approvals are dependent on the written prior approval of 
the SDP. Since we cannot approve only a portion of a State's Medicaid 
managed care contract, late SDP approvals delay approval of the entire 
contract and the associated capitation rates.
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    \56\ The term ``rate amendment'' is used to reference an 
amendment to the initial rate certification.
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    Some States have not been successful in submitting their SDP 
preprints in advance of the rating period for a variety of reasons. 
Sometimes it is due to changes in program design, such as a new benefit 
linked to the SDP being added to the Medicaid managed care contract 
during the rating period. Other unforeseen changes, such as public 
health emergencies (PHE) or natural disasters, can also create 
circumstances in which States need to respond to urgent concerns around 
access to care by implementing an SDP during the rating period. While 
we recognize that from time to time there may be a circumstance that 
necessitates a late preprint submission, we have found that some States 
routinely submit SDP preprints at the very end of the rating period 
with implementation dates retroactive to the start of the rating 
period. We have provided repeated technical assistance to these States, 
and we published additional guidance in 2021 \57\ to reiterate our 
expectation that States submit SDP preprints before the start of a 
rating period. This guidance also made clear that CMS would not accept 
SDP preprints for rating periods that are closed; however, we have not 
been able to correct the situation with some States.
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    \57\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
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    To make our processes more responsive to States' needs while 
ensuring that reviews linked to SDP approvals are not unnecessarily 
delayed, we propose a new Sec.  438.6(c)(2)(viii)(A) through (C) to set 
the deadline for submission of SDP preprints that require written prior 
approval from CMS under paragraph (c)(2)(i) (redesignated from Sec.  
438.6(c)(2)(ii)). In Sec.  438.6(c)(2)(viii)(A), we propose to require 
that all SDPs that require written prior approval from CMS must be 
submitted to CMS no later than 90 days in advance of the end of the 
rating period to which the SDP applies. This requirement applies if the 
payment arrangement for which the State is seeking written prior 
approval begins at least 90 days in advance of the end of the rating 
period. We strongly encourage all States to submit SDPs in advance of 
the start of the rating period to ensure CMS has adequate time to 
process the State's submissions and is able to support the State in 
incorporating these payments into their Medicaid managed care contracts 
and rate development. We are proposing to use a deadline of no later 
than 90 days prior to the end of the applicable rating period because 
we believe this minimum timeframe balances the need for State 
flexibility to address unforeseen changes that occur after the managed 
care plan contracts and rates have been developed with the need to 
ensure timely processing of managed care contracts and capitation 
rates. When a State fails to submit all required documentation for any 
SDP arrangement that requires written prior approval 90 days prior to 
the end of the rating period to which the SDP applies, the SDP would 
not be eligible for written prior approval; therefore, the State would 
not be able to include the SDP in its Medicaid managed care contracts 
and rate certifications for that rating period.
    In Sec.  438.6(c)(2)(viii)(B), we propose to address the use of 
shorter-term SDPs in response to infrequent events, such as PHEs and 
natural disasters, by permitting States to submit all required 
documentation before the end of the rating period for SDP proposals 
that would start less than 90 days before the end of the rating period. 
We believe this flexibility would be appropriate to allow States to 
effectively use SDPs during the final quarter of the rating period to 
address urgent situations that affect access to and quality of care for 
Medicaid managed care enrollees.
    There are SDPs, such as VBP and delivery system reform, that can be 
approved under Sec.  438.6(c)(3) for up to three rating periods. For 
these, we propose in Sec.  438.6(c)(2)(viii)(C) that the same 
timeframes described in Sec.  438.6(c)(2)(viii)(A) and (B) apply to the 
first rating period of the SDP.
    To illustrate these timeframes, we are using an SDP eligible for 
annual approval that a State is seeking to include in their CY 2025 
rating period. For example, under the current regulations, CMS would 
strongly recommend that a State seeking approval of an SDP for the 
calendar year (CY) 2025 rating period would ideally submit the preprint 
by October 3, 2024. However, under this proposal to revised Sec.  
438.6(c)(2)(viii), if the start of the SDP

[[Page 28117]]

was on or before October 2, 2025, the State must submit the preprint no 
later than October 2, 2025 in order for CMS to accept it for review; if 
the State submitted the preprint for review after that date, CMS could 
not grant written prior approval of the preprint for the CY 2025 rating 
period. The State could instead seek written prior approval for the CY 
2026 rating period instead if the preprint could not be submitted for 
the CY 2025 rating period by the October 2, 2025 deadline.
    We considered an alternative requiring all SDPs to be submitted 
prior to the start of the rating period for which the State was 
requesting written prior approval. This would be a notable shift from 
current practice, which requires all preprints be submitted prior to 
the end of the rating period. Requiring that States submit all 
preprints prior to the start of the rating period would reduce 
administrative burden and better align with the prospective nature of 
risk-based managed care. However, instituting such a deadline could 
potentially be too rigid for States that needed to address an 
unanticipated or acute concern during the rating period.
    Lastly, we considered an alternative of requiring that States 
submit all SDPs in advance of the start of the payment arrangement 
itself. For example, a State may seek to start a payment arrangement 
halfway through the rating period (for example, an SDP for payments 
starting July 1, 2025 for States operating on a CY rating period). 
Under this alternative approach, the State would have to submit the 
preprint for prior approval before July 1, 2025 in order for it to be 
considered for written prior approval. This would provide additional 
flexibility for States establishing new SDPs, but would limit the 
additional flexibility for that SDP to that initial rating period. If 
the State wanted to renew the SDP the subsequent rating period (for 
example, CY 2026), it would have to resubmit the preprint before the 
start of that rating period.
    As discussed in section I.B.2.p. of this proposed rule on 
Applicability and Compliance dates, we are proposing that States must 
comply with these new submission timeframes beginning with the first 
rating period beginning on or after 2 years after the effective date of 
the final rule. In the interim, we would continue our current policy of 
not accepting submissions for SDPs after the rating period has ended. 
We solicit public comment on our proposals and these alternatives, as 
well as additional options that would also meet our goals for adopting 
time limits on when an SDP can be submitted to CMS for written prior 
approval.
    For amendments to approved SDPs, we propose at Sec.  
438.6(c)(2)(ix) to require all amendments to SDPs approved under Sec.  
438.6(c)(2)(i) (redesignated from Sec.  438.6(c)(2)(ii)) to be 
submitted for written prior approval as well. We also propose at Sec.  
438.6(c)(2)(ix)(A) to require that all required documentation for 
written prior approval of such amendments be submitted prior to the end 
of the rating period to which the SDP applies in order for CMS to 
consider the amendment. To illustrate this, we again provide the 
following example for an SDP approved for one rating period (CY 2025). 
If that SDP was approved by CMS prior to the start of the rating period 
(December 31, 2024 or earlier) and it began January 1, 2025, then the 
State would have to submit any amendment to the preprint for that 
rating period before December 31, 2025. After December 31, 2025, CMS 
would not accept any amendments to that SDP for that CY 2025 rating 
period. The same would be true for an SDP that was approved for one 
rating period after the start of the rating period (for example, 
approval on October 1, 2025 for a CY 2025 rating period). the State 
would have until December 31, 2025 to submit any amendment to the 
preprint for CMS review; after December 31, 2025, CMS would not accept 
any amendments to that SDP for that rating period.
    We further propose Sec.  438.6(c)(2)(ix)(B) to set timelines for 
the submission of amendments to SDPs approved for multiple rating 
periods as provided in paragraph (c)(3). Under this proposal, Sec.  
438.6(c)(2)(ix)(A) and (B) would allow an amendment window for the 
proposal within the first 120 days of each of the subsequent rating 
periods for which the SDP is approved after the initial rating period. 
The amendment process for the first year of the multiple rating periods 
would work the same way as it would for any SDP approved for one rating 
period and be addressed by proposed paragraph (xi)(A). However, in 
recognition that the SDP is approved for multiple rating periods, we 
are proposing in Sec.  438.6(c)(2)(ix)(B) that the State would be able 
to amend the approved preprint for the second (CY 2026 in our example) 
and third (CY 2027 in our example) rating periods within the first 120 
days of the CY 2026 rating period (for example, by May 1, 2026). The 
requested amendment could not make any retroactive changes to the SDP 
for the CY 2025 rating period because the CY 2025 rating period would 
be closed in this example. The State would not be permitted to amend 
the payment arrangement after May 1, 2026 for the CY 2026 rating 
period. The State would be able to do the same for the CY 2027 rating 
period as well--amend the SDP within the first 120 days of the CY 2027 
rating period, but only for the CY 2027 rating period and not for the 
concluded CY 2025 or CY 2026 rating periods.
    As proposed, these deadlines are mandatory for written prior 
approval of an SDP or any amendment of an SDP. When a State fails to 
submit all required documentation for any amendments within these 
specified timeframes, the SDP would not be eligible for written prior 
approval. Therefore, the State would not be able to include the amended 
SDP in its Medicaid managed care contracts and rate certifications for 
that rating period. The State could continue to include the originally 
approved SDP as documented in the preprint in its contracts for the 
rating period for which the SDP was originally approved. We note that 
written prior approval of an SDP does not obligate a State to implement 
the SDP. If a State chose not to implement an SDP for which CMS has 
granted prior approval, elimination of an SDP would not require any 
prior approval, under our current regulations or this proposal. We 
solicit comment on this aspect of our proposal.
    We are proposing regulatory changes in Sec. Sec.  438.6(c)(5)(vi) 
and 438.7(c)(6) to require the submission of related contract 
requirements and rate certification documentation no later than 120 
days after the start of the SDP or the date we granted written prior 
approval of the SDP, whichever is later. States should submit their 
rate certifications prior to the start of the rating period, and Sec.  
438.7(c)(2) requires that any rate amendments \58\ comply with Federal 
timely filing requirements. However, we believe given the nature of 
SDPs, there should be additional timing restrictions on when revised 
rate certifications that include SDPs can be provided for program 
integrity purposes. We also remind States that these proposals do not 
supersede other requirements regarding submission of contract and rate 
certification documentation when applicable, including but not limited 
to those that require prior approval or approval prior to the start of 
the rating period such as requirements outlined in Sec. Sec.  438.3(a), 
438.4(c)(2), and 438.6(b)(1). These proposals are discussed in later 
sections: section I.B.2.k on Contract Requirements for SDPs; section 
I.B.2.l on Separate Payment Terms; and section

[[Page 28118]]

I.B.2.m on SDPs included as adjustments to base rates.
---------------------------------------------------------------------------

    \58\ The term ``rate amendment'' is used to reference an 
amendment to the initial rate certification.
---------------------------------------------------------------------------

    We are making these proposed regulatory changes to institute 
submission timeframes to ensure efficient and proper administration of 
the Medicaid program. We had also considered an alternative of 
requiring that States submit all amendments to SDPs for written prior 
approval within either 120 days of the start of the payment arrangement 
or 120 days of CMS issuing written prior approval, whichever was later. 
To illustrate this, we again provide the following example for an SDP 
approved for one rating period (CY 2025). If that SDP was approved by 
CMS prior to the start of the rating period (December 31, 2024 or 
earlier) and it began January 1, 2025, then the State would have 120 
days after the start of the payment arrangement (May 1, 2025) to submit 
any amendment to the preprint for that rating period. After May 1, 
2025, CMS would not accept any amendments to that SDP for that CY 2025 
rating period. If, however, that SDP were approved after the start of 
the rating period (for example, October 1, 2025 for a CY 2025 rating 
period); the State would have 120 days from that written prior approval 
(January 29, 2026) to submit any amendment to the preprint for CMS 
review; after January 29, 2026, CMS would not accept any amendments to 
that SDP for that rating period. Requiring that States submit any 
amendments to the SDP preprint within 120 days of either the start of 
the payment arrangement or the initial approval could reduce some 
administrative burden by limiting the time period for amendments to 
preprints. However, the time frame would be specific to each preprint, 
which could present some challenges in ensuring compliance. 
Additionally, it would not preclude States from submitting amendments 
after the end of the rating period; in fact, it may encourage States to 
submit SDP preprints toward the end of the rating period to preserve 
the ability to amend the preprint after the end of the rating period. 
CMS does not believe such practices are in alignment with the 
prospective nature of risk-based managed care. We solicit public 
comment on our proposals and these alternatives, as well as additional 
options that would also meet our goals for adopting time limits on when 
amendments to SDPs can be submitted to CMS for written prior approval.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on these proposals.
f. Standard for Total Payment Rates for Each SDP, Establishment of 
Payment Rate Limitations for Certain SDPs, and Expenditure Limit for 
All SDPs (Sec.  438.6(c)(2)(ii)(I), 438.6(c)(2)(iii))
    Standard for Total Payment Rates for Each SDP. Section 
1903(m)(2)(A)(iii) of the Act requires contracts between States and 
managed care plans that provide for payments under a risk-based 
contract for services and associated administrative costs to be 
actuarially sound. Under section 1902(a)(4) of the Act, CMS also has 
authority to establish methods of administration for Medicaid that are 
necessary for the proper and efficient operation of the State plan. 
Further, actuarially sound capitation rates are projected to provide 
for all reasonable, appropriate, and attainable costs that are required 
under the terms of the contract and for the operation of the managed 
care plan for the time period and the population covered under the 
terms of the contract. In risk-based managed care, managed care plans 
have the responsibility to manage the financial risk of the contract, 
and one of the primary tools plans use is negotiating payment rates 
with providers. Absent Federal statutory requirements or specific State 
contractual restrictions, the specific payment rates and conditions for 
payment between risk-bearing managed care plans and their network 
providers are subject to negotiations between the plans and providers, 
as well as overall private market conditions. As long as plans are 
meeting the requirements for ensuring access to care and network 
adequacy, States typically provide managed care plans latitude to 
develop a network of providers to ensure appropriate access to covered 
services under the contract for their enrollees and fulfill all of 
their contractual obligations while managing the financial risk.
    As noted earlier, both the volume of SDP preprints being submitted 
by States for approval and the total dollars flowing through SDPs have 
grown steadily and quickly since Sec.  438.6(c) was promulgated in the 
2016 final rule. MACPAC reported that CMS approved SDP arrangements in 
37 States, with spending exceeding more than $25 billion.\59\ Our 
internal analysis of all SDPs approved from when Sec.  438.6(c) was 
issued in the 2016 final rule through March 2022, provides that the 
total spending approved for each SDP for the most recent rating period 
for States is nearly $48 billion \60\ with at least half of that 
spending being dollars that States are requiring be paid in addition to 
negotiated rates.\61\ This $48 billion figure is an estimate of annual 
spending. As SDP spending continues to increase, we believe it is 
appropriate to apply additional regulatory requirements with respect to 
the totality of provider payment rates under SDPs to ensure proper 
fiscal and programmatic oversight in Medicaid managed care programs, 
and we are proposing several related regulatory changes as well as 
exploring other potential payment rate and expenditure limits.
---------------------------------------------------------------------------

    \59\ Medicaid and CHIP Payment and Access Commission, ``Report 
to Congress on Medicaid and CHIP,'' June 2022, available at https://www.macpac.gov/wp-content/uploads/2022/06/MACPAC_June2022-WEB-Full-Booklet_FINAL-508-1.pdf.
    \60\ This data point is an estimate and reflective of the most 
recent approval for all unique payment arrangements that have been 
approved through March 31, 2022 under CMS' standard review process. 
Rating periods differ by State; some States operating their managed 
care programs on a calendar year basis while others operate on a 
State fiscal year basis, which most commonly is July to June. The 
most recent rating period for which the SDP was approved as of March 
2022 also varies based on the review process reflective of States 
submitting proposals later than recommended (close to or at the end 
of the rating period), delays in State responses to questions, and/
or reviews taking longer due to complicated policy concerns (for 
example, financing).
    \61\ As part of the revised preprint form, States are asked to 
identify if the payment arrangement requires plans to pay an amount 
in addition to negotiated rates vs. limiting or replacing negotiated 
rates. Approximately half of the total dollars identified for the 
SDP actions included were identified by States for payment 
arrangements that required plans to pay an amount in addition to the 
rates negotiated between the plan and provider(s) rates.
---------------------------------------------------------------------------

    As noted in the 2016 final rule, section 1903(m)(2)(A)(iii) of the 
Act requires that contracts between States and Medicaid managed care 
organizations for coverage of benefits use prepaid payments to the 
entity that are actuarially sound. By regulation based on section 
1902(a)(4) of the Act, CMS extended the requirement for actuarially 
sound capitation rates to PIHPs and PAHPs. The regulations addressing 
actuarially sound capitation rates are at Sec. Sec.  438.4 through 
438.7.
    Currently Sec.  438.6(c)(2) specifies that SDPs must be developed 
in accordance with Sec.  438.4, the standards specified in Sec.  438.5 
and generally accepted actuarial principles and practices. Under the 
definition in Sec.  438.4, actuarially sound capitation rates are 
``projected to provide for all reasonable, appropriate, and attainable 
costs that are required under the terms of the contract and for the 
operation of the MCO, PIHP, or PAHP for the time period and the 
population covered under the terms of the contract . . .'' Consistent 
with this

[[Page 28119]]

definition in Sec.  438.4, we noted in the State Medicaid Director 
Letter #21-001 published on January 8, 2021 that CMS requires States to 
demonstrate that SDPs result in provider payment rates that are 
reasonable, appropriate, and attainable as part of the preprint review 
process. We are proposing here to codify this standard regarding the 
provider payment rates for each SDP more clearly in the regulation. As 
part of the proposed revisions in Sec.  438.6(c)(2)(ii) to specify the 
standards that each SDP must meet, we are proposing a new standard at 
Sec.  438.6(c)(2)(ii)(I) to codify our current policy that each SDP 
ensure that the total payment rate for each service, and each provider 
class included in the SDP must be reasonable, appropriate and 
attainable and, upon request from CMS, the State must provide 
documentation demonstrating the total payment rate for each service and 
provider class. We propose in Sec.  438.6(a) to define ``total payment 
rate'' as the aggregate for each managed care program of: (1) the 
average payment rate paid by all MCOs, PIHPs, or PAHPs to all providers 
included in the specified provider class for each service identified in 
the SDP; (2) the effect of the SDP on the average rate paid to 
providers included in the specified provider class for the same service 
for which the State is seeking written prior approval; (3) the effect 
of any and all other SDPs on the average rate paid to providers 
included in the specified provider class for the same service for which 
the State is seeking written prior approval; and (4) the effect of any 
and all allowable pass-through payments, as defined in Sec.  438.6(a), 
paid to any and all providers in the provider class specified in the 
SDP for which the State is seeking written prior approval on the 
average rate paid to providers in the specified provider class. We note 
that while the total payment rate described above is collected for each 
SDP, the information provided for each SDP must account for the effects 
of all payments from the managed care plan (for example, other SDPs or 
pass-through payments) to any providers included in the provider class 
specified by the State for the same rating period. We assess if the 
total payment level across all SDPs in a managed care program is 
reasonable, appropriate and attainable.
    We note that, currently, Sec.  438.6(c)(1)(iii)(A) describes an SDP 
that sets a minimum fee schedule using Medicaid State plan approved 
rates for a particular service. As proposed in section I.B.2.c, Sec.  
438.6(c)(1)(iii)(B) would describe an SDP that sets a minimum fee 
schedule using 100 percent of the total published Medicare payment rate 
that was in effect no more than 3 years prior to the start of the 
applicable rating period for a particular service. An SDP that sets a 
minimum fee schedule using Medicaid State plan approved rates for a 
particular service does not currently require prior written approval by 
CMS per Sec.  438.6(c)(2)(ii), and we are proposing in Sec.  
438.6(c)(2)(i) to not require prior approval for an SDP that sets a 
minimum fee schedule using 100 percent of the total published Medicare 
payment rate. We also believe that both of these specific payment rates 
would be (and therefore meet the requirement that) reasonable, 
appropriate and attainable because CMS has reviewed and determined 
these payment rates to be appropriate under the applicable statute and 
implementing regulations for Medicaid and Medicare respectively. 
However, for other SDP arrangements, additional analysis and 
consideration is necessary to ensure that the payment rates directed by 
the State meet the standard of reasonable, appropriate and attainable.
    The proposed standard at Sec.  438.6(c)(2)(ii)(I) also includes a 
requirement that upon request from CMS, the State must provide 
documentation demonstrating the total payment rate for each service and 
provider class. While we are not proposing to require States to provide 
documentation in a specified format to demonstrate that the total 
payment rate is reasonable, appropriate and attainable for all services 
(see next section for documentation requirements for some SDPs), we 
intend to continue requesting information from all States for all SDPs 
documenting the different components of the total payment rate as 
described earlier in section I.B.2.f. of this proposed rule using a 
standardized measure (for example, Medicaid State plan approved rates 
or Medicare) for each service and each class included in the SDP. We 
formalized this process in the revised preprint form \62\ published in 
January 2021, and described it in the accompanying SMDL. We will 
continue to review and monitor all payment rate information submitted 
by States for all SDPs as part of our oversight activities and to 
ensure managed care payments are reasonable, appropriate and 
attainable. Based on our ongoing monitoring of payment rates, we may 
issue guidance further detailing documentation requirements and a 
specified format to demonstrate that the total payment rate is 
reasonable, appropriate and attainable for all services.
---------------------------------------------------------------------------

    \62\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
---------------------------------------------------------------------------

    We solicit comments on our proposed changes.
    Establishment of Payment Rate Limitations for Certain SDPs. As 
noted, a number of other entities, including MACPAC \63\ and GAO,\64\ 
have released reports focused on SDPs. Both noted concerns about the 
growth of SDPs and lack of a regulatory payment ceiling. Our proposed 
standard at Sec.  438.6(c)(2)(ii)(I) would codify our current practice 
of determining whether the total payment rate is reasonable, 
appropriate, and attainable for each SDP. However, neither in our 
guidance nor in our proposed regulatory requirement at Sec.  
438.6(c)(2)(ii)(I) have we defined the terms ``reasonable, appropriate 
and attainable'' as they are used for SDPs. To address this, we are 
proposing several regulatory standards to establish when the total 
payment rates for certain SDPs are reasonable, appropriate and 
attainable. We are proposing to adopt at Sec.  438.6(c)(2)(iii) both 
specific standards and the documentation requirements necessary for 
ensuring compliance with the specific standards for the types of SDPs 
described in paragraphs (c)(1)(i),(ii), and (iii)(C) through (E) where 
the SDP is for one or more of the following types of services: 
inpatient hospital services, outpatient hospital services, nursing 
facility services, and qualified practitioner services at an academic 
medical center.
---------------------------------------------------------------------------

    \63\ https://www.macpac.gov/publication/june-2022-report-to-congress-on-medicaid-and-chip/June 2022 Report to Congress on 
Medicaid and CHIP, Chapter 2.
    \64\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
---------------------------------------------------------------------------

    To explain and provide context for proposed new paragraph 
(c)(2)(iii), we discuss the historical use of the average commercial 
rate (ACR) benchmark for SDPs, the proposed payment limit for inpatient 
hospital services, outpatient hospital services, qualified practitioner 
services at academic medical centers and nursing facility services 
(including proposed definitions for these types of services) and some 
alternatives we are also considering, the proposed requirement for 
States to demonstrate the ACR, and the proposed requirements for States 
to demonstrate compliance with the ACR and total payment rate 
comparison requirement. We have included further sub-headers to help 
guide the reader through this section.

[[Page 28120]]

1. Historical Use of the Average Commercial Rate Benchmark for SDPs
    In late 2017, we received an SDP preprint to raise inpatient 
hospital payment rates broadly that would result in a total payment 
rate that exceeded 100 percent of Medicare rates in that State, but the 
payments would remain below the ACR for that service and provider class 
in that State. We had concerns about whether the payment rates were 
still reasonable, appropriate, and attainable for purposes of CMS 
approval of the SDP as being consistent with the existing regulatory 
requirement that all SDPs must be developed in accordance with Sec.  
438.4, the standards specified in Sec.  438.5, and generally accepted 
actuarial principles and practices. We realized that approving an SDP 
that exceeded 100 percent of Medicare rates would be precedent-setting 
for CMS. We explored using an internal total payment rate benchmark 
that could be applied uniformly across all SDPs to evaluate preprints 
for approval and to ensure that payment rates projected to be paid to 
providers under the SDP(s) remained reasonable, appropriate, and 
attainable.
    Medicare is a significant payer in the health insurance market, and 
Medicare reimbursement is a standardized benchmark used in the 
industry. Medicare reimbursement is also a benchmark used in Medicaid 
FFS, including the Upper Payment Limits (UPLs) that apply to classes of 
institutional providers, such as hospitals, nursing facilities, and 
intermediate care facilities for individuals with intellectual 
disabilities (ICFs/IID), that are based on Medicare payment rates. The 
UPLs apply an overall payment ceiling based on how much Medicare would 
have paid in total as a mechanism for determining economy and 
efficiency of payment for State plan services while allowing for 
facility-specific payments.\65\ Generally for inpatient and outpatient 
services, these UPL requirements apply to three classes of facilities 
based on ownership status: State-owned, non-State government-owned, and 
private. Hospitals within a class can be paid different amounts and 
facility-specific total payment rates can vary, sometimes widely, so 
long as in the aggregate, the total amount that Medicaid paid across 
the class is no more than what Medicare would have paid.
---------------------------------------------------------------------------

    \65\ The Upper Payment Limit regulations for FFS Medicaid are 
Sec. Sec.  447.272 (inpatient hospital services), 447.321 
(outpatient hospital services) and 447.325 (other inpatient and 
outpatient facility services).
---------------------------------------------------------------------------

    When considering the Medicaid FFS UPL methodologies, we had some 
concerns that applying the same standards for the total payment rate 
under SDPs to three classes based on ownership status, would not be 
appropriate for implementing the SDP requirements. In some States, SDPs 
have become a method to meet their quality and access goals in Medicaid 
managed care.
    Currently, Sec.  438.6(c)(2)(ii)(B) provides States with broader 
flexibility than what is required for FFS UPLs in defining the provider 
class for which States can implement SDPs. This flexibility has proven 
important for States to target their efforts to achieve their stated 
policy goals tied to their managed care quality strategy. For example, 
CMS has approved SDPs where States proposed and implemented SDPs that 
applied to provider classes defined by criteria such as participation 
in State health information systems. In other SDPs, the eligible 
provider class was established by participation in learning 
collaboratives which were focused on health equity or social 
determinants of health. In both cases, the provider class under the SDP 
was developed irrespective of the facility's ownership status. These 
provider classes can be significantly wider or narrower than the 
provider class definitions used for Medicaid UPL demonstrations in 
Medicaid FFS. Therefore, the provider classes in some approved SDPs did 
not align with the classes used in Medicaid FFS UPL demonstrations, 
which are only based on ownership or operation status (that is, State 
government-owned or operated, Non-State government-owned or operated, 
and privately-owned and operated facilities) and include all payments 
made to all facilities that fit in those ownership-defined classes. Not 
all providers providing a particular service in Medicaid managed care 
programs must be included in an SDP. Under Sec.  438.6(c)(2)(ii)(B), 
States are required to direct expenditures equally, using the same 
terms of performance, for a class of providers furnishing services 
under the contract; however, they are not required to direct 
expenditures equally using the same terms of performance for all 
providers providing services under the contract.
    Without alignment across provider classes, CMS could have faced 
challenges in applying a similar standard of the Medicaid FFS UPL to 
each provider class that the State specified in the SDP irrespective of 
how each provider class that the State specified in the SDP compared to 
the ownership-defined classes used in the Medicaid FFS UPL. Given the 
diversity in provider classes States have proposed and implemented 
under SDPs approved by CMS at the time (and subsequently), combined 
with the fact that not all providers of a service under the contract 
are necessarily subject to the SDP, CMS had concerns that applying the 
Medicaid FFS UPL to each provider class under the SDP could have 
resulted in situations in managed care where provider payments under 
SDPs would not align with Medicaid FFS policy. In some instances, 
payments to particular facilities could potentially be significantly 
higher than allowed in Medicaid FFS, and in others, facility-specific 
payments could potentially be significantly lower than allowed in 
Medicaid FFS.
    We note that States have been approved to make Medicaid FFS 
supplemental payments up to the ACR for qualified practitioners 
affiliated with and furnishing services (for example, physicians under 
the physician services benefit) in academic medical centers, physician 
practices, and safety net hospitals.\66\ CMS had previously approved 
SDPs that resulted in total payment rates up to the ACR for the same 
providers that States had approved State plan authority to make 
supplemental payments up to the ACR in Medicaid FFS. Additionally, 
while CMS does not review the provider payment rate assumptions for all 
services underlying Medicaid managed care rate development, we had 
recently approved Medicaid managed care contracts in one State where 
plans are paid capitation rates developed assuming the use of 
commercial rates

[[Page 28121]]

paid to providers for all services covered in the contract.
---------------------------------------------------------------------------

    \66\ CMS has approved Medicaid State plan amendments authorizing 
such targeted Medicaid supplemental payment methodologies for 
qualified practitioner services up to the average commercial rate 
under 1902(a)(30)(A) of the Act. Additional information on this and 
other payment demonstrations is published on Medicaid.gov at https://www.medicaid.gov/medicaid/financial-management/payment-limit-demonstrations/. Instructions specific to qualified 
practitioner services ACR are further described in the following 
instructions: https://www.medicaid.gov/medicaid/downloads/upl-
instructions-qualified-practitioner-services-replacement-
new.pdf#:~:text=CMS%20has%20approved%20SPAs%20that%20use%20the%20foll
owing,payments%20or%20an%20alternate%20fee%20schedule%20is%20used. 
As practitioner payments are not subject to Medicaid UPL 
requirements under 42 CFR part 447 subparts C and F, the ACR is a 
mechanism by which CMS can review Medicaid practitioner supplemental 
payments compared to average commercial market rates where private 
insurance companies have an interest in setting reasonable, 
competitive rates in a manner that may give assurance that such 
rates are economic and efficient, consistent with section 
1902(a)(30)(A) of the Act.
---------------------------------------------------------------------------

    For these reasons, in 2018, CMS ultimately interpreted the current 
Sec.  438.6(c)(2)(i) (which we propose to re-designate as Sec.  
438.6(c)(2)(ii)(I) and (J) along with revisions to better reflect our 
interpretation) to allow total payment rates in an SDP up to the ACR. 
The statutory and regulatory requirements for the UPL in Medicaid FFS 
do not apply to risk-based managed care plans; therefore, permitting 
States to direct MCOs, PIHPs, PAHPs to make payments higher than the 
UPL does not violate any Medicaid managed care statutory or regulatory 
requirements. We adopted ACR as the standard benchmark for all SDPs. 
this standard benchmark for all SDPs applied ACR more broadly (that is, 
across more services and provider types) than allowed under Medicaid 
FFS, due to the Medicare payment-based UPLs applicable in FFS. Our 
rationale in 2018 for doing so was that using the ACR allowed States 
more discretion than the Medicaid FFS UPL because it allows States to 
ensure that Medicaid managed care enrollees have access to care that is 
comparable to access for the broader general public. Also, we believed 
using the ACR presented the least disruption for States as they were 
transitioning existing, and often long-standing, pass-through payments 
\67\ into SDPs, while at the same time providing a ceiling for SDPs to 
protect against the potential of SDPs threatening States' ability to 
comply with our interpretation of current Sec.  438.6(c)(2)(i) that 
total provider payment rates resulting from SDPs be reasonable, 
appropriate and attainable. Finally, using the ACR provided some parity 
with Medicaid FFS payment policy for payments for qualified 
practitioners affiliated with and furnishing services at academic 
medical centers, physician practices, and safety net hospitals where 
CMS has approved rates up to the ACR.\68\
---------------------------------------------------------------------------

    \67\ Pass-through payments are defined in Sec.  438.6(a) as, 
``any amount required by the State to be added to the contracted 
payment rates, and considered in calculating the actuarially sound 
capitation rate between the MCO, PIHP, or PAHP and hospitals, 
physicians, or nursing facilities that is not for a specific service 
or benefit provided to a specific enrollee covered under the 
contract, a provider payment methodology permitted under Sec.  
438.6(c), a sub-capitated payment arrangement for a specific set of 
services and enrollees covered under the contract; GME payments; or 
FQHC or RHC wrap around payments.''
    \68\ CMS has approved Medicaid State plan amendments authorizing 
such targeted Medicaid supplemental payment methodologies for 
qualified practitioner services up to the average commercial rate 
under 1902(a)(30)(A) of the Act. Additional information on this and 
other payment demonstrations is published on Medicaid.gov at . 
Instructions specific to qualified practitioner services ACR are 
further described in the following instructions: https://
www.medicaid.gov/medicaid/downloads/upl-instructions-qualified-
practitioner-services-replacement-
new.pdf#:~:text=CMS%20has%20approved%20SPAs%20that%20use%20the%20foll
owing,payments%20or%20an%20alternate%20fee%20schedule%20is%20used. 
As practitioner payments are not subject to Medicaid UPL 
requirements under 42 CFR part 447 subparts C and F, the ACR is a 
mechanism by which CMS can review Medicaid practitioner supplemental 
payments compared to average commercial market rates where private 
insurance companies have an interest in setting reasonable, 
competitive rates in a manner that may give assurance that such 
rates are economic and efficient, consistent with section 
1902(a)(30)(A) of the Act.
---------------------------------------------------------------------------

    Therefore, since 2018, we have used the ACR as a benchmark for 
total payment rates for all SDP reviews. Under this policy, States have 
had to document the total payment rate specific to each service type 
included in the SDP and specific to each provider class identified. For 
example, if an SDP provides a uniform increase for inpatient and 
outpatient hospital services with two provider classes (rural hospitals 
and non-rural hospitals), the State would be required to provide an 
analysis of the total payment rate (average base rate paid by plans, 
the effect of the SDP, the effect of any other approved SDP(s), and the 
effect of any permissible pass-through payments) using a standardized 
measure (for example, Medicaid State plan approved rates or Medicare) 
for each service and each class included in the SDP. In the example 
above, the State would be required to demonstrate the total payment 
rates for inpatient services for rural hospitals, inpatient services 
for non-rural hospitals, outpatient services for rural hospitals and 
outpatient services for non-rural hospitals separately. We formalized 
this process in the revised preprint form \69\ published in January 
2021, and described it in the accompanying SMDL. While CMS has 
collected this information for each SDP submitted for written prior 
approval, we historically requested the impact not only of the SDP 
under review, but any other payments made by the managed care plan (for 
example, other SDPs or pass-through payments) to any providers included 
in the provider class specified by the State for the same rating 
period.
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    \69\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
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    When a State has not demonstrated that the total payment rate for 
each service(s) and provider class(es) included in each SDP arrangement 
is at or below either the Medicare or Medicaid FFS rate (when Medicare 
does not cover the service), CMS has requested documentation from the 
State to demonstrate that the total payment rates that exceed the 
Medicare or the Medicaid FFS rate do not exceed the ACR for the service 
and provider class. CMS has worked with States to collect documentation 
on the total payment rate, which has evolved over time. CMS has not 
knowingly approved an SDP where the total payment rate, inclusive of 
all payments made by the plan to any providers included in the provider 
class for the same rating period, was projected to exceed the ACR.
2. Proposed Payment Rate Limit for Inpatient Hospital Services, 
Outpatient Hospital Services, Qualified Practitioner Services at 
Academic Medical Centers, and Nursing Facility Services
    While CMS has not knowingly approved an SDP that includes payment 
rates that are projected to exceed the ACR, States are increasingly 
submitting preprints that would push total payment rates up to the ACR. 
Therefore, we propose to move away from the use of an internal 
benchmark to a regulatory limit on the projected total payment rate, 
using the ACR for inpatient hospital services, outpatient hospital 
services, qualified practitioner services at an academic medical 
center, and nursing facility services. We are also considering other 
potential options for this limit on total payment rate for these four 
services.
    CMS believes that using the ACR as a limit is likely appropriate as 
it is generally consistent with the need for managed care plans to 
compete with commercial plans for providers to participate in their 
networks to furnish comparable access to care for inpatient hospital 
services, outpatient hospital services, qualified practitioner services 
at an academic medical center and nursing facility services.
    While Medicaid is a substantial payer for these services, it is not 
the most common payer for inpatient hospital, outpatient hospital and 
qualified practitioner services at an academic medical center. Looking 
at the National Health Expenditures data for 2020, private health 
insurance pays for 32 percent of hospital expenditures, followed by 
Medicare (25 percent) and Medicaid (17 percent). There is a similar 
breakdown for physician and clinical expenditures--private health 
insurance pays for 37 percent of physician and clinical expenditures, 
followed by Medicare (24 percent) and Medicaid (11 percent).\70\ For 
these three services, commercial payers typically pay the

[[Page 28122]]

highest rates, followed by Medicare, followed by 
Medicaid.71 72 73 74
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    \70\ https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData.
    \71\ Congressional Budget Office, ``The Prices That Commercial 
Health Insurers and Medicare Pay for Hospitals' and Physicians' 
Services,'' January 2022, available at https://www.cbo.gov/system/files/2022-01/57422-medical-prices.pdf.
    \72\ E. Lopez, T. Neumann, ``How Much More Than Medicare Do 
Private Insurers Pay? A Review of the Literature,'' Kaiser Family 
Foundation, April 15, 2022, available at https://www.kff.org/medicare/issue-brief/how-much-more-than-medicare-do-private-insurers-pay-a-review-of-the-literature/.
    \73\ Medicaid and CHIP Payment and Access Commission, ``Medicaid 
Hospital Payment: A Comparison across States and to Medicare,'' 
April 2017, available at https://www.macpac.gov/wp-content/uploads/2017/04/Medicaid-Hospital-Payment-A-Comparison-across-States-and-to-Medicare.pdf.
    \74\ C. Mann, A. Striar, ``How Differences in Medicaid, 
Medicare, and Commercial Health Insurance Payment Rates Impact 
Access, Health Equity, and Cost,'' The Commonwealth Fund, August 17, 
2022, available at https://www.commonwealthfund.org/blog/2022/how-differences-medicaid-medicare-and-commercial-health-insurance-payment-rates-impact.
---------------------------------------------------------------------------

    Based on both CMS' experience with SDPs for inpatient hospital 
services, outpatient hospital services and qualified practitioner 
services at an academic medical center as well as data from the 
National Health Expenditure survey and other external studies examining 
payment rates across the Medicaid, Medicare and commercial markets, we 
believe that for these three services, the ACR payment rate limit would 
likely be reasonable, appropriate and attainable while allowing States 
the flexibility to further State policy objectives through 
implementation of SDPs.
    We also believe that this proposed ACR payment rate limit aligns 
with the SDP actions submitted to CMS. Based on our internal data 
collected from our review of SDPs, the most common services for which 
States seek to raise total payment rates up to the ACR are qualified 
practitioner services at academic medical centers, inpatient hospital 
services, and outpatient hospital services. Looking at approvals since 
2017 through March 2022, we have approved 145 preprint actions that 
were expected to yield SDPs equal to the ACR: 33 percent of these 
payments are for professional services at academic medical centers; 18 
percent of these payments are for inpatient hospital services; 17 
percent of these payments are for outpatient hospital services; 2 
percent are for nursing facilities. Altogether, this means that at 
least two thirds of the SDP submissions intended to raise total payment 
rates up to the ACR were for these four provider classes. While States 
are pursuing SDPs for other types of services, very few States are 
pursuing SDPs that increase total payment rates up to the ACR for those 
other categories or types of covered services.
    While there have not been as many SDP submissions to bring nursing 
facilities up to a total payment rate near the ACR, there have been a 
few that have resulted in notable payment increases to nursing 
facilities. In the same internal analysis referenced above, 2 percent 
of the preprints approved that were expected to yield SDPs equal to the 
ACR were for nursing facilities. There have also been concerns raised 
as part of published audit findings about a particular nursing facility 
SDP.\75\ Therefore, we propose to include these four services--
inpatient hospital services, outpatient hospital services, qualified 
practitioner services at an academic medical center, and nursing 
facility services--in Sec.  438.6(c)(2)(iii) and limit the projected 
total payment rate for each of these four services to ACR for any SDP 
arrangements described in paragraphs (c)(1)(i) through (iii), excluding 
(c)(1)(iii)(A) and (B), that are for any of these four services. States 
directing MCO, PIHP or PAHP expenditures in such a manner that results 
in a total payment rate above the ACR for any of these four types of 
services would not be approvable under our proposal. Such arrangements 
would violate the standard proposed in Sec.  438.6(c)(2)(ii)(I) that 
total payment rates be reasonable, appropriate and attainable and the 
standard proposed in Sec.  438.6(c)(2)(iii) setting specific payment 
level limits for certain types of SDPs. We note that while the total 
payment rate is collected for each SDP, the information provided for 
each SDP must account for the effects of all payments from the managed 
care plan (for example, other SDPs or pass-through payments) to any 
providers included in the provider class specified by the State for the 
same rating period. The proposed total payment limit would apply across 
all SDPs in a managed care program; States would not be able to for 
example, create multiple SDPs that applied, in part or in whole, to the 
same provider classes and be projected to exceed the ACR. These 
proposals are based on our authority to interpret and implement section 
1903(m)(2)(A)(iii) of the Act, which requires contracts between States 
and MCOs to provide payment under a risk-based contract for services 
and associated administrative costs that are actuarially sound and in 
order to apply these requirements to PIHPs and PAHPs as well as MCOs, 
on our authority under section 1902(a)(4) of the Act to establish 
methods of administration for Medicaid that are necessary for the 
proper and efficient operation of the State plan.
---------------------------------------------------------------------------

    \75\ U.S. Department of Health and Human Services Office of the 
Inspector General, ``Aspects of Texas' Quality Incentive Payment 
Program Raise Questions About Its Ability To Promote Economy and 
Efficiency in the Medicaid Program,'' A-06-18-07001, December 21, 
2020, available at https://oig.hhs.gov/oas/reports/region6/61807001.asp.
---------------------------------------------------------------------------

    For some services where Medicaid is the most common or only payer 
(such as HCBS,\76\ mental health services,\77\ substance use disorder 
services,\78\ and obstetrics and gynecology services,79 80) 
interested parties have raised concerns about access to care more 
specifically. For example, one State recently shared data from its 
internal analysis of the landscape of behavioral health reimbursement 
in the State that showed Medicaid managed care reimbursement for 
behavioral health services is higher than commercial reimbursement. 
Further, a study \81\ authorized through Oregon's Legislature outlined 
several disparities in behavioral health payment, including a concern 
that within the commercial market, behavioral health providers often 
receive higher payment rates when furnishing services to out-of-network 
patients, potentially reducing incentives for these providers to join 
Medicaid managed care or commercial health plan networks. Instituting a 
limit on SDP payment amounts that is tied to the ACR, particularly when 
access concerns have also been raised in the commercial markets too, 
may have a deleterious effect on access to care for Medicaid managed 
care enrollees.
---------------------------------------------------------------------------

    \76\ The National Health Expenditures data for 2020 who that 
Medicaid is the primary payer for other health, residential and 
personal care expenditures, paying for 58 percent of such 
expenditures where private insurance only paid for 7 percent of such 
services. For home health care expenditures, Medicare paid for 34 
percent of such services, followed by Medicaid at 32 percent 
followed by private insurance (13 percent). https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData.
    \77\ https://www.medicaid.gov/medicaid/benefits/behavioral-health-services/.
    \78\ https://www.kff.org/medicaid/issue-brief/medicaids-role-in-financing-behavioral-health-services-for-low-income-individuals/.
    \79\ https://www.acog.org/advocacy/policy-priorities/medicaid.
    \80\ https://www.kff.org/womens-health-policy/issue-brief/medicaid-coverage-for-women/.
    \81\ J. Zhu, et al., ``Behavioral Health Workforce Report to the 
Oregon Health Authority and State Legislature,'' February 1, 2022, 
available at https://www.oregon.gov/oha/ERD/SiteAssets/Pages/Government-Relations/Behavioral%20Health%20Workforce%20Wage%20Study%20Report-Final%20020122.pdf.
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    We acknowledge that some States have had difficulty with providing 
payment rate analyses demonstrating that the total payment rate is 
below ACR, including for services other than

[[Page 28123]]

inpatient hospital services, outpatient hospital services, nursing 
facility services, or qualified practitioner services at academic 
medical centers. For example, based on our experience, some States have 
found it difficult to obtain data on commercial rates paid for HCBS. 
States have noted that this is due to the fact that commercial markets 
do not generally offer HCBS, making the availability of commercial 
rates for such services scarce or nonexistent. This same concern has 
been raised for other services, such as behavioral health and substance 
use disorder services, among others, where Medicaid is the most common 
payer and commercial markets do not typically provide similar levels of 
coverage.
    Therefore, we are not proposing at this time to establish in Sec.  
438.6(c)(2)(iii) payment rate ceilings for each SDP for services other 
than inpatient hospital services, outpatient hospital services, nursing 
facility services, or qualified practitioner services at academic 
medical centers that States include in SDPs. While SDPs for all other 
services will still need to meet the proposed standard at Sec.  
438.6(c)(2)(ii)(I) that the total payment rate for each SDP (meaning 
the payment rate to providers) is reasonable, appropriate and 
attainable, at this time we believe further research is needed before 
codifying a specific payment rate limit for these services to ensure 
that such limits do not result in inappropriately reducing payment 
rates and negatively affecting access to care. We will continue to 
review and monitor all payment rate information submitted by States for 
all SDPs as part of our oversight activities and to ensure managed care 
payments are reasonable, appropriate and attainable. Depending on our 
future experience, we may revisit this issue as necessary.
    For clarity and consistency in applying these proposed new payment 
limits, we propose to define several terms in Sec.  438.6(a), including 
a definition for ``inpatient hospital services'' that would be the same 
as specified at 42 CFR 440.10, ``outpatient hospital services'' that 
would be the same as specified in Sec.  440.20(a) and ``nursing 
facility services'' that would be the same as specified at Sec.  
440.40(a). Relying on existing regulatory definitions will prevent 
confusion and provide consistency across Medicaid delivery systems.
    We also propose definitions in Sec.  438.6(a) for both ``academic 
medical center'' and ``qualified practitioner services at an academic 
medical center'' to clearly articulate which SDP arrangements would be 
limited based on the proposed payment rate. We propose to define 
``academic medical center'' as a facility that includes a health 
professional school with an affiliated teaching hospital. We propose to 
define ``qualified practitioner services at an academic medical 
center'' as professional services provided by physicians and non-
physician practitioners affiliated with or employed by an academic 
medical center.
    At this time, we are not proposing to establish a payment rate 
ceiling for qualified practitioners that are not affiliated with or 
employed by an academic medical center. We have not seen a comparable 
volume or size of SDP preprints for provider types not affiliated with 
hospitals or academic medical centers, and we believe establishing a 
payment ceiling would likely be burdensome on States and could inhibit 
States from pursuing SDPs for providers such as primary care physicians 
and mental health providers and we seek comment on this issue. 
Depending on our future experience, we may revisit this policy choice 
in the future but until then, qualified practitioner services furnished 
at other locations or settings will be subject to the general standard 
we currently use that is proposed to be codified at Sec.  
438.6(c)(2)(ii)(I) that total payment rates for each service and 
provider class included in the SDP must be reasonable, appropriate and 
attainable.
    We believe that establishing a total payment rate limit of the ACR 
for these four services appropriately balances the need for additional 
fiscal guardrails while providing States flexibility in pursuing 
provider payment initiatives and delivery system reform efforts that 
further advance access to care and enhance quality of care in Medicaid 
managed care. In our view, utilizing the ACR in a managed care delivery 
system is appropriate and acknowledges the market dynamics at play to 
ensure that managed care plans can build provider networks that are 
comparable to the provider networks in commercial health insurance and 
ensure access to care for managed care enrollees. However, we recognize 
that formally codifying a payment rate limit of ACR for these four 
service types may raise some questions. First, codifying a payment rate 
limit of ACR for these four service types may incent States and 
interested parties to implement additional payment arrangements that 
raise total payment rates up to the ACR for other reasons beyond 
advancing access to care and enhancing quality of care in Medicaid 
managed care. The majority of SDPs that increase total payment rates up 
to the average commercial rate are primarily funded by either provider 
taxes, IGTs, or a combination of these two sources of the non-Federal 
share. These SDPs represent some of the largest SDPs in terms of total 
dollars that are required to be paid in addition to base managed care 
rates. We are concerned about incentivizing States to raise total 
payment rates up to the ACR based on the source of the non-Federal 
share, rather than based on furthering goals and objectives outlined in 
the State's managed care quality strategy. To mitigate this concern, 
which is shared not only by CMS but oversight bodies and interested 
parties such as MACPAC,\82\ we are proposing additional regulatory 
changes related to financing the non-Federal share; see section 
I.B.2.g. of this proposed rule.
---------------------------------------------------------------------------

    \82\ MACPAC's report noted, ``The largest directed payment 
arrangements are typically targeted to hospitals and financed by 
them. Of the 35 directed payment arrangements projected to increase 
payments to providers by more than $100 million a year, 30 were 
targeted to hospital systems and at least 27 were financed by 
provider taxes or IGTs. During our interviews, interested parties 
noted that the amount of available IGTs or provider taxes often 
determined the total amount of spending for these types of 
arrangements. Once this available pool of funding was determined, 
States then worked backward to calculate the percentage increase in 
provider rates. Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
---------------------------------------------------------------------------

    In light of these concerns, we are considering alternatives to the 
ACR as a total payment rate limit for inpatient hospital services, 
outpatient hospital services, nursing facility services, and qualified 
practitioner services at an academic medical center for each SDP. we 
are considering including in the final rule establishing the total 
payment rate limit at the Medicare rate; this is a standardized 
benchmark used in the industry, and is often a standard utilized in 
Medicaid FFS under upper payment limit (UPL) demonstrations in 42 CFR 
part 447. The Medicare rate is also not based on proprietary commercial 
payment data, and the payment data could be verified and audited more 
easily than the ACR. If we did include in the final rule a total 
payment rate limit at the Medicare rate, this may limit the growth in 
payment rates more than limiting the total payment rate to the ACR. We 
are also considering, and soliciting feedback on, establishing a total 
payment rate limit for all services, not limited to just these four 
services, for all SDP arrangements described in Sec.  438.6(c)(1)(i), 
(ii), and (iii)(C) through (E) at the Medicare rate in the final rule. 
We invite public comments on these alternatives.

[[Page 28124]]

    We do have some concerns about whether Medicare is an appropriate 
payment rate limit for managed care payments given the concerns and 
limitations we noted earlier in the ``Historical Use of the Average 
Commercial Rate Benchmark for SDPs'' section of this proposed rule, 
such as provider class limitations. Additionally, Medicare payment 
rates are developed for a population that differs from the Medicaid 
population. For example, Medicaid covers substantially more pregnant 
women and children than Medicare. Although Medicaid FFS UPLs are 
calculated as a reasonable estimate of what Medicare would pay for 
Medicaid services and account for population differences across the 
programs, it can be a challenging exercise to do so accurately. 
Therefore, we seek public comment to further evaluate if Medicare would 
be a reasonable limit for the total provider rate for the four types of 
services delivered through managed care that we propose, all services, 
and/or additional types of services. We note that beneficiaries 
enrolled in a managed care plan are often more aligned with individuals 
in commercial health insurance (such as, adults and kids), whereas the 
FFS population is generally more aligned with the Medicare population 
(older adults and individuals with complex health care needs). To 
acknowledge the challenges in calculating the differences between the 
Medicaid and Medicare programs, we are also considering, and soliciting 
feedback on, whether the total payment rate limit for each SDP for 
these four services should be set at some level between Medicare and 
the ACR, or a Medicare equivalent of the ACR in the final rule. We 
invite public comments on these alternatives.
    In considering these potential alternatives, we are also 
considering whether robust quality goals and objectives should be a 
factor in setting a total payment rate limit for each SDP for these 
four types of services. Specifically, we are also considering including 
in the final rule a provision permitting a total payment rate limit for 
any SDP arrangements described in paragraphs (c)(1)(i) and (ii) that 
are for any of these four services, at the ACR, while limiting the 
total payment rate for any SDP arrangements described in Sec.  
438.6(c)(1)(iii)(C) through (E), at the Medicare rate. As we noted 
earlier, CMS believes that establishing a total payment rate limit of 
the ACR for these four services provides States flexibility in pursuing 
provider payment initiatives and delivery system reform efforts that 
further advance access to care and enhance quality of care in Medicaid 
managed care. Under this alternative policy we are considering 
including in the final rule, there would be an additional fiscal 
guardrail compared to our proposal by limiting the total payment rate 
for these four services to ACR for value-based initiatives only and 
further limiting the total payment rate for these four services to the 
Medicare rate for fee schedule arrangements (for example, uniform 
increases, minimum or maximum fee schedules). This alternative 
acknowledges the importance of robust quality outcomes and innovative 
payment models and could incentivize States to consider quality-based 
payment models that can better improve health outcomes for Medicaid 
managed care enrollees. We invite public comments on whether this 
potential alternative should be included in the final rule.
    For each of these alternatives, we acknowledge that some States 
currently have SDPs that have total payment rates up to the ACR. 
Therefore, these alternative proposals could be more restrictive, and 
States could need to reduce funding from current levels, which could 
have a negative impact on access to care and other health equity 
initiatives. we also seek public comment on whether or not CMS should 
consider a transition period in order to mitigate any disruption to 
provider payment levels if we adopt one of the alternatives for a total 
payment rate limit on SDP expenditures in the final rule.
    We seek public comment on our proposal to establish a payment rate 
limit for SDP arrangements at the ACR for inpatient hospital services, 
outpatient hospital services, qualified practitioner services at an 
academic medical center and nursing facility services. Additionally, we 
solicit public comment on the alternatives we are considering to 
establish a payment rate limit at the Medicare rate, a level between 
Medicare and the ACR, or a Medicare equivalent of the ACR for these 
four service types. We also solicit public comment on whether the final 
rule should include a provision establishing a total payment rate limit 
for any SDP arrangements described in paragraphs (c)(1)(i) and (ii) 
that are for any of these four services, at the ACR, while limiting the 
total payment rate for any SDP arrangements described in paragraph 
Sec.  438.6(c)(1)(iii)(C) through (E), at the Medicare rate.
3. Average Commercial Rate Demonstration Requirements
    In order to ensure compliance with the provision currently proposed 
that the total payment rate for SDPs that require written prior 
approval from CMS for inpatient hospital services, outpatient hospital 
services, qualified practitioner services at an academic medical 
centers and nursing facility services do not exceed the ACR for the 
applicable services subject to the SDP, CMS will need certain 
information and documentation from the State. Therefore, we propose in 
Sec.  438.6(c)(2)(iii) that States provide two pieces of documentation: 
(1) an ACR demonstration; and (2) a total payment rate comparison to 
the ACR. We propose the timing for these submissions in Sec.  
438.6(c)(2)(iii)(C). The ACR demonstration would be submitted with the 
initial preprint submission (new, renewal, or amendment) following the 
applicability date of this section and then updated at least every 3 
years, so long as the State continues to include the SDP in one or more 
managed care contracts. The total payment rate comparison to the ACR 
would be submitted with the preprint as part of the request for 
approval of each SDP and updated with each subsequent preprint 
submission (each amendment and renewal).
    At Sec.  438.6(c)(2)(iii)(A), we propose to specify the 
requirements for demonstration of the ACR if a State seeks written 
prior approval for an SDP that includes inpatient hospital services, 
outpatient hospital services, qualified practitioner services at an 
academic medical center or nursing facility services. This 
demonstration must use payment data that: (1) is specific to the State; 
(2) is no older than the 3 most recent and complete years prior to the 
start of the rating period of the initial request following the 
applicability date of this section; (3) is specific to the service(s) 
addressed by the SDP; (4) includes the total reimbursement by the third 
party payer and any patient liability, such as cost sharing and 
deductibles; (5) excludes payments to FQHCs, RHCs and any non-
commercial payers such as Medicare; and (6) excludes any payment data 
for services or codes that the applicable Medicaid managed care plans 
do not cover under the contracts with the State that will include the 
SDP. We consider Qualified Health Plans (QHPs) operating in the ACA 
Marketplace to be commercial payers for purposes of this proposed 
provision, and therefore, payment data from QHPs should be included 
when available.

[[Page 28125]]

    At proposed Sec.  438.6(c)(2)(iii)(A)(1), we would require States 
to use payment data specific to the State for the analysis, as opposed 
to regional or national analyses, to provide more accurate information 
for assessment. Given the wide variation in payment for the same 
service from State to State, regional or national analyses could be 
misleading, particularly when determining the impact on capitation 
rates that are State specific. Additionally, each State's Medicaid 
program offers different benefits and has different availability of 
providers. We currently request payment rate analyses for SDPs to be 
done at a State level for this reason and believe it would be important 
and appropriate to continue to do so.
    At proposed Sec.  438.6(c)(2)(iii)(A)(2), we would require States 
to use data that is no older than the 3 most recent and complete years 
prior to the start of the rating period of the initial request 
following the applicability date of this section. This would ensure 
that the data is reflective of the current managed care payments and 
market trends. It also aligns with rate development standards outlined 
in Sec.  438.5. For example, for the ACR demonstration for an SDP 
seeking written prior approval for inpatient hospital services, 
outpatient hospital services, qualified practitioner services at an 
academic medical center or nursing facility services for a CY 2025 
rating period, the data used must be from calendar year 2021 and later. 
We used a calendar year for illustrative purpose only; States must use 
their rating period timeframe for their analysis.
    We propose at Sec.  438.6(c)(2)(iii)(A)(3) to require States to use 
data that is specific to the service type(s) included in the SDP; this 
would be a change from current operational practice. In provider 
payment rate analyses for SDPs currently, States are required to 
compare the total payment rate for each service and provider class to 
the corresponding service and provider class specific ACR. For example, 
States requiring their managed care plans to implement SDPs for 
inpatient hospital services for three classes of providers--rural 
hospitals, urban hospitals, and other hospitals--would have to produce 
payment rate analyses specific to inpatient hospital services in rural 
hospitals, inpatient hospital services in urban hospitals, and 
inpatient hospital services in other hospitals separately. Under our 
current operational practice, if the total payment rate for any of 
these three provider classes exceeds Medicare, CMS requests the State 
provide documentation demonstrating that the total payment rate does 
not exceed the ACR specific to both that service and that provider 
class. As noted later in this same section, we are proposing in Sec.  
438.6(c)(2)(iii)(B), to continue to require States to produce the total 
payment rate comparison to the ACR at a service and provider class 
level. However, our proposal to codify a requirement for an ACR 
demonstration includes changes to our approach to determining the ACR 
and would require States to submit the ACR demonstration, irrespective 
of if the total payment rate were at or below the Medicare rate or 
State plan rate for all preprints seeking written prior approval for 
the four services.
    During our reviews of SDP preprints since the 2016 final rule, it 
has become clear that requiring an ACR analysis that is specific both 
to the service and provider class can have deleterious effects when 
States want to target Medicaid resources to those providers serving 
higher volumes of Medicaid beneficiaries. For example, we have often 
heard from States that rural hospitals commonly earn a larger share of 
their revenue from the Medicaid program than they do from commercial 
payers. There is also evidence that rural hospitals tend to be less 
profitable than urban hospitals and at a greater risk of closure.\83\ 
These hospitals often serve a critical role in providing access to 
services for Medicaid beneficiaries living in rural areas where 
alternatives to care are very limited or non-existent. If States want 
to target funding to increase reimbursement for hospital services to 
rural hospitals, limiting the ceiling for such payments to the ACR for 
rural hospitals only would result in a lower ceiling than if the State 
were to broaden the category to include hospitals with a higher 
commercial payer mix (for example, payment data for hospital services 
provided at a specialty cardiac hospital, which typically can negotiate 
a higher rate with commercial plans). However, in doing so, the 
existing regulatory requirement for SDPs at Sec.  438.6(c)(2)(ii)(B) 
requires that the providers in a provider class be treated the same--
meaning they get the same uniform increase. This has resulted in some 
cases States not being able to use Medicaid funds to target hospitals 
that provide critical services to the Medicaid population, but instead 
must use some of those Medicaid funds to provide increases to hospitals 
that serve a lower share of Medicaid beneficiaries.
---------------------------------------------------------------------------

    \83\ MACPAC Issue Brief, ``Medicaid and Rural Health.'' 
Published April 2021 https://www.macpac.gov/wp-content/uploads/2021/04/Medicaid-and-Rural-Health.pdf.
---------------------------------------------------------------------------

    In another example to demonstrate the potential effects of 
requiring an ACR analysis that is specific to both the service and 
provider class level, a State could seek to implement an SDP that would 
provide different increases for different classes of hospitals (for 
example, rural and urban public hospitals would receive a higher 
percentage increase than teaching hospitals and short-term acute care 
hospitals). The SDP preprint could provide for separate additional 
increases for hospitals serving a higher percentage of the Medicaid 
population and certain specialty services and capabilities. However, if 
the average base rate that the State's Medicaid managed care plans paid 
was already above the ACR paid for services to one of the classes (for 
example, rural hospitals), the State could not apply the same increases 
to this class as it would the other classes, even if the average base 
rate paid for the one class was below the ACR when calculated across 
all hospitals. In this example, the State would be left with the option 
of either eliminating the one class (for example, rural hospitals) from 
the payment arrangement or withdrawing the entire SDP proposed preprint 
even if the State still had significant concerns about access to care 
as it related to the one class (for example, rural hospitals). The 
focus on the ACR for the service at the provider class level has the 
potential to disadvantage providers with less market power, such as 
rural hospitals or safety net hospitals, which typically receive larger 
portions of their payments from Medicaid than from commercial payers. 
These providers typically are not able to negotiate rates with 
commercial payers on par with providers with more market power.
    To provide States the flexibility they need to design SDPs to 
direct resources as they deem necessary to meet their programmatic 
goals, we propose to require an ACR demonstration using payment data 
specific to the service type (that is, by the specific type of 
service). This would allow States to provide an ACR analysis at just 
the service level instead of at the service and provider class level. 
For example, States could establish a tiered fee schedule or series of 
uniform increases, directing a higher payment rate to facilities that 
provide a higher share of services to Medicaid enrollees than to the 
payment rate to facilities that serve a lower share of services to 
Medicaid enrollees. States would still have a limit of the ACR, but 
allowing this to be measured at the service level and not at

[[Page 28126]]

the service and provider class level would provide States flexibility 
to target funds to those providers that serve more Medicaid 
beneficiaries. Based on our experience, facilities that serve a higher 
share of Medicaid enrollees, such as rural hospitals and safety net 
hospitals, tend to have less market power to negotiate higher rates 
with commercial plans. Allowing States to direct plans to pay providers 
using a tiered payment rate structure based on different criteria, such 
as the hospital's payer mix, without limiting the total payment rate to 
the ACR specific to each tier (which would be considered a separate 
provider class), but rather at the broader service level would provide 
States with tools to further the goal of parity with commercial 
payments, which may have a positive impact on access to care and the 
quality of care delivered. We would still permit States to elect to 
provide a demonstration of the ACR at both the service and provider 
class level or just at the service level if the State chooses to 
provide the more detailed and extensive analysis, but this level of 
analysis would no longer be required. We remind States that the 
statutory requirements in sections 1902(a)(2), 1903(a), 1903(w), and 
1905(b) of the Act concerning the non-Federal share contribution and 
financing requirements, including those implemented in 42 CFR part 433, 
subpart B concerning health care-related taxes, bona fide provider 
related donations, and IGTs, apply to all Medicaid expenditures 
regardless of delivery system (fee-for-service or managed care).
    At Sec.  438.6(c)(2)(iii)(B), we propose to specify the 
requirements for the comparison of the total payment rate for the 
services included in the SDP to the ACR for those services if a State 
seeks written prior approval for an SDP that includes inpatient 
hospital services, outpatient hospital services, qualified practitioner 
services at an academic medical center or nursing facility services. 
Under this proposal, the comparison must: (1) be specific to each 
managed care program that the SDP applies to; (2) be specific to each 
provider class to which the SDP applies; (3) be projected for the 
rating period for which written prior approval is sought; (4) use 
payment data that is specific to each service included in the SDP; and 
(5) include a description of each of the components of the total 
payment rate as defined in Sec.  438.6(a) as a percentage of the 
average commercial rate, demonstrated pursuant to Sec.  
438.6(c)(2)(iii)(A), for each of the four categories of services (that 
is, inpatient hospital services, outpatient hospital services, nursing 
facility services or qualified practitioner services at an academic 
medical center) included in the SDP submitted to CMS for review and 
approval.
    The proposed comparison of the total payment rate to the ACR would 
align with current practice with one exception. We are proposing to 
codify that the total payment rate comparison would be specific to each 
Medicaid managed care program to which the SDP under review would 
apply. Evaluating payment at the managed care program level would be 
consistent with the payment analysis described in section I.B.1.d. of 
this proposed rule. The total payment rate comparison proposed at Sec.  
438.6(c)(iii)(B) would be a more detailed analysis than is currently 
requested from States for SDP reviews. Under our proposal, these more 
detailed total payment rate comparisons would also have to be updated 
and submitted with each initial preprint, amendment and renewal per 
proposed Sec.  438.6(c)(2)(iii)(C). In addition, we are proposing that 
the total payment rate comparison to ACR must be specific to both the 
service and the provider class; this is current practice today but 
differs from our proposal for the ACR demonstration, which is proposed 
to be service specific only.
    We have proposed a set of standards and practices States must 
follow in conducting their ACR analysis. However, we are not proposing 
to require that States use a specific source of data for the ACR 
analysis. Further, at this time, we are not proposing to require States 
to use a specific template or format for the ACR analysis. In our 
experience working with States on conducting the analysis of the ACR, 
the availability of data differs by State and service. States are 
familiar with the process used for conducting a code-level analysis of 
the ACR for the qualified practitioner services at academic medical 
centers for Medicaid FFS.\84\ Some States have continued to use this 
same process for documenting the ACR for SDPs as well, particularly 
when there is a limited number of providers from which to collect such 
data (for example, academic medical centers). However, code-level data 
analysis to determine the ACR has proven more challenging for other 
services, particularly when that service is provided by large numbers 
of providers. For example, the number of hospitals furnishing inpatient 
services in a given State can be hundreds of providers.
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    \84\ https://www.medicaid.gov/medicaid/financial-management/payment-limit-demonstrations/.
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    Data for inpatient and outpatient hospital service payment rates 
tend to be more readily available in both the Medicare and commercial 
markets. States with SDPs for hospital services have provided analyses 
using hospital cost reports and all-payer claims databases. Others have 
relied on actuaries and outside consultants, which may have access to 
private commercial databases, to produce an ACR analysis. At times, 
States have purchased access to private commercial databases to conduct 
these analyses. We believe each of these approaches, provided the data 
used for the analyses meet the proposed requirements in Sec.  
438.6(c)(2)(iii), would be acceptable to meet our proposed 
requirements.
4. Average Commercial Rate Demonstration and Total Payment Rate 
Comparison Compliance
    We propose at Sec.  438.6(c)(2)(iii)(C) to require States to submit 
the ACR demonstration and the total payment rate comparison for review 
as part of the documentation necessary for written prior approval for 
payment arrangements, initial submissions or renewals, starting with 
the first rating period beginning on or after the effective date of 
this rule. The total payment rate comparison will need to be updated 
with each subsequent preprint amendment and renewal.
    In recognition of the additional State resources required to 
conduct an ACR analysis, we propose to require that States update the 
ACR demonstration once every 3 years as long as the State continues to 
seek to include the SDP in the MCO, PIHP, or PAHP contract. This time 
period aligns with existing policy for ACR demonstrations for qualified 
practitioners in Medicaid FFS programs; specifically, those that 
demonstrate payment at the Medicare equivalent of the ACR.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on our proposals.
    Expenditure Limit for SDPs. The increasing use by States of SDPs 
has been cited as a key area of oversight risk for CMS. Several 
oversight bodies, including MACPAC, OIG, and GAO, have authored reports 
focused on CMS oversight of SDPs.85 86 87 Both GAO and

[[Page 28127]]

MACPAC have noted concerns about the growth of SDPs in terms of 
spending as well as fiscal oversight. Additionally, as States' use of 
SDPs in managed care programs continues to grow, some interested 
parties have raised concerns that the risk-based nature of capitation 
rates for managed care plans has diminished. Medicaid managed care 
plans generally have the responsibility under risk-based contracts to 
negotiate with its providers to set payment rates, except when a State 
believes the use of an SDP is a necessary tool to support the State's 
Medicaid program goals and objectives. In a risk contract, as defined 
in Sec.  438.2, a managed care plan assumes risk for the cost of the 
services covered under the contract and incurs loss if the cost of 
furnishing the services exceeds the payments under the contract. 
States' use of SDPs and the portion of total costs for each managed 
care program varies widely and, in some cases, are a substantial 
portion of total program costs on an aggregate, rate cell, or category 
of service basis in a given managed care program or by managed care 
plan. For example, in one State, one SDP accounts for nine percent of 
the total projected capitation rates in a given managed care program, 
and as much as 43 percent of the capitation rates by rate cell for SFY 
2023. In another State, SDPs accounted for over 50 percent of the 
projected Medicaid managed care hospital benefit component of the 
capitation rates in CY 2022. In a third State, the amount of SDP 
payments as a percentage of the capitation rates are between 12.5 
percent and 40.3 percent by managed care plan and rate cell for SFY 
2022. Some interested parties have raised concerns that such 
percentages are not reasonable in rate setting, and that States are 
potentially using SDP arrangements to circumvent Medicaid FFS UPLs by 
explicitly shifting costs from Medicaid FFS to managed care contracts.
---------------------------------------------------------------------------

    \85\ Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
    \86\ U.S. Department of Health and Human Services Office of the 
Inspector General, ``Aspects of Texas' Quality Incentive Payment 
Program Raise Questions About Its Ability To Promote Economy and 
Efficiency in the Medicaid Program,'' A-06-18-07001, December 21, 
2020, available at https://oig.hhs.gov/oas/reports/region6/61807001.asp.
    \87\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
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    CMS agrees with some of these concerns; and therefore, we are 
considering, and invite comment on, potentially imposing a limit on the 
amount of SDP expenditures in the final rule based on comments 
received. Imposing such a limit could help to address and improve 
program and fiscal protections to address the oversight risks 
identified by oversight bodies, ensure that risk-based contracts are 
used as intended, and that managed care plans that are ``at risk'' 
truly have the ability to manage how their revenue is used to cover all 
reasonable, appropriate, and attainable costs under the terms of the 
contract. Such an approach could have potential negative impacts on 
access to care that would need to be balanced with the need for 
improved program and fiscal integrity. We seek public comment on 
whether we should adopt a limit on SDP expenditures in the final rule.
    To minimize burden on States, a limit on SDP expenditures could be 
structured similarly to the proposed 5 percent limit for ILOS 
expenditures, based on the ILOS cost percentage, proposed in Sec.  
438.16(c)(1) (see section I.B.4.b. of this proposed rule). However, we 
question whether the five percent limit proposed for ILOSs would be a 
reasonable limit for SDPs given the expansive nature of and associated 
services impacted by SDPs. Rather, we believe 10 to 25 percent of total 
costs could be more realistic for limiting SDP expenditures. Like with 
the ILOS cost percentage, CMS would not approve the related managed 
care contracts if the limit on SDP expenditures were exceeded. We seek 
public comment on both the overall approach of using a percent of total 
costs as well as on the appropriateness of 10 to 25 percent or what a 
reasonable percentage limit for SDP expenditures could be. We believe a 
limit on SDP expenditures could be structured in the following ways and 
invite comment on them as well as if the SDP expenditures limit should 
be imposed on a rate cell basis instead to inform our deliberative 
process.
    One way to impose a limit on total SDP expenditures could be as a 
portion of the total costs for each Medicaid managed care program. 
Under such an approach, States would be required to produce the same 
type of calculation for the final State directed payment cost 
percentage (see section I.B.2.j. of this proposed rule) except that for 
the numerator, States would be required to account for all SDPs 
applicable to that managed care program instead of just one SDP. 
Otherwise, the numerator and denominator would be calculated in the 
same manner as described for the final State directed payment cost 
percentage.
    A second way to impose a limit on total SDP expenditures could be 
as a portion of the total costs for each Medicaid managed care program, 
but only focus on the costs related to inpatient hospital services, 
outpatient hospital services, nursing facility services, and qualified 
practitioner services at academic medical centers. Under this second 
approach, States would be required to produce the same type of 
calculation for the final State directed payment cost percentage (see 
section I.B.2.j. of this proposed rule) except the numerator would 
include all SDPs for inpatient hospital services, outpatient hospital 
services, nursing facility services and qualified practitioner services 
at an academic medical center applicable to that managed care program 
instead of just one SDP. Similarly, the denominator would only include 
the portion of total Medicaid managed care payments made from the State 
to the plan related to these four service types.
    If we finalize a limit on SDP expenditures, States would need to 
submit documentation to CMS to demonstrate compliance. We believe that 
requiring this documentation be submitted with one of these existing 
submission requirements rather than submitting separately would 
increase program efficiencies and reduce administrative burden. We are 
considering, and invite comment on, whether documentation to comply 
with a limit on the amount of SDP expenditures should be submitted with 
the associated managed care plan contract that includes the SDP 
contractual arrangement, the associated rate certification, or the SDP 
preprint.
    We seek comment on these alternatives, including perspectives on 
how well the alternatives address the concerns we have identified and 
potential consequences of using overall expenditure limits for SDPs.
g. Financing (Sec.  438.6(c)(2)(ii)(G) and (H))
    From our experience in working with States, it has become clear 
that SDPs provide an important tool for States in furthering the goals 
and objectives of their Medicaid programs within a managed care 
environment. In finalizing the standards and limits for SDPs and pass-
through payments in the 2016 and 2017 final rules, we intended to 
ensure that the funding that was included in Medicaid managed care rate 
development was done so appropriately and in alignment with Federal 
statutory requirements applicable to the Medicaid program. This 
includes Federal requirements for the source(s) of the non-Federal 
share of SDPs.
    Background on Medicaid Non-Federal Share Financing. Medicaid 
expenditures are jointly funded by the Federal and State governments. 
Section 1903(a)(1) of the Act provides for

[[Page 28128]]

Federal payments to States of the Federal share of authorized Medicaid 
expenditures. The foundation of Federal-State shared responsibility for 
the Medicaid program is that the State must participate in the 
financial burdens and risks of the program, which provides the State 
with an interest in operating and monitoring its Medicaid program in 
the best interest of beneficiaries (see section 1902(a)(19) of the Act) 
and in a manner that results in receiving the best value for taxpayers 
for the funds expended. Sections 1902(a)(2), 1903(a), and 1905(b) of 
the Act require States to share in the cost of medical assistance and 
in the cost of administering the Medicaid program. FFP is not available 
for expenditures for services and activities that are not medical 
assistance authorized under a Medicaid authority or allowable State 
administrative activities. Additionally, FFP is not available to States 
for expenditures that do not conform to approved State plans, waiver, 
demonstration projects, or contracts, as applicable.
    Section 1902(a)(2) of the Act and its implementing regulation in 42 
CFR part 433, subpart B require States to share in the cost of medical 
assistance expenditures and permit other units of State or local 
government to contribute to the financing of the non-Federal share of 
medical assistance expenditures. These provisions are intended to 
safeguard the Federal-State partnership, irrespective of the Medicaid 
delivery system or authority (for example, FFS or managed care delivery 
system, and State plan, waiver, or demonstration authority), by 
ensuring that States are meaningfully engaged in identifying, 
assessing, mitigating, and sharing in the risks and responsibilities 
inherent in operating a program as complex and economically significant 
as Medicaid, and that States are accordingly motivated to administer 
their programs economically and efficiently (see, for example, section 
1902(a)(4) of the Act).
    There are several types of permissible means for financing the non-
Federal share of Medicaid expenditures, including, but not limited to: 
(1) State general funds, typically derived from tax revenue 
appropriated directly to the Medicaid agency; (2) revenue derived from 
health care-related taxes when consistent with Federal statutory 
requirements at section 1903(w) of the Act and implementing regulations 
at 42 CFR part 433, subpart B; (3) provider-related donations to the 
State which must be ``bona fide'' in accordance with section 1903(w) of 
the Act and implementing regulations at 42 CFR part 433, subpart B; 
\88\ and (4) intergovernmental transfers (IGTs) from units of State or 
local government that contribute funding for the non-Federal share of 
Medicaid expenditures by transferring their own funds to and for the 
unrestricted use of the Medicaid agency.\89\ Regardless of the source 
or sources of financing used, the State must meet the requirements at 
section 1902(a)(2) of the Act and Sec.  433.53 that obligate the State 
to fund at least 40 percent of the non-Federal share of total Medicaid 
expenditures (both medical assistance and administrative expenditures) 
with State funds.
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    \88\ ``Bona fide'' provider-related donations are truly 
voluntary and not part of a hold harmless arrangement that 
effectively repays the donation to the provider (or to providers 
furnishing the same class of items and services). As specified in 
Sec.  433.54, a bona fide provider-related donation is made to the 
State or a unit of local government and has no direct or indirect 
relationship to Medicaid payments made to the provider, any related 
entity providing health care items or services, or other providers 
furnishing the same class of items or services as the provider or 
entity. This is satisfied where the donations are not returned to 
the individual provider, provider class, or a related entity under a 
hold harmless provision or practice. Circumstances in which a hold 
harmless practice exists are specified in Sec.  433.54(c).
    \89\ Certified public expenditures (CPEs) also can be a 
permissible means of financing the non-Federal share of Medicaid 
expenditures. CPEs are financing that comes from units of State or 
local government where the units of State or local governmental 
entity contributes funding of the non-Federal share for Medicaid by 
certifying to the State Medicaid agency the amount of allowed 
expenditures incurred for allowable Medicaid activities, including 
the provision of allowable Medicaid services provided by enrolled 
Medicaid providers. States infrequently use CPEs as a financing 
source in a Medicaid managed care setting, as managed care plans 
need to be paid prospective capitation payments and CPEs by nature 
are a retrospective funding source, dependent on the amount of 
expenditures the unit of State or local government certifies that it 
already has made.
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    Health care-related taxes and IGTs are a critical source of funding 
for many States' Medicaid programs, including for supporting the non-
Federal share of many payments to safety net providers. Health care-
related taxes made up approximately 17 percent ($37 billion) of all 
States' non-Federal share in 2018, the latest year for which data are 
available.\90\ IGTs accounted for approximately 10 percent of all 
States' non-Federal share for that year. The Medicaid statute clearly 
permits certain health care-related taxes and IGTs to be used to 
support the non-Federal share of Medicaid expenditures, and CMS 
supports States' adoption of these non-Federal financing strategies 
where consistent with applicable Federal requirements. CMS approves 
hundreds of State payment proposals annually that are funded by health 
care-related taxes that appear to meet statutory requirements. The 
statute and regulations afford States flexibility to tailor health 
care-related taxes within certain parameters to suit their provider 
community, broader State tax policies, and the needs of State programs. 
However, all health care-related taxes must be imposed in a manner 
consistent with applicable Federal statutes and regulations, which 
prohibit direct or indirect ``hold harmless'' arrangements (see section 
1903(w)(4) of the Act; 42 CFR 433.68(f)).
---------------------------------------------------------------------------

    \90\ U.S. Government Accountability Office, ``Medicaid: CMS 
Needs More Information on States' Financing and Payment Arrangements 
to Improve Oversight,'' GAO-21-98, December 7, 2020, available at 
https://www.gao.gov/products/gao-21-98.
---------------------------------------------------------------------------

    States first began to use health care-related taxes and provider-
related donations in the mid-1980s as a way to finance the non-Federal 
share of Medicaid payments (Congressional Research Service, ``Medicaid 
Provider Taxes,'' August 5, 2016, page 2). Providers would agree to 
make a donation or would support (or not oppose) a tax on their 
activities or revenues, and these mechanisms (donations or taxes) would 
generate funds that could then be used to raise Medicaid payment rates 
to the providers. Frequently, these programs were designed to hold 
Medicaid providers ``harmless'' for the cost of their donation or tax 
payment. As a result, Federal expenditures rapidly increased without 
any corresponding increase in State expenditures, since the funds used 
to increase provider payments came from the providers themselves and 
were matched with Federal funds. In 1991, Congress passed the Medicaid 
Voluntary Contribution and Provider-Specific Tax Amendments (Pub. L. 
102-234, enacted December 12, 1991) to establish limits for the use of 
provider-related donations and health care-related taxes to finance the 
non-Federal share of Medicaid expenditures. Statutory provisions 
relating to health care-related taxes and donations are in section 
1903(w) of the Act.
    Section 1903(w)(1)(A)(i)(II) requires that health care-related 
taxes be broad-based as defined in section 1903(w)(3)(B), which 
specifies that the tax must be imposed with respect to a permissible 
class of health care items or services (as described in section 
1903(w)(7)(A)) or with respect to providers of such items or services 
and generally imposed at least with respect to all items or services in 
the class furnished by all non-Federal, nonpublic providers or with 
respect to all non-Federal, nonpublic providers; additionally, the tax 
must be imposed uniformly in accordance with section 1903(w)(3)(C) of 
the Act. However,

[[Page 28129]]

section 1903(w)(1)(A)(iii) of the Act disallows the use of revenues 
from a broad-based health care related tax if there is in effect a hold 
harmless arrangement described in section 1903(w)(4) of the Act with 
respect to the tax. Section 1903(w)(4) of the Act specifies that, for 
purposes of section 1903(w)(1)(A)(iii) of the Act, there is in effect a 
hold harmless provision with respect to a broad-based health care 
related tax if the Secretary determines that any of the following 
applies: (A) the State or other unit of government imposing the tax 
provides (directly or indirectly) for a non-Medicaid payment to 
taxpayers and the amount of such payment is positively correlated 
either to the amount of the tax or to the difference between the amount 
of the tax and the amount of the Medicaid payment; (B) all or any 
portion of the Medicaid payment to the taxpayer varies based only upon 
the amount of the total tax paid; or (C) the State or other unit of 
government imposing the tax provides (directly or indirectly) for any 
payment, offset, or waiver that guarantees to hold taxpayers harmless 
for any portion of the costs of the tax. Section 1903(w)(1)(A) of the 
Act specifies that, for purposes of determining the Federal matching 
funds to be paid to a State, the total amount of the State's Medicaid 
expenditures must be reduced by the amount of revenue received the 
State (or by a unit of local government in the State) from 
impermissible health care-related taxes, including, as specified in 
section 1903(w)(1)(A)(iii) of the Act, from a broad-based health care 
related tax for which there is in effect a hold harmless provision 
described in section 1903(w)(4) of the Act.
    In response to the Medicaid Voluntary Contribution and Provider-
Specific Tax Amendments of 1991, we published the ``Medicaid Program; 
Limitations on Provider-Related Donations and Health Care-Related 
Taxes; Limitations on Payments to Disproportionate Share Hospitals'' 
interim final rule with comment period in the November 24, 1992 Federal 
Register (57 FR 55118) (November 1992 interim final rule) and the 
subsequent final rule published in the August 13, 1993 Federal Register 
(58 FR 43156) (August 1993 final rule) establishing when States may 
receive funds from provider-related donations and health care-related 
taxes without a reduction in medical assistance expenditures for the 
purposes of calculating FFP.
    After the publication of the August 1993 final rule, we revisited 
the issue of health care-related taxes and provider-related donations 
in the ``Medicaid Program; Health-Care Related Taxes'' final rule (73 
FR 9685) which published in the February 22, 2008 Federal Register 
(February 2008 final rule). The February 2008 final rule, in part, made 
explicit that certain practices would constitute a hold harmless 
arrangement, in response to certain State tax programs that we believed 
contained hold harmless provisions. For example, five States had 
imposed a tax on nursing homes and simultaneously created programs that 
awarded grants or tax credits to private pay residents of nursing 
facilities that enabled these residents to pay increased charges 
imposed by the facilities, which thereby recouped their own tax costs. 
We believed that these payments held the taxpayers (the nursing 
facilities) harmless for the cost of the tax, as the tax program repaid 
the facilities indirectly, through the intermediary of the nursing 
facility residents. However, in 2005, the Department of Health and 
Human (HHS) Departmental Appeals Board (the Board) (Decision No. 1981) 
ruled that such an arrangement did not constitute a hold harmless 
arrangement under the regulations then in place (73 FR 9686-9687). 
Accordingly, in discussing revisions to the hold harmless guarantee 
test in Sec.  433.68(f)(3), the February 2008 final rule preamble 
explained that a State can provide a direct or indirect guarantee 
through a direct or indirect payment. We stated that a direct guarantee 
will be found when, ``a payment is made available to a taxpayer or 
party related to the taxpayer with the reasonable expectation that the 
payment would result in the taxpayer being held harmless for any part 
of the tax'' as a result of the payment (73 FR 9694). We noted 
parenthetically that such a direct guarantee can be made by the State 
through direct or indirect payments. Id. As an example of a party 
related to the taxpayer, the preamble cited the example of, ``as a 
nursing home resident is related to a nursing home'' (73 FR 9694). As 
discussed in this preamble to the February 2008 final rule, whenever 
there exists a ``reasonable expectation'' that the taxpayer will be 
held harmless for the cost of the tax by direct or indirect payments 
from the State, a hold harmless situation exists and the tax is 
impermissible for use to support the non-Federal share of Medicaid 
expenditures.
    Non-Federal Share Financing and State Directed Payments. The 
statutory requirements in sections 1902(a)(2), 1903(a), 1903(w), and 
1905(b) of the Act concerning the non-Federal share contribution and 
financing requirements, including those implemented in 42 CFR part 433, 
subpart B concerning health care-related taxes, bona fide provider 
related donations, and IGTs, apply to all Medicaid expenditures 
regardless of delivery system (fee-for-service or managed care). We 
employ various mechanisms for reviewing State methods for financing the 
non-Federal share of Medicaid expenditures. This includes, but is not 
limited to, reviews of fee-for-service SPAs, reviews of managed care 
SDPs, quarterly financial reviews of State expenditures reported on the 
Form CMS-64, focused financial management reviews, and reviews of State 
health care-related tax and provider-related donation proposals and 
waiver requests.
    We reiterated this principle in the 2020 Medicaid managed care 
rule, noting ``certain financing requirements in statute and regulation 
are applicable across the Medicaid program irrespective of the delivery 
system (for example, fee-for-service, managed care, and demonstration 
authorities), and are similarly applicable whether a State elects to 
direct payments under Sec.  438.6(c)'' (85 CFR 72765). Further, section 
1903(m)(2)(A) of the Act limits FFP in prepaid capitation payments to 
MCOs for coverage of a defined minimum set of benefits to cases in 
which the prepaid payments are developed on an actuarially sound basis 
for assuming the cost of providing the benefits at issue to Medicaid 
managed care enrollees. CMS has extended this requirement, through 
rulemaking under section 1902(a)(4) of the Act, to the capitation rates 
paid to PIHPs and PAHPs under a risk contract as well.
    As part of our review of SDP proposals, we are increasingly 
encountering issues with State financing of the non-Federal share of 
SDPs, including use of health care-related taxes and IGT arrangements 
that may not be in compliance with the underlying Medicaid requirements 
for non-Federal share financing. In January 2021, CMS released a 
revised preprint form that systematically collects documentation 
regarding the source(s) of the non-Federal share for each SDP and 
requires States to provide additional assurances and details specific 
to each financing mechanism, which has contributed to our increased 
awareness of non-Federal share financing issues associated with 
SDPs.\91\ Concerns around the funding of the non-Federal share for SDPs 
have been

[[Page 28130]]

raised by oversight bodies,92 93 and the Department of 
Health and Human Services Office of Inspector General (OIG) is 
currently conducting an audit of States' use of what are often referred 
to as Local Provider Participation Funds to support the non-Federal 
share of Medicaid payments, for which CMS has evidence that appears to 
suggest the use of hold harmless arrangements in connection with health 
care-related taxes.\94\
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    \91\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
    \92\ See U.S. Government Accountability Office, ``Medicaid: CMS 
Needs More Information on States' Financing and Payment Arrangements 
to Improve Oversight,'' GAO-21-98, December 7, 2020, available at 
https://www.gao.gov/products/gao-21-98.
    \93\ See Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
    \94\ U.S. Department of Health and Human Services Office of the 
Inspector General, ``States' Use of Local Provider Participation 
Funds as the State Share of Medicaid Payments'', W-00-22-31557, 
report expected 2023, work plan available at https://www.oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000626.asp.
---------------------------------------------------------------------------

    In recent years, we have identified instances in which States 
appear to be funding the non-Federal share of Medicaid SDP payments 
through health care-related tax programs that appear to involve an 
impermissible hold harmless arrangement. In these arrangements, with 
varying degrees of State awareness and involvement, providers appear to 
have pre-arranged agreements to redistribute Medicaid payments (or 
other provider funds that are replenished by Medicaid payments). These 
redistribution arrangements are not described on the States' SDP 
applications; if an SDP preprint stated that Medicaid payments 
ultimately would be directed to a recipient without being based on the 
delivery of Medicaid-covered services, we could not approve the SDP, 
because section 1903(a) of the Act limits Federal financial 
participation to expenditures for medical assistance and qualifying 
administrative activities (otherwise stated, FFP is not available in 
expenditures for payments to third parties unrelated to the provision 
of covered services or conduct of allowable administrative activities). 
Similarly, under 1903(w), FFP is not permissible in payments that would 
otherwise be matchable as medical assistance if the State share being 
matched does not comply with the conditions in section 1903(w), such as 
in the case of the type of hold harmless arrangement described above. 
The fact that these apparent hold harmless arrangements are not made 
explicit on SDP preprints should not affect our ability to disapprove 
SDPs when we cannot verify they do not employ redistribution 
arrangements.
    These arrangements appear designed to redirect Medicaid payments 
away from the providers that furnish the greatest volume of Medicaid-
covered services toward providers that provide fewer, or even no, 
Medicaid-covered services, with the effect of ensuring that taxpaying 
providers are held harmless for all or a portion of their cost of the 
health care-related tax. In the arrangements, a State or other unit of 
government imposes a health-care related tax, then uses the tax revenue 
to fund the non-Federal share of SDPs that require Medicaid managed 
care plans to pay the provider taxpayers. The taxpayers appear to enter 
a pre-arranged agreement to redistribute the Medicaid payments to 
ensure that all taxpayers, when accounting for both their original 
Medicaid payment (from the State through a managed care plan) and any 
redistribution payment received from another taxpayer(s) or other 
entity, receive back (and are thereby held harmless for) all or at 
least a portion of their tax amount.
    Providers that serve a relatively low percentage of Medicaid 
patients or no Medicaid patients often do not receive enough Medicaid 
payments funded by a health care-related tax to cover the provider's 
cost in paying the tax. Providers in this position are unlikely to 
support a State or locality establishing or continuing a health care-
related tax because the tax would have a negative financial impact on 
them. Redistribution arrangements like those just described seek to 
eliminate this negative financial impact or turn it into a positive 
financial impact for taxpaying providers, likely leading to broader 
support among the provider class of taxpayers for legislation 
establishing or continuing the tax. Based on limited information we 
have been able to obtain from providers participating in such 
arrangements, we believe providers with relatively higher Medicaid 
volume agree to redistribute some of their Medicaid payments to ensure 
broad support for the tax program, which ultimately works to these 
providers' advantage since the tax supports increased Medicaid payments 
to them (even net of Medicaid payments that they redistribute to other 
providers) compared to payment amounts for delivering Medicaid-covered 
services they would receive in the absence of the tax program. These 
redistribution arrangements therefore help ensure that State or local 
governments are successful in enacting or continuing provider tax 
programs.
    The Medicaid statute in 1903(w) does not permit us to provide FFP 
in expenditures under any State payment proposal that would distribute 
Medicaid payments to providers based on the cost of a health care-
related tax instead of based on Medicaid services, so payment 
redistribution arrangements often occur without notice to CMS (and 
possibly States) and are not described as part of a State payment 
proposal submitted for CMS review and approval (see, section 1903(w)(4) 
of the Act). Given that we cannot knowingly approve awarding FFP under 
this scenario, we believe that it would be inconsistent with the proper 
and efficient operation of the Medicaid State plan to approve an SDP 
when we know the payments would be funded under such an arrangement. 
For example, we would not approve an SDP that would require payment 
from a Medicaid managed care plan to a hospital that did not 
participate in Medicaid, in any amount. Nor would we approve an SDP 
that would require payment from a Medicaid managed care plan (that is, 
a Medicaid payment) to a hospital with a low percentage of Medicaid 
revenue based on the difference between the hospital's total cost of a 
health care-related tax and other Medicaid payments received by the 
hospital. As a result, the redistribution arrangements seek to achieve 
what cannot be accomplished explicitly through a CMS-approved payment 
methodology (that is, redirecting Medicaid funds to hold taxpayer 
providers harmless for their tax cost, with a net effect of directing 
Medicaid payments to providers based on criteria other than their 
provision of Medicaid-covered services).
    Redistribution arrangements undermine the fiscal integrity of the 
Medicaid program and are inconsistent with existing statutory and 
regulatory requirements prohibiting hold harmless arrangements. 
Currently, Sec.  433.68(f)(3), implementing section 1903(w)(4)(C) of 
the Act, provides that a hold harmless arrangement exists where a State 
or other unit of government imposing a health care-related tax provides 
for any direct or indirect payment, offset, or waiver such that the 
provision of the payment, offset, or waiver directly or indirectly 
guarantees to hold taxpayers harmless for all or any portion of the tax 
amount. The February 2008 final rule on health care-related taxes 
specified that hold harmless arrangements prohibited by Sec.  
433.68(f)(3) exist ``[w]hen a State payment is made available to a 
taxpayer or a party related to the taxpayer (for example, as a nursing 
home resident is related to a nursing home), in the

[[Page 28131]]

reasonable expectation that the payment would result in the taxpayer 
being held harmless for any part of the tax'' (73 FR 9694, quoting 
preamble discussion from the proposed rule). Regardless of whether the 
taxpayers participate voluntarily, whether the taxpayers receive the 
Medicaid payments from a Medicaid managed care plan, or whether 
taxpayers themselves or another entity make redistribution payments 
using the very dollars received as Medicaid payments or with other 
provider funds that are replenished by the Medicaid payments, the 
taxpayers participating in these redistribution arrangements have a 
reasonable expectation that they will be held harmless for all or a 
portion of their tax amount.
    We stated that the addition of the words ``or indirectly'' in the 
regulation indicates that the State itself need not be involved in the 
actual redistribution of Medicaid funds for the purpose of returning 
tax amounts to taxpayers in order for the arrangement to qualify as a 
hold harmless (73 FR 9694). We further explained in the same preamble 
that we used the term ``reasonable expectation'' because ``State laws 
were rarely overt in requiring that State payments be used to hold 
taxpayers harmless'' (73 FR 9694). Hold harmless arrangements need not 
be overtly established through State law or contracts, but can be based 
upon a reasonable expectation that certain actions will take place 
among participating entities to return to taxpaying providers all or 
any portion of their tax amounts. The redistribution arrangements 
detailed earlier constitute a hold harmless arrangement described in 
section 1903(w)(4) of the Act and implementing regulations in part 433. 
Such arrangements require a reduction of the State's medical assistance 
expenditures as specified by section 1903(w)(1)(A)(iii) of the Act and 
Sec.  433.70(b).
    Approving an SDP under which the State share is funded through an 
impermissible redistribution agreement would also be inconsistent with 
``proper and efficient administration'' of the Medicaid program within 
the meaning of section 1902(a)(4) of the Act, as it would result in 
expenditures for which FFP would ultimately have to be disallowed, when 
it would be more efficient to not allow such expenditures to be made in 
the first place. We therefore also rely on our authority under section 
1902(a)(4) of the Act to specify methods of administration that are 
necessary for proper and efficient administration in support of the 
authority we proposed to make explicit in Sec.  438.6 to disapprove an 
SDP when we are aware the State share in the SDP would be based on an 
arrangement that violates section 1903(w) of the Act. We note that in 
addition to the foregoing, SDPs that are required by Medicaid managed 
care contracts must be limited to payments for services that are 
covered under the Medicaid managed care contract and meet the 
definition of medical assistance under section 1903(a) of the Act. 
Thus, to the extent the funds are not used for medical assistance, but 
diverted for another purpose, matching as medical assistance would not 
be permissible.
    In the past, we have identified instances of impermissible 
redirection or redistribution of Medicaid payments and have taken 
action to enforce compliance with the statute. For example, the Board 
upheld our decision to disallow a payment redirection arrangement in a 
State under a FFS State plan amendment, citing section 1903(a)(1) of 
the Act, among other requirements (HHS, Board Decision No. 2103, July 
31, 2007). Specifically, the Board found that written agreements among 
certain hospitals redirected Medicaid payments. The payments were not 
retained by the hospitals to offset their Medicaid costs, as required 
under the State plan. Instead, pre-arranged agreements redirected 
Medicaid payments to other entities to fund non-Medicaid costs. In its 
decision, the Board stated, ``Hence, they were not authorized by the 
State plan or Medicaid statute[.]'' When providers redistribute their 
Medicaid payments for purposes of holding taxpayers harmless or 
otherwise, in effect, the State's claim for FFP in these provider 
payments is not limited to the portion of the payment that the provider 
actually retains as payment for furnishing Medicaid-covered services, 
but also includes the portion that the provider diverts for a non-
Medicaid activity ineligible for FFP (for example, holding other 
taxpayers harmless for their tax costs). This payment of FFP for non-
qualifying activities also has the effect of impermissibly inflating 
the Federal matching rate that the State receives for qualifying 
Medicaid expenditures above the applicable, statutorily-specified 
matching rate (see, for example, sections 1903(a), 1905(b), 1905(y), 
and 1905(z) of the Act).
    Ensuring permissible non-Federal share sources and ensuring that 
FFP is only paid to States for allowable Medicaid expenditures is 
critical to protecting Medicaid's sustainability through responsible 
stewardship of public funds. State use of impermissible non-Federal 
share sources often artificially inflates Federal Medicaid 
expenditures. Further, these arrangements reward providers based on 
their ability to fund the State share, and disconnect the Medicaid 
payment from Medicaid services, quality of care, health outcomes, or 
other Medicaid program goals. Of critical concern, it appears that the 
redistribution arrangements are specifically designed to redirect 
Medicaid payments away from Medicaid providers that serve a high 
percentage of Medicaid beneficiaries to providers that do not 
participate in Medicaid or that have relatively lower Medicaid 
utilization.
    States have cited challenges with identifying and providing details 
on redistribution arrangements when we have requested such information 
during the review of SDPs. The current lack of transparency prevents 
both CMS and States from having information necessary for reviewing 
both the proposed non-Federal share financing source and the proposed 
payment methodology to ensure they meet Federal requirements. Some 
States have also expressed concerns with ongoing oversight activities 
in which CMS is attempting to obtain information that may involve 
arrangements to which only private entities are a party. We are only 
interested in any business arrangements among private entities that 
could result in a violation of Federal statutory and regulatory 
requirements.
    As noted above, we recognize that health care-related taxes can be 
critical tools for financing payments that support the Medicaid safety 
net, but they must be implemented in accordance with applicable 
statutory and regulatory requirements. This proposed rule would ensure 
that CMS and States have necessary information about any arrangements 
in place that would redistribute Medicaid payments and make clear that 
we have the authority to disapprove proposed SDPs if States identify 
the existence of such an arrangement or do not provide required 
information or ensure the attestations are made and available as 
required under proposed paragraph (c)(2)(ii)(H). The proposed new 
attestation requirement would help ensure appropriate transparency 
regarding the use of Medicaid payments and any relationship to the non-
Federal share source(s), and aims to do so without interfering with 
providers' normal business arrangements.
    All Federal legal requirements for the financing of the non-Federal 
share, including but not limited to, 42 CFR part 433, subpart B, apply 
regardless of delivery system, although currently,

[[Page 28132]]

Sec.  438.6(c) does not explicitly state that compliance with statutory 
requirements and regulations outside of part 438 related to the 
financing of the non-Federal share is required for SDPs to be 
approvable or that CMS may deny written prior approval for an SDP based 
on a State's failure to demonstrate that the financing of the non-
Federal share is fully compliant with applicable Federal law. The 
requirements applicable to health care-related taxes, bona fide 
provider related donations, and IGTs also apply to the non-Federal 
share of expenditures for payments under part 438. Currently, Sec.  
438.6(c)(1)(ii)(E) provides that a State must demonstrate to CMS, in 
writing, that an SDP does not condition provider participation in the 
SDP on the provider entering into or adhering to intergovernmental 
transfer agreement. We believe additional measures are necessary to 
ensure compliance with applicable Federal requirements for the 
source(s) of non-Federal share. We are concerned that the failure of 
the current regulations to explicitly condition written prior approval 
of an SDP on the State demonstrating compliance with applicable Federal 
requirements for the source(s) of non-Federal share potentially 
compromises our ability to disapprove an SDP where it appears the SDP 
arrangement is supported by impermissible non-Federal share financing 
arrangements. Given the growing number of SDPs that raise potential 
financing concerns, and the growing number of SDPs generally, we 
believe it is important to be explicit in the regulations governing 
SDPs that the same financing requirements governing the sources of the 
non-Federal share apply regardless of delivery system, and that CMS 
will scrutinize the source of the non-Federal share of SDPs during the 
preprint review process. We propose to revise Sec.  438.6(c)(2)(ii) to 
add a new paragraph (c)(2)(ii)(G) that would explicitly require that an 
SDP comply with all Federal legal requirements for the financing of the 
non-Federal share, including but not limited to, 42 CFR part 433, 
subpart B, as part of the CMS review process.
    We also propose to revise Sec.  438.6(c)(2)(ii) to ensure 
transparency regarding the use of SDPs and to ensure that the non-
Federal share of SDPs is funded with a permissible source. Under our 
proposal, States would be required to ensure that each participating 
provider in an SDP arrangement attests that it does not participate in 
any hold harmless arrangement with respect to any health care-related 
tax as specified in Sec.  433.68(f)(3) in which the State or other unit 
of government imposing the tax provides for any direct or indirect 
payment, offset, or waiver such that the provision of the payment, 
offset, or waiver directly or indirectly guarantees to hold the 
provider harmless for all or any portion of the tax amount. Such hold 
harmless arrangements include those that produce a reasonable 
expectation that taxpaying providers would be held harmless for all or 
a portion of their cost of a health care-related tax. States would be 
required to note in the preprint their compliance with this requirement 
prior to our written prior approval of any contractual payment 
arrangement directing how Medicaid managed care plans pay providers. 
States would comply with this proposed requirement by obtaining each 
provider's attestation or requiring the Medicaid managed care plan to 
obtain each provider's attestation. We also propose, at Sec.  
438.6(c)(2)(ii)(H) to require that the State ensure that such 
attestations are available upon CMS request.
    Under this proposal, CMS may deny written prior approval of an SDP 
if it does not comply with any of the standards in Sec.  438.6(c)(2), 
including the financing of the non-Federal share is not fully compliant 
with all Federal legal requirements for the financing of the non-
Federal share and/or the State does not require an attestation from 
each provider receiving a payment based on the SDP that it does not 
participate in any hold harmless arrangement. As part of our proposed 
restructuring of Sec.  438.6(c)(2), these provisions would apply to all 
SDPs, regardless of whether written prior approval is required. We rely 
on our authority in section 1902(a)(4) of the Act to require methods of 
administration as are found by the Secretary to be necessary for the 
proper and efficient operation of the Medicaid State Plan to propose 
these requirements for ensuring that the source of the non-Federal 
share of the financing for SDPs is consistent with section 1903(w) of 
the Act. It is consistent with the economic and efficient operation of 
the Medicaid State Plan to ensure that State expenditures are 
consistent with the requirements to obtain FFP, and thereby avoid the 
process of recouping FFP when provided inappropriately, which is 
needlessly burdensome for States and CMS. Given that all Federal legal 
requirements for the financing of the non-Federal share, including but 
not limited to, 42 CFR part 433, subpart B, apply regardless of 
delivery system, we also solicit public comment on whether the proposed 
changes in Sec.  438.6(c)(2)(ii)(G) and (H) should be incorporated more 
broadly into 42 CFR part 438.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on these proposals.
h. Tie to Utilization and Delivery of Services for Fee Schedule 
Arrangements (Sec.  438.6(c)(2)(vii))
    A fundamental requirement of SDPs is that they are payments related 
to the delivery of services under the contract. In the 2016 final rule, 
we stated how we believe that actuarially sound payments, which are 
required under section 1903(m)(2)(A)(iii) for capitation payments to 
MCOs and under part 438 regulations for capitation payments to risk-
based PIHPs and PAHPs, must be based on the provision of covered 
benefits and associated administrative obligations under the managed 
care contract (81 FR 27588). This requirement that SDPs be tied to the 
utilization and delivery of covered benefits differentiates SDPs from 
pass-through payments. We described the differences between pass-
through payments and SDPs in the 2016 final rule and in the 2017 Pass-
Through Payment Rule, where we noted, that 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 (81 FR 27587 through 27592, 82 FR 5415).
    The current regulations at Sec.  438.6(c)(2)(ii)(A) require that 
States demonstrate in writing that SDPs that require prior written 
approval be based on the utilization and delivery of services to 
Medicaid enrollees covered under the managed care plan contract. We 
have interpreted this requirement to mean that SDPs must be conditioned 
upon the utilization or delivery of services during the rating period 
identified in the preprint for which the State is seeking written prior 
approval. Requiring SDPs to be based on the utilization and delivery of 
services is a fundamental and necessary requirement for ensuring the 
fiscal and program integrity of SDPs, but we believe further 
clarification is necessary due to the variety of payment mechanisms 
that States use in their SDP arrangements. In particular, ensuring that 
payments are based on the delivery of services in SDPs that are fee 
schedule requirements described in Sec.  438.6(c)(1)(iii) is relatively 
straightforward since fee schedules explicitly link a rate to each

[[Page 28133]]

code (for example, CPT or HCPCS), compared to SDPs that are VBP 
initiatives described in Sec.  438.6(c)(1)(i) and (ii). As discussed in 
further detail in the section I.B.2.i of this proposed rule, ensuring 
that payments in VBP initiatives are based on the delivery of services 
in ways that do not hinder States' ability to pursue VBP efforts is 
more difficult because, by their nature, VBP initiatives seek to move 
away from paying for volume in favor of paying for value and 
performance. We propose revising Sec.  438.6(c) to address how 
different types of SDPs must be based on utilization and delivery of 
covered services; this section discusses these requirements for fee 
schedule arrangements and section I.B.2.i. of this proposed rule 
discusses the requirements for VBP initiatives.
    For SDPs that are fee schedule requirements described in Sec.  
438.6(c)(1)(iii), the tie to utilization and delivery of services means 
that States require managed care plans to make payments when a 
particular service was delivered during the rating period for which the 
SDP was approved. Thus, the State could not, under our interpretation 
of the requirement, require managed care plans to make payments for 
services that were delivered outside of the approved rating period. 
However, in working with States, we found that this was not always 
understood. We therefore clarified this in SMDL #21-001,\95\ and 
explained that SDPs need to be conditioned on the delivery and 
utilization of services covered under the managed care plan contract 
for the applicable rating period and that payment cannot be based 
solely on historical utilization.
---------------------------------------------------------------------------

    \95\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
---------------------------------------------------------------------------

    We propose to codify this clarification in a new Sec.  
438.6(c)(2)(vii)(A) for SDPs described in Sec.  438.6(c)(1)(iii)--that 
is, minimum fee schedules, maximum fee schedules, and uniform 
increases. As proposed, Sec.  438.6(c)(2)(vii)(A) would require that 
any and all payments made under the SDP are conditioned on the 
utilization and delivery of services under the managed care plan 
contract for the applicable rating period only. This would preclude 
States from making any SDP payment based on historical or any other 
basis that is not tied to the delivery of services to the rating period 
itself.
    Our proposal also addresses SDPs that require reconciliation. In 
SMDL #21-001,\96\ we noted that in capitation rate development, States 
can use historical data to inform the capitation rates that will be 
paid to managed care plans for services under the rating period, and 
this is consistent with Sec.  438.5(b)(1) and (c). However, in 
accordance with current requirements in Sec.  438.6(c)(2)(ii)(A), 
payment to providers for an SDP must be made based on the delivery and 
utilization of covered services rendered to Medicaid beneficiaries 
during the rating period documented for the approved SDP. We have 
reviewed and approved SDPs, typically SDPs that establish uniform 
increases of a specific dollar amount, in which States require managed 
care plans to make interim payments based on historical utilization and 
then after the close of the rating period, reconcile the payments to 
actual utilization that occurred during the rating period approved in 
the SDP. For these SDPs, States will include the SDP in the rate 
certification and then once actual utilization for the current rating 
year is known, CMS has also seen in some instances, States have their 
actuaries submit an amendment to adjust the amount paid to plans 
(whether through a separate payment term or an adjustment to base 
rates) to account for this reconciliation. These amendments typically 
come near to or after the close of the rating period and are most 
common when the reconciliation would result in increased costs to the 
plan absent the adjustment. As a result, risk is essentially removed 
from the managed care plans participating in the SDP. We are concerned 
with this practice as we believe tying payments in an SDP, even interim 
payments, to utilization from a historical time period outside of the 
rating period approved for the SDP, is inconsistent with prospective 
risk-based capitation rates that are developed for the delivery of 
services in the rating period. Further, rate amendments that are 
submitted after the rating period concludes that adjust the capitation 
rates retroactively to reflect actual utilization under the SDP goes 
against the risk-based nature of managed care. To address this, we 
propose a new Sec.  438.6(c)(2)(vii)(B) which would prohibit States 
from requiring managed care plans to make interim payments based on 
historical utilization and then to reconcile those interim payments to 
utilization and delivery of services covered under the contract after 
the end of the rating period for which the SDP was originally approved.
---------------------------------------------------------------------------

    \96\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
---------------------------------------------------------------------------

    To illustrate our concern and need for the proposed regulatory 
requirement, we share the following example for a State that has an SDP 
approved to require a uniform increase to be paid for inpatient 
hospital services for CY 2020. During CY 2020, the State's contracted 
managed care plans pay the inpatient hospital claims at their 
negotiated rates for actual utilization and report that utilization to 
the State via encounter data. Concurrently, the State directs its 
managed care plans, via the SDP, to make a separate uniform increase in 
payment to the same inpatient hospital service providers, based on 
historical CY 2019 utilization. Under this example, the increase in 
January CY 2020 payment for the providers is made based on January CY 
2019 data, the increase in February CY 2020 payment is based on 
February CY 2019 data, and so forth. This pattern of monthly payments 
continues throughout CY 2020. After the rating period ends in December 
2020, and after a claims runout period that can be as long as 16 
months, the State then in mid-CY 2021 or potentially early 2022, 
reconciles the amount of CY 2019-based uniform increase payments to the 
amount the payments should be based on CY 2020 claims. The State then 
requires its managed care plans to make additional payments to, or 
recoup payments from, the hospitals for under- or over-payment of the 
CY 2019-based uniform increase.
    In the inpatient hospital uniform increase example above, the State 
may initially account for the SDP in the CY 2020 rate certification 
and, after the rating period is over, the State submits an amendment to 
their rate certification to revise the total dollar amount dedicated to 
the SDP and the capitation rates to reflect the SDP provider payments 
that were made based on actual utilization in the CY 2020 rating 
period--thereby, making the managed care plans ``whole'' and removing 
risk from the managed care plans participating in the SDP. We do not 
find these practices consistent with the nature of risk-based managed 
care.
    Capitation rates must be actuarially sound as required by section 
1903(m)(2)(A)(iii) of the Act \97\ and in Sec.  438.4. Specifically, 
Sec.  438.4(a) requires that actuarially sound capitation rates are 
projected to provide for all reasonable, appropriate, and attainable 
costs that are required under the terms of the contract and for the 
operation of the MCO, PIHP, or PAHP for the time period and the 
population covered under the terms of the contract, and such capitation 
rates are developed in

[[Page 28134]]

accordance with the requirements outlined in Sec.  438.4(b). ``Rating 
Period'' is defined at Sec.  438.2 as a period of 12 months selected by 
the State for which the actuarially sound capitation rates are 
developed and documented in the rate certification submitted to CMS as 
required by Sec.  438.7(a). We believe SDPs that make payments based on 
retrospective utilization and include reconciliations to reflect actual 
utilization, while eventually tying final payment to utilization and 
delivery of services during the rating period approved in the SDP, are 
contrary to the nature of risk-based managed care. SDPs must tie to the 
utilization and delivery of services to Medicaid enrollees covered 
under the contract for the rating period approved in the SDP.
---------------------------------------------------------------------------

    \97\ The actuarial soundness requirements apply statutorily to 
MCOs under section 1903(m)(2)(A)(ii) of the Act and were extended to 
PIHPs and PAHPs under our authority in section 1902(a)(4) of the Act 
in the 2002 final rule.
---------------------------------------------------------------------------

    We have previously issued regulations and guidance in response to 
payments we found to be inconsistent with the statute concerning 
actuarial soundness. In the 2016 rule we noted our belief that the 
statutory requirement that capitation payments to managed care plans be 
actuarially sound requires that payments under the managed care 
contract align with the provision of services under the contract. We 
further noted that based on our review of capitation rates, we found 
pass-through payments being directed to specific providers that 
generally were not directly linked to the delivered services or the 
outcomes of those services; thereby noting that pass-through payments 
are not consistent with actuarially sound rates and do not tie provider 
payments with the provision of services \98\ These concerns led CMS to 
phase out the ability of States to utilize pass-through payments as 
outlined in Sec.  438.6(d). We reach a similar conclusion in our review 
of SDP proposals which use reconciliation of historical to actual 
utilization; if States are seeking to remove risk from managed care 
plans in connection with these types of SDPs, it is inconsistent with 
the nature of risk-based Medicaid managed care. As further noted in the 
2016 rule, ``[t]he underlying concept of managed care and actuarial 
soundness is that the [S]tate is transferring the risk of providing 
services to the MCO and is paying the MCO an amount that is reasonable, 
appropriate, and attainable compared to the costs associated with 
providing the services in a free market. Inherent in the transfer of 
risk to the MCO is the concept that the MCO has both the ability and 
the responsibility to utilize the funding under that contract to manage 
the contractual requirements for the delivery of services.'' \99\
---------------------------------------------------------------------------

    \98\ 81 FR 27587 and 27588.
    \99\ 81 FR 27588.
---------------------------------------------------------------------------

    States use retrospective reconciliations even though there are less 
administratively burdensome ways to ensure payment rates for specific 
services are at or above a certain level. States could accomplish this 
through the establishment of a minimum fee schedule, which we propose 
to define in Sec.  438.6(a) as any contract requirement where the State 
requires a MCO, PIHP, or PAHP to pay no less than a certain amount for 
a covered service(s). If a State's intent is to require that managed 
care plans pay an additional amount per service delivered, States could 
accomplish this through the establishment of a uniform increase, which 
we propose to define in Sec.  438.6(a) as any contract requirement 
where the State requires a MCO, PIHP, or PAHP to pay the same amount 
(the same dollar or the same percentage increase) per covered 
service(s) in addition to the rates the managed care plan negotiated 
with providers. In addition to being less administratively burdensome, 
both options would provide more clarity to providers on payment rates 
and likely result in more timely payments than a retrospective 
reconciliation process. Both options would also allow States' actuaries 
to include the SDPs into the standard capitation rate development 
process using the same utilization projections used to develop the 
underlying capitation rates. States can require both minimum fee 
schedules and uniform increases under current regulations.
    We believe requiring managed care plans to make interim payments 
based on historical utilization and then reconciling to actual 
utilization instead suggests an intent by State to ensure payment of a 
specific aggregate amount to certain providers or, in some cases, 
removal of all risk related to these SDPs from managed care plans. We 
believe prohibiting this practice and removing post-payment 
reconciliation processes as we propose in Sec.  438.6(c)(2)(vii)(B) 
would alleviate actuarial and oversight concerns as well as restore 
program and fiscal integrity to these kinds of payment arrangements.
    CMS is proposing to prohibit the use of post-payment reconciliation 
processes for SDPs; specifically, that States establishing fee 
schedules under Sec.  438.6(c)(1)(iii) cannot require that plans pay 
providers using a post-payment reconciliation process. It is not 
uncommon for States to pair SDPs requiring plans to pay providers using 
a post-payment reconciliation process with a separate payment term 
described later in section I.B.2.l. However, post-payment 
reconciliation process and separate payment terms are not the same. 
Separate payment terms are payments made to the plan in addition to the 
capitation rates to account for any portion of the cost of complying 
with the SDP not already accounted for in the capitation rates. In 
contrast, the post-payment reconciliation process that we are proposing 
to prohibit here directs how the plans pay providers. In both cases, 
CMS has raised concerns about the removal of risk from the plan and 
their use by some States in ways that are contrary to the risk-based 
nature of Medicaid managed care. However, as discussed later, while CMS 
has a strong preference that SDPs be included as adjustments to the 
capitation rates since that method is most consistent with the nature 
of risk-based managed care, we believe separate payment terms can be a 
useful tool for States to be able to make targeted investments in 
response to acute concerns around access to care. In contrast, we do 
not see the same kind of benefit to the Medicaid program in allowing 
States to require that plans pay providers using a post-payment 
reconciliation process. We believe that there are methods for providing 
sufficient guardrails around the use of separate payment terms that 
lessen the risks associated with the use of separate payment terms as 
we have proposed and described in section I.B.2.1. of this proposed 
rule.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on our proposals.
i. Value-Based Payments and Delivery System Reform Initiatives (Sec.  
438.6(c)(2)(vi))
    We are also proposing several changes to Sec.  438.6(c) to address 
how VBP initiatives, which include value-based purchasing, delivery 
system reform, and performance improvement initiatives as described in 
Sec.  438.6(c)(1)(i) and (ii), can be tied to delivery of services 
under the Medicaid managed care contract as well as to remove barriers 
that prevent States from using SDPs to implement these initiatives. 
Currently Sec.  438.6(c)(2)(ii)(A) requires SDPs to be based on the 
utilization and delivery of services, so SDPs that require use of VBP 
initiatives must base payment to providers on utilization and delivery 
of services. Further, Sec.  438.6(c)(2)(iii)(A) requires States to 
demonstrate in writing that the SDP will make participation in the VBP 
initiative available, using the same

[[Page 28135]]

terms of performance, to a class of providers providing services under 
the contract related to the initiative. Existing regulations at Sec.  
438.6(c)(1)(i) and (ii) allow States to direct Medicaid managed care 
plans to implement value-based purchasing models with providers or to 
participate in delivery system reform or performance improvement 
initiatives; these types of SDPs require written prior approval from 
CMS. These provisions were adopted as exceptions to the overall 
prohibition on States directing the payment arrangements used by 
Medicaid managed care plans to pay for covered services. Since the 2016 
rule, States have used SDPs to strengthen their ability to use their 
managed care programs to promote innovative and cost-effective methods 
of delivering care to Medicaid enrollees, to incent managed care plans 
to engage in State activities that promote certain performance targets, 
and to identify strategies for VBP initiatives to link quality outcomes 
to provider reimbursement. As the number of SDPs for VBP initiatives 
continues to grow, we have found that the existing requirements at 
Sec.  438.6(c)(2)(iii) can pose unnecessary barriers to implementation 
of these initiatives in some cases. Revisions to Sec.  438.6(c) would 
address such barriers. First, we propose to redesignate current 
paragraph (c)(2)(iii) as paragraph (c)(2)(vi) with a revision to remove 
the phrase ``demonstrate in writing,'' and we propose to redesignate 
current paragraph (c)(2)(iii)(A) as paragraph (c)(2)(iv)(A).
    In an effort to remove provisions that are barriers to 
implementation of VBP initiatives, add specificity to the types of 
arrangements that can be approved under Sec.  438.6(c), and to 
strengthen the link between SDPs that are VBP initiatives and quality 
of care, we are proposing the following changes to the requirements 
that are specific to SDPs that involve VBP initiatives:
    (1) Remove the existing requirements at Sec.  438.6(c)(2)(iii)(C) 
that currently prohibit States from setting the amount or frequency of 
the plan's expenditures.
    (2) Remove the existing requirements at Sec.  438.6(c)(2)(iii)(D) 
that currently prohibit States from recouping unspent funds allocated 
for these SDPs.
    (3) Redesignate Sec.  438.6(c)(2)(iii)(B) with revisions and 
clarifications to Sec.  438.6(c)(2)(vi)(B). The provision addresses how 
performance in these types of arrangements is measured for 
participating providers.
    (4) Adopt a new Sec.  438.6(c)(2)(vi)(C) to establish requirements 
for use of population-based and condition-based payments in these types 
of SDP arrangements. As discussed in section I.B.2.f of this proposed 
rule, we are proposing to adopt requirements for provider payment rates 
used in SDP arrangements through revisions to Sec.  438.6(c)(2)(iii).
    Currently, Sec.  438.6(c)(2)(iii)(C) prohibits States from setting 
the amount or frequency of expenditures in SDPs that are VBP 
initiatives. In the 2015 proposed rule,\100\ we reasoned that while 
capitation rates to the managed care plans would reflect an amount for 
incentive payments to providers for meeting performance targets, the 
plans should retain control over the amount and frequency of payments. 
We believed that this approach balanced the need to have a health plan 
participate in a multi-payer or community-wide initiative, while giving 
the health plan a measure of control to participate as an equal 
collaborator with other payers and participants. However, VBP 
initiatives often include, by design, specific payment amounts at 
specific times. As States began to design and implement VBP 
initiatives, sometimes across delivery systems or focused on broad 
population health goals, many found that allowing plans to retain such 
discretion undermined the State's ability to implement meaningful 
initiatives with clear, consistent operational parameters necessary to 
drive provider performance improvement and achieve the goals of the 
State's program. Also, because some VBP initiatives provide funding to 
providers on a bases other than ``per claim,'' these payment 
arrangements need to be designed and administered in a way that 
encourages providers to commit to meeting performance goals while 
trusting that they will receive the promised funding if they meet the 
performance targets. This is especially true for multi-delivery system 
arrangements or arrangements that do not make payments for long periods 
of time, such as annually. Inconsistencies in administration or payment 
can undermine providers' confidence in the arrangement. For example, 
States often direct their Medicaid managed care plans to distribute 
earned performance improvement payments to providers on a quarterly 
basis. Because these types of payment arrangements affect provider 
revenue differently than the usual per claim payment methodology, 
establishing strong parameters and operational details that define when 
and how providers will receive payment is critical for robust provider 
participation. While allowing States the flexibility to include the 
amount and frequency of payments when designing VBP and delivery system 
reform initiatives removes discretion from managed care plans, we 
believe this flexibility is necessary to ensure that States can achieve 
their quality goals and get value for the dollars and effort that they 
invest in these arrangements. Creating obstacles for States trying to 
implement VBP initiatives was not our intent in the 2016 final rule. 
Our goal then and now is to incent States to implement innovative 
initiatives that reward quality of care and improved health outcomes 
over volume of services. To accomplish this, we need to refine our 
regulations; we propose to remove the existing text at Sec.  
438.6(c)(2)(iii)(C) that prohibits States from setting the amount and 
frequency of payment. We believe this would enable States to design 
more effective VBP initiatives using more robust quality measures to 
help ensure provider uptake, boost providers' confidence in the 
efficiency and effectiveness of the arrangement, and enable States to 
use VBP initiatives to achieve critical program goals.
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    \100\ https://www.federalregister.gov/documents/2015/06/01/2015-12965/medicaid-and-childrens-health-insurance-program-chip-programs-medicaid-managed-care-chip-delivered.
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    Currently, Sec.  438.6(c)(2)(iii)(D) prohibits States from 
recouping any unspent funds allocated for SDP arrangements from managed 
care plans when the SDP arrangement is for VBP, delivery system reform, 
or performance improvement initiatives. In the 2015 proposed rule, we 
explained that because funds associated with delivery system reform or 
performance initiatives are part of the capitation payment, any unspent 
funds would remain with the MCO, PIHP, or PAHP. We believed this was 
important to ensure that the SDPs made to providers were associated 
with a value relative to innovation and Statewide reform goals and not 
simply an avenue for States to provide funding increases to specific 
providers. However, allowing managed care plans to retain unspent funds 
when providers fail to achieve performance targets can create perverse 
incentives for States and managed care plans. States have described to 
us that they are often not incentivized to establish VBP arrangements 
with ambitious performance or quality targets if those arrangements 
result in managed care plans profiting from weak provider performance. 
Although States attempt to balance setting performance targets high 
enough to improve care quality and health outcomes but not so high that 
providers are discouraged from participating or so low that they do not 
result in improved quality or outcomes,

[[Page 28136]]

many States struggle due to of lack experience and robust data. And 
unfortunately, failed attempts to implement VBP arrangements discourage 
States, plans, and providers from trying to use the arrangements again. 
It was never our intent to discourage States from adopting innovative 
VBP initiatives, so we seek to address the unintended consequence 
created in the 2016 final rule by proposing to remove the regulation 
text at Sec.  438.6(c)(2)(iii)(D) that prohibits States from recouping 
unspent funds from the plans. We believe that removing this prohibition 
could enable States to reinvest these unspent funds to further promote 
VBP and delivery system innovation.
    To expand the types of VBP initiatives that would be allowed under 
Sec.  438.6(c)(1)(i) and (ii) and ensure a focus on value over volume, 
we are also proposing additional revisions in Sec.  438.6(c)(2)(vi) to 
distinguish between performance-based payments and the use of proposed 
population-based or condition-based payments to providers.
    The existing regulations at Sec.  438.6(c)(1)(i) and (ii) were 
intended both to incent State activities that promote certain 
performance targets as well as to facilitate and support delivery 
system reform initiatives within the managed care environment to 
improve health care outcomes. We recognize that certain types of multi-
payer or Medicaid-specific initiatives, such as patient-centered 
medical homes (PCMH), broad-based provider health information exchange 
projects, and delivery system reform projects to improve access to 
services, among others, may not lend themselves to being conditioned 
upon provider performance during the rating period.\101\ Instead, these 
arrangements are conditioned upon other factors, such as the volume and 
characteristics of a provider's attributed population of patients or 
upon meeting a total cost of care (TCOC) benchmark, for example, 
through the provision of intense case management resulting in a 
reduction of chronic disease. Due to the diversity of VBP initiatives, 
we believe that the existing language at Sec.  438.6(c)(2)(iii)(B), 
which requires that all SDPs that direct plan expenditures under Sec.  
438.6(c)(1)(i) and (ii) must use a common set of performance measures 
across all of the payers and providers, cannot be broadly applied to 
arrangements or initiatives under Sec.  438.6(c)(1)(i) and (ii) that do 
not measure specific provider performance measures.
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    \101\ https://hcp-lan.org/workproducts/apm-framework-onepager.pdf.
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    We believe the best way to address the limitations in current 
regulation text is to specify different requirements for VBP 
initiatives that condition payment upon performance from ones that are 
population or condition-based. Therefore, we propose to use new Sec.  
438.6(c)(2)(vi)(B) for requirements for SDPs that condition payment on 
performance. We are also proposing to adopt additional requirements in 
addition to redesignating the provision currently at Sec.  
438.6(c)(2)(iii)(B) to newly proposed Sec.  438.6(c)(2)(vi)(B)(2). 
Additionally, we are proposing new requirements at new (c)(2)(vi)(B)(1) 
and (3) through (5) that are clarifications or extensions of the 
current requirement that SDPs use a common set of performance metrics.
    We further propose to add new Sec.  438.6(c)(2)(vi)(C) to describe 
the requirements for SDPs that are population-based payments and 
condition-based payments.
    Performance-Based Payments. Under current Sec.  438.6(c)(2)(ii)(A), 
SDPs that direct the MCO's, PIHP's, or PAHP's expenditures under 
paragraphs (c)(1)(i) and (ii) must be based on the utilization and 
delivery of services. Therefore, we have required that SDPs that are 
VBP initiatives be based on performance tied to the delivery of covered 
services to Medicaid beneficiaries covered under the Medicaid managed 
care contract for the rating period. This means that we have not 
allowed these types of SDPs to be based on ``pay-for-reporting'' 
because the act of reporting, alone, is an administrative activity and 
not a covered service. Instead, when States seek to design SDPs that 
pay providers for administrative activities rather than provider 
performance, we have encouraged States to use provider reporting or 
participation in learning collaboratives as a condition of provider 
eligibility for the SDPs and then tie payment under the SDP to 
utilization under Sec.  438.6(c)(1)(iii). At Sec.  
438.6(c)(2)(vi)(B)(1), we propose to codify our interpretation of this 
policy by requiring that payments to providers under SDPs that are 
based on performance not be conditioned upon administrative activities, 
such as the reporting of data, nor upon the participation in learning 
collaboratives or similar administrative activities. The proposed 
regulation explicitly states our policy so that States have a clear 
understanding of how to design their SDPs appropriately. We recognize 
and understand the importance of establishing provider reporting 
requirements, learning collaboratives, and similar activities to help 
further States' goals for performance and quality improvement and want 
to support these activities; however, while these activities can be 
used as eligibility criteria for the provider class receiving payments, 
they cannot be the basis for receiving payment from the Medicaid 
managed care plan under an SDP described in Sec.  438.6(c)(1)(i) or 
(ii) that is based on performance.
    Currently, our policy is that the performance measurement period 
for SDPs that condition payment based upon performance must overlap 
with the rating period in which the payment for the SDP is made. 
However, we have found that States frequently experience delays in 
obtaining performance-based data due to claims run out time and the 
time needed for data analyses and validation of the data and the 
results. All of this can make it difficult, if not impossible, to 
comply with this requirement. Therefore, we propose to permit States to 
use a performance measurement period that precedes the start of the 
rating period in which payment is delivered by up to 12 months. Under 
this aspect of our proposal, States would be able to condition payment 
on performance measure data from time periods up to 12 months prior to 
the start of the rating period in which the SDP is paid to providers. 
We believe that this flexibility would allow States adequate time to 
collect and analyze performance data for use in the payment arrangement 
and may incentivize States to adopt more VBP initiatives. We solicit 
comment on whether 12 months is an appropriate time period to allow for 
claims runout and data analysis, or if the time period that the 
performance period may precede the rating period should be limited to 6 
months or extended to 18 or 24 months, or if the performance period 
should remain consistent with the rating period. We also propose that 
the performance measurement period must not exceed the length of the 
rating period. We believe this would make it clear to States that 
although we propose to extend the length of time between provider 
performance and payment for administrative simplicity, we are not 
extending the performance measurement time. Finally, we are also 
proposing that all payments would need to be documented in the rate 
certification for the rating period in which the payment is delivered. 
We also believe identifying which rating period the payments should be 
reflected in is important since up to 2 rating periods may be involved 
between

[[Page 28137]]

performance and payment, and we want States to document these payments 
consistently. Specifically, we propose, at Sec.  438.6(c)(2)(vi)(B)(3), 
that a payment arrangement that is based on performance must define and 
use a performance period that must not exceed the length of the rating 
period and must not precede the start of the rating period in which the 
payment is delivered by more than 12 months, and all payments must be 
documented in the rate certification for the rating period in which the 
payment is delivered.
    In a December 2020 report,\102\ the OIG found that a quality 
improvement incentive SDP implemented in one State resulted in 
incentive payments paid to providers whose performance declined during 
the measurement period. Other interested parties, such as MACPAC, have 
noted concerns with performance improvement SDPs that continue even 
when there has been a decline in quality or access. In alignment with 
our proposed evaluation policies at Sec.  438.6(c)(2)(iv) (see section 
I.B.2.j. of this proposed rule) that seek to better monitor the impact 
of SDPs on quality and access to care, and in an effort to establish 
guardrails against payment for declining performance in VBP SDPs, we 
propose to add Sec.  438.6(c)(2)(vi)(B)(4) and (5). Measurable 
performance targets that demonstrate performance relative to a baseline 
allow States (and CMS) to assess whether or not a provider's 
performance has improved. Therefore, at Sec.  438.6(c)(2)(vi)(B)(4), we 
propose to require that all SDPs that condition payment on performance 
include a baseline statistic for all metrics that are used to measure 
the performance that is the basis for payment from the plan to the 
provider; these are the metrics (including, per proposed paragraph 
(c)(2)(iv)(A)(2), at least one performance measure, as that term is 
proposed to be defined in Sec.  438.6(a)) that are specified by the 
States in order to comply with proposed Sec.  438.6(c)(2)(vi)(B)(2). At 
Sec.  438.6(c)(2)(vi)(B)(5), we propose to require that all SDPs that 
condition payment on performance use measurable performance targets, 
which are attributable to the performance by the providers in 
delivering services to enrollees in each of the State's managed care 
program(s) to which the payment arrangement applies, that demonstrate 
improvement over baseline data on all metrics selected in Sec.  
438.6(c)(2)(vi)(B)(2). We believe that these proposals would be 
consistent with how quality improvement is usually measured as well as 
be responsive to oversight bodies and help promote economy and 
efficiency in Medicaid managed care.
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    \102\ U.S. Department of Health and Human Services Office of the 
Inspector General, ``Aspects of Texas' Quality Incentive Payment 
Program Raise Questions About Its Ability To Promote Economy and 
Efficiency in the Medicaid Program,'' A-06-18-07001, December 21, 
2020, available at https://oig.hhs.gov/oas/reports/region6/61807001.asp.
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    Population-Based Payments and Condition-Based Payments. As 
discussed previously in this preamble section, States often adopt VBP 
initiatives that are intended to further goals of improved population 
health and better care at lower cost. We support these efforts and 
encourage the use of methodologies or approaches to provider 
reimbursement that prioritize achieving improved health outcomes over 
volume of services. Therefore, we propose to add new Sec.  
438.6(c)(2)(vi)(C) to establish regulatory pathways for approval of VBP 
initiatives that may not be conditioned upon specific measures of 
performance.
    We propose to define a ``population-based payment'' at Sec.  
438.6(a) as a prospective payment for a defined Medicaid service(s) for 
a population of Medicaid managed care enrollees covered under the 
contract attributed to a specific provider or provider group. We 
propose to define a ``condition-based payment'' as a prospective 
payment for a defined set of Medicaid service(s), that are tied to a 
specific condition and delivered to Medicaid managed care enrollees. 
One example of a population-based payment would be an SDP that is a 
primary care medical home (PCMH) and directs managed care plans to pay 
prospective per member per month (PMPM) payments for care management to 
primary care providers, where care management is the service being 
delivered under the contract and covered by the PMPM. An attributed 
population could also be condition-based. For example, States could 
direct managed care plans to pay a provider or provider group a PMPM 
for Medicaid enrollees with a specific condition when the enrollee is 
attributed to the provider or provider group for treatment for that 
condition.
    At Sec.  438.6(c)(2)(vi)(C)(1), we propose to require that 
population-based and condition-based payments be conditioned upon 
either the delivery by the provider of one or more specified Medicaid 
covered service(s) during the rating period or the attribution to the 
provider of a covered enrollee for the rating period for treatment. 
This proposed requirement aligns with the requirement, currently at 
Sec.  438.6(c)(2)(ii)(A), that SDP arrangements base payments to 
providers on utilization and delivery of services under the Medicaid 
managed care contract. States, consistent with 1903(m)(2)(A)(xi), Sec.  
438.242(d), and 438.818, must collect, maintain, and submit to T-MSIS 
encounter data showing that covered service(s) have been delivered to 
the enrollees attributed to a provider that receives the population-
based payment. Further, if the payment is conditioned upon the 
attribution of a covered enrollee to a provider, we propose Sec.  
438.6(c)(2)(vi)(C)(2) to require that the attribution methodology uses 
data that are no older than the 3 most recent and complete years of 
data; seeks to preserve existing provider-enrollee relationships; 
accounts for enrollee preference in choice of provider; and describes 
when patient panels are attributed, how frequently they are updated, 
and how those updates are communicated to providers.
    We have seen States submit proposals for VBP initiatives that 
include prospective PMPM population-based payments with no direct tie 
to value or quality of care and paid in addition to the contractually 
negotiated rate. Because population-based payments should promote 
higher quality and coordination of care to result in improved health 
outcomes, we believe it is imperative that these type of PMPM payments 
are used to ensure that enrollees are receiving higher quality and 
coordinated services to increase the likelihood of enrollees 
experiencing better outcomes. Therefore, we propose to add Sec.  
438.6(c)(2)(vi)(C)(3) to require that population-based payments and 
condition-based payments replace the negotiated rate between a plan and 
providers for the Medicaid covered service(s) being delivered as a part 
of the SDP to prevent any duplicate payment(s) for the same service. 
Also, at Sec.  438.6(c)(2)(vi)(C)(2), we propose to add a requirement 
that prevents payments from being made in addition to any other 
payments made by plans to the same provider on behalf of the same 
enrollee for the same services included in the population- or 
condition-based payment. We believe that the requirements in paragraph 
(c)(2)(vi)(C)(2) would prevent States from implementing SDPs under 
Sec.  438.6(c)(2)(vi)(C) that are PMPM add-on payments made in addition 
to negotiated rates with no further tie to quality or value.
    We recognize the importance of providing a regulatory pathway for 
States to implement SDPs that are VBP initiatives designed to promote 
higher quality care in more effective and efficient ways at a lower 
cost. Because quality of care and provider

[[Page 28138]]

performance are integral and inherent to all types of VBP initiatives, 
we believe that SDPs under proposed Sec.  438.6(c)(2)(vi)(C) that are 
designed to include population-based or condition-based payments must 
also include in their design and evaluation at least one performance 
measure and set the target for such a measure to demonstrate 
improvement over baseline at the provider class level for the provider 
class receiving the payment. As such, we propose new Sec.  
438.6(c)(2)(vi)(C)(4) to require that States include at least one 
performance measure that measures performance at the provider class 
level as a part of the evaluation plan outlined in proposed Sec.  
438.6(c)(2)(iv). We are also proposing that States would be required to 
set the target for such a performance measure to demonstrate 
improvement over baseline. We believe that this balances the need to 
provide States the flexibility to design VBP initiatives to meet their 
population health and other value-based care goals, while providing 
accountability by monitoring the effect of the initiatives on the 
performance of the provider class and the subsequent health outcomes of 
the enrollees.
    Approval Period. In the 2020 Medicaid managed care rule, we 
finalized a revision to Sec.  438.6(c)(2)(i) allowing that SDPs are VBP 
initiatives as defined in Sec.  438.6(c)(1)(i) and (ii) meet additional 
criteria described in Sec.  438.6(c)(3)(i)(A) through (C) would be 
eligible for multi-year approval if requested. Because of the tie to 
the managed care quality strategy, which in Sec.  438.340 is required 
to be updated at least once every 3 years, CMS has never granted 
written prior approval of an SDP for more than 3 years. We are 
proposing to modify Sec.  438.6(c)(3)(i) to add that a multi-year 
written prior approval may be for of up to three rating periods to 
codify our existing policy. Requiring States to renew multi-year SDPs 
every 3 years will allow us to monitor changes and ensure that SDPs 
remains aligned with States' most current managed care quality 
strategy. We are also proposing minor revisions in paragraphs 
(c)(3)(i)(A) through (C) to use the term ``State directed payment'' as 
appropriate and to revise paragraph (c)(3)(ii) to specify it is about 
written prior approvals. Finally, we are proposing to redesignate 
paragraph (c)(2)(F) to new paragraph (c)(3)(iii) to explicitly provide 
that State directed payments are not automatically renewed.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on these proposals.
j. Quality and Evaluation (Sec.  438.6(c)(2)(ii)(D) and (F), (c)(2)(iv) 
and (v), and (c)(7))
    We are proposing several changes to the SDP regulations in Sec.  
438.6(c) to support more robust quality improvement and evaluation. 
Existing regulations at Sec.  438.6(c)(2)(ii)(C) and (D) specify that 
to receive written prior approval, States must demonstrate in writing, 
amongst other requirements, that the State expects the SDP to advance 
at least one of the goals and objectives in the State's managed care 
quality strategy and has an evaluation plan that measures the degree to 
which the SDP advances the identified goals and objectives. We issued 
guidance in November 2017 \103\ that provided further guidance on what 
evaluation plans should generally include: the identification of 
performance criteria which can be used to assess progress on the 
specified goal(s) and objective(s); baseline data for performance 
measure(s); and improvement targets for performance measure(s).
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    \103\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib11022017.pdf.
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    In order to monitor the extent to which an SDP advances the 
identified goals and objectives in a State's managed care quality 
strategy, we request that States submit their SDP evaluation results 
from prior rating periods to aid our review of preprint submissions 
that are renewals of an existing SDP. If an SDP proposal meets 
regulatory requirements but the State is unable to provide the 
requested evaluation results, we will usually approve a renewal of the 
SDP with a ``condition of concurrence'' that the State submit 
evaluation results with the following year's preprint submission for 
renewal of the SDP for the following rating period. For example, one 
common condition of concurrence for year two preprints is the provision 
of SDP evaluation results data for year one of the SDP with the year 
three preprint submission.
    In 2021, CMS conducted an internal analysis to assess the 
effectiveness of SDP evaluation plans in measuring progress toward 
States' managed care quality strategy goals and objectives and whether 
SDP evaluation findings provided us with sufficient information to 
analyze whether an SDP facilitated quality improvement. We analyzed 
data from 228 renewal preprints submitted by 33 States between April 
2018 and February 2021. Over half (63 percent) of the evaluation plans 
submitted were incomplete, and only 43 percent of the renewal preprints 
included any evaluation results. Our analysis also found only a 35 
percent compliance rate with conditions of concurrence requesting 
States submit SDP evaluation results with the preprint for the 
following rating period. Our policy goals in this area are frustrated 
by the lack of a regulation requiring submission of these evaluation 
results. By adopting requirements for submission of evaluation plans 
and reports, we intend to increase compliance and improve our oversight 
in this area.
    As the volume of SDP preprint submissions and total dollars flowing 
through SDPs continues to increase, we recognize the importance of 
ensuring that SDPs are contributing to Medicaid quality goals and 
objectives, and recognize that meaningful evaluation results are 
critical for ensuring that these payments further improvements in 
quality of care. Moreover, consistent submission of evaluation results 
is important for transparency and for responsiveness to oversight 
bodies. Consistent with our internal findings, other entities, 
including MACPAC \104\ and GAO,\105\ have noted concerns about the 
level of detail and quality of SDP evaluations. In MACPAC's June 2022 
Report to Congress, the Commission noted concern about the lack of 
availability of information on evaluation results for SDPs, even when 
the arrangements had been renewed multiple times. The report also noted 
that examples of when evaluation results showed a decline in quality or 
access but the SDPs were renewed without changes. MACPAC recommended in 
its report that CMS require more rigorous evaluation requirements for 
SDPs, particularly for arrangements that substantially increase 
provider payments above Medicaid FFS reimbursement. The report also 
suggests that CMS provide written guidance on the types of measures 
that States should use to evaluate progress towards meeting quality and 
access goals and noted that we should clarify the extent to which 
evaluation results are used to inform approval and renewal decisions.
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    \104\ Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
    \105\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
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    We are proposing a number of regulatory changes to enhance CMS's

[[Page 28139]]

ability to collect evaluations of SDPs and enhance the level of detail 
described in the evaluation. CMS' intent is to shine a spotlight on SDP 
evaluations and use evaluation results in determining future approvals 
of State directed payments. CMS also plans to issue additional 
technical assistance on this subject as well to assist States in the 
development of evaluation plans in alignment with the proposed 
regulatory requirements and preparing the subsequent evaluation 
reports.
    In an effort to strengthen reporting and to better monitor the 
impact of SDPs on quality and access to care, we propose at Sec.  
438.6(c)(2)(iv) that the State must submit an evaluation plan for each 
SDP that requires written prior approval that includes four specific 
elements. We specify that our proposal is to establish minimum content 
requirements for SDP evaluation plans but is not intended to limit 
States in evaluating their SDP arrangements. Currently, Sec.  
438.6(c)(2)(ii)(D) requires that States develop an evaluation plan that 
measures the degree to which the arrangement advances at least one of 
the goals and objectives in the State's managed care quality strategy 
(which is required by Sec.  438.340).
    We propose at Sec.  438.6(c)(2)(iv)(A) that the evaluation plan 
must identify at least two metrics that would be used to measure the 
effectiveness of the payment arrangement in advancing the identified 
goal(s) and objective(s) from the State's managed care quality strategy 
on an annual basis. In addition, proposed paragraph (c)(2)(vi)(C)(4) 
further specifies that at least one of those metrics must measure 
performance at the provider class level for SDPs that are population- 
or condition-based payments. Under Sec.  438.6(c)(2)(iv)(A)(1), we 
propose that the metrics must be specific to the SDP and attributable 
to the performance by the providers for enrollees in all of the State's 
managed care program(s) to which the SDP applies, when practicable and 
relevant. We propose the standard ``when practicable and relevant'' to 
allow flexibility to account for situations in which contract or 
program level specificity may be either impossible to obtain or may be 
ineffective in measuring the identified quality goal(s) and 
objective(s). For example, States may implement a quality improvement 
initiative in both the Medicaid FFS program and Medicaid managed care 
program(s), but measuring the impact of that initiative on each program 
separately would not produce valid results due to the small sample 
sizes. Proposing this flexibility would allow States to produce an 
evaluation inclusive of both Medicaid managed care and FFS data and 
comprised of measures relevant to the approved SDP to demonstrate the 
effect the SDP arrangement is having on advancing the State's overall 
quality goals.
    We propose at Sec.  438.6(c)(2)(iv)(A)(2) to require that at least 
one of the selected metrics must be a performance measure, for which we 
propose a definition in Sec.  438.6(a) as described in section I.B.2.i. 
of this proposed rule. We currently allow, and would continue to allow, 
States to select a metric with a goal of maintaining access to care 
when that is the goal of the SDP. While access metrics provide valuable 
information, they do not measure service delivery, quality of care, or 
outcomes, and they do not provide insight into the impact that these 
payment arrangements have on the quality of care delivered to Medicaid 
enrollees. Therefore, if a State elects to choose a metric that 
measures maintenance of access, our proposal would require States to 
choose at least one additional performance metric. Because we recognize 
that performance is a broad term and that the approach to evaluating 
quality in healthcare is evolving, and because we understand the 
importance of preserving States' flexibility to identify performance 
measure(s) that are most appropriate for evaluating the specific SDP, 
we are not proposing additional requirements for the other minimum 
metric so as not to preclude innovation. However, we would strongly 
recommend that States use existing measure sets which are in wide use 
across Medicaid and CHIP, including the Medicaid and CHIP Child and 
Adult Core Sets \106\ and the Home and Community-Based Services Quality 
Measure Set,\107\ to facilitate alignment and reduce administrative 
burden. In some cases, these existing measures may not be the most 
appropriate choice for States' Medicaid managed care goals; therefore, 
we will issue subregulatory guidance to provide best practices and 
recommendations for choosing appropriate performance measures when not 
using existing measure sets.
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    \106\ Medicaid and CHIP Child Core Set (https://www.medicaid.gov/medicaid/quality-of-care/performance-measurement/child-core-set/), the Medicaid Adult Core Set (https://www.medicaid.gov/medicaid/quality-of-care/performance-measurement/adult-core-set/).
    \107\ https://www.medicaid.gov/federal-policy-guidance/downloads/smd22003.pdf.
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    Concerns around access to primary care, maternal health, and 
behavioral health have been raised nationally. The current 
administration considers increasing access to care for these services 
to be a national priority. We encourage States to implement SDPs for 
these services and providers to improve access. We also encourage 
States to include measures that focus on primary care and behavioral 
health in their evaluation plans when relevant. This could include 
using existing measures from the Medicaid and CHIP Child and Adult Core 
Sets \108\ or other standardized measure sets. CMS also expects that 
States consider examining parity in rates for primary care and 
behavioral health compared to other services, such as inpatient and 
outpatient hospital services, as part of their evaluation of SDPs.
---------------------------------------------------------------------------

    \108\ Medicaid and CHIP Child Core Set (https://www.medicaid.gov/medicaid/quality-of-care/performance-measurement/child-core-set/), the Medicaid Adult Core Set (https://www.medicaid.gov/medicaid/quality-of-care/performance-measurement/adult-core-set/).
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    It is crucial to monitor and evaluate the impact of SDP 
implementation, and as such we propose at Sec.  438.6(c)(2)(iv)(B) to 
require States to include baseline performance statistics for all 
metrics that would be used in the evaluation since this data must be 
established in order to monitor changes in performance during the SDP 
performance period. We believe this proposal is particularly necessary 
since we found in our internal study that, among the SDP evaluation 
plan elements, a baseline statistic(s) was the most commonly missing 
element. We propose the requirements at Sec.  438.6(c)(2)(iv)(B) in an 
effort to ensure that States' evaluation plans produce reliable results 
throughout the entirety of the SDP's implementation.
    Measurable SDP evaluation performance targets that demonstrate 
performance relative to the baseline measurement allow States to 
determine whether the payment arrangement is having the intended effect 
and helping a State make progress toward its quality goals. Our 
internal analysis showed that nearly 20 percent of performance measures 
selected by States were not specific or measurable. Therefore, at Sec.  
438.6(c)(2)(iv)(C), we also propose to require that States include 
measurable performance targets relative to the baseline statistic for 
each of the selected measures in their evaluation plan.
    Overall, we believe that the proposed regulations at Sec.  
438.6(c)(2)(iv) would ensure that States collect and use stronger data 
for developing and evaluating payment arrangements to meet the goals of 
their Medicaid programs and would also be responsive to recommendations 
for more clarity for SDP evaluation plans. However, we

[[Page 28140]]

recognize and share the concerns raised by oversight bodies regarding 
the limited availability of SDP evaluation results for use in internal 
and external monitoring of the effect of SDPs on quality of care. While 
we ask States for evaluation results as part of the review process for 
SDP renewals, current regulations do not explicitly require submission 
of completed evaluation reports and results or use by CMS of prior 
evaluation reports and results in reviewing current SDPs for renewal or 
new SDPs. As a result, because most States do not comply with our 
request for evaluation data, we are proposing to revise Sec.  
438.6(c)(2) to ensure that SDPs further the goals and objectives 
identified in the State's managed care quality strategy. We propose at 
Sec.  438.6(c)(2)(iv)(D) that States must provide commitment to submit 
an evaluation report in accordance with proposed Sec.  438.6(c)(2)(v), 
which is discussed in the next paragraph of this section, if the final 
State directed payment cost percentage exceeds 1.5 percent.
    Finally, we are proposing to amend Sec.  438.6(c)(2)(ii)(D) to 
further require the evaluation plan include all the elements outlined 
in paragraph (c)(2)(iv). These proposed changes in Sec.  
438.6(c)(2)(ii)(D) and the new proposed requirements in Sec.  
438.6(c)(2)(iv) would further identify the necessary components of a 
State's evaluation plans for SDPs and make clear that we have the 
authority to disapprove proposed SDPs if States fail to provide in 
writing evaluation plans for their SDPs that comply with these 
regulatory requirements.
    Section 1902(a)(6) of the Act requires that States provide reports, 
in such form and containing such information, as the Secretary may from 
time to time require. Our proposal to add new Sec.  438.6(c)(2)(v) to 
require that States submit to CMS, for specified types of SDPs that 
have a final State directed payment cost percentage that exceeds 1.5 
percent, an evaluation report using the evaluation plan the State 
outlined under proposed Sec.  438.6(c)(2)(iv). As proposed in Sec.  
438.6(c)(2)(v), the proposed evaluation reporting requirement is 
limited to States with SDPs that require prior approval. We recognize 
that submitting an evaluation report would impose some additional 
burden on States, so we propose this risk-based approach to identify 
when an evaluation report must be submitted to CMS based on the actual 
total amount that is paid as a separate payment term described in Sec.  
438.6(c)(6) or portion of the actual total portion of capitation 
payments attributable to the SDP, as a percentage of the State's total 
Medicaid managed care program costs for each managed care program. This 
approach would allow States and CMS to focus resources on payment 
arrangements with the highest financial risk. We have selected the 1.5 
percent as it aligns with existing Medicaid managed care policy for 
when rate amendments are necessary (often referred to as a de minimis 
threshold or de minimis changes) and with proposed policies for in lieu 
of services (see section I.B.3. of this proposed rule).
    We propose to define ``final State directed payment cost 
percentage'' in Sec.  438.6(a) as the annual amount calculated, in 
accordance with paragraph (c)(7)(iii) of this section, for each State 
directed payment and each managed care program. In Sec.  
438.6(c)(7)(iii)(A), we propose for SDPs requiring prior approval that 
the final SDP cost percentage numerator be calculated as the portion of 
the total capitation payments that is attributable to the State 
directed payment and, actual total amount that is paid as a separate 
payment term described in Sec.  438.6(c)(6), for each managed care 
program. In Sec.  438.6(c)(7)(iii)(B), we propose the final SDP cost 
percentage denominator be calculated as the actual total capitation 
payments, defined at Sec.  438.2, for each managed care program, 
including all State directed payments in effect under Sec.  438.6(c) 
and pass-through payments in effect under Sec.  438.6(d), and the 
actual total amount of State directed payments that are paid as a 
separate payment term as described in paragraph (c)(6). To calculate 
the numerator for a minimum or maximum fee schedule type of SDP that is 
incorporated into capitation rates as an adjustment to base capitation 
rates, an actuary should calculate the absolute change that the SDP has 
on base capitation rates. Over time, as the SDP is reflected in the 
base data and incorporated into base capitation rates, it is possible 
that the absolute effect may decrease or no longer be apparent, and the 
numerator may decrease to zero. We solicit comment on whether the 
numerator for a minimum or maximum fee schedule SDP that is 
incorporated into capitation rates as an adjustment to base capitation 
rates should be calculated in a different manner (for example, 
estimating a portion of the capitation rates resulting from the SDP). 
We do not believe that it is necessary to propose regulation text to 
codify this approach as we intend to issue additional guidance in the 
Medicaid Managed Care Rate Development Guide in accordance with Sec.  
438.7(e). We also solicit comment on whether we should codify this in 
regulation text. We believe this proposed numerator and denominator 
would provide an accurate measurement of the final expenditures 
associated with a SDP and total program costs in each managed care 
program in a risk-based contract.
    We believe the final SDP cost percentage should be measured 
distinctly for each managed care program and SDP, as reflected in the 
definition proposed for this term. This is appropriate because 
capitation rates are typically developed by program, SDPs may vary by 
program, and each managed care program may include differing 
populations, benefits, geographic areas, delivery models, or managed 
care plan types. For example, one State may have a behavioral health 
program that covers care to most Medicaid beneficiaries through PIHPs, 
a physical health program that covers physical health care to children 
and pregnant women through MCOs, and a program that covers physical 
health and MLTSS to adults with a disability through MCOs. Another 
State may have several different managed care programs that serve 
similar populations and provide similar benefits through MCOs, but the 
delivery model and geographic areas served by the managed care programs 
vary. We addressed managed care program variability within the 2016 
final rule when we noted that ``This clarification in the regulatory 
text to reference ``managed care program'' in the regulatory text is to 
recognize that States may have more than one Medicaid managed care 
program--for example physical health and behavioral health . . .'' (81 
FR 27571). Therefore, we believe it would be contrary to our intent if 
States were to develop a final SDP cost percentage by aggregating data 
from more than one managed care program since that would be 
inconsistent with rate development, the unique elements of separate 
managed care programs, and the SDPs that vary by managed care program. 
We note here that we intend to use this application of managed care 
program in other parts of this section of this proposed rule, 
including, but not limited to, the discussion of calculating the total 
payment rate in section I.B.2.f. of this proposed rule, measurement of 
performance for certain VBP arrangements discussed in section I.B.2.i. 
of this proposed rule and separate payment terms in section I.B.2.i. of 
this proposed rule.
    With Sec.  438.6(c)(7)(i), we propose that the final State directed 
payment cost percentage be calculated on an annual basis and 
recalculated annually to ensure consistent application across all 
States and managed care programs. To

[[Page 28141]]

ensure that final State directed payment cost percentage would be 
developed in a consistent manner with how the State directed payment 
costs would be included in rate development, we propose at Sec.  
438.6(c)(7)(ii) to require that the final SDP cost percentage would 
have to be certified by an actuary and developed in a reasonable and 
appropriate manner consistent with generally accepted actuarial 
principles and practices. An ``actuary'' is defined in Sec.  438.2 as 
an individual who meets the qualification standards established by the 
American Academy of Actuaries for an actuary and follows the practice 
standards established by the Actuarial Standards Board, and who is 
acting on behalf of the State to develop and certify capitation rates.
    Although all States would be required to develop and document 
evaluation plans in compliance with the provisions proposed in Sec.  
438.6(c)(2)(iv), the proposed regulation at Sec.  438.6(c)(2)(v) 
requires submission of the evaluation report for an SDP based on 
whether the SDP results in a final SDP cost percentage greater than 1.5 
percent. In recognition that the final SDP cost percentage report 
represents additional State burden and that many States may choose to 
evaluate their SDPs regardless of the final SDP cost percentage, we 
propose Sec.  438.6(c)(7) which requires States to submit the final SDP 
cost percentage report, only if a State wishes to demonstrate that it 
is below 1.5 percent. With this proposed reporting requirement, States 
would be required to provide the final SDP cost percentage report to 
demonstrate that an SDP is exempt from the proposed evaluation report 
requirement. For SDP arrangements that do not exceed the threshold, 
States would not be required to submit evaluation results under 
proposed new paragraph Sec.  438.6(c)(2)(v), but we would encourage 
States to monitor the evaluation results of all of their SDPs. We 
recognize that in order to monitor the 1.5 percent threshold, we would 
need a reporting mechanism by which States would be required to 
calculate and provide the final SDP cost percentage to CMS. Therefore, 
we propose a requirement (at new Sec.  438.6(c)(7)(iv)) that the State 
submit the final State directed payment cost percentage annually to CMS 
for review, when the final State directed payment cost percentage does 
not exceed 1.5 percent and the State has not voluntarily submitted the 
evaluation report, as a separate report concurrent with the rate 
certification submission required in Sec.  438.7(a) no later than 2 
years after the completion of each 12-month rating period that included 
a State directed payment. We believe that it is appropriate for States' 
actuaries to develop a separate report to document that the final State 
directed payment cost percentage does not exceed 1.5 percent, rather 
than including it in a rate certification, because the final State 
directed payment cost percentage may require alternate data compared to 
the base data that were used for prospective rate development, given 
the timing of base data requirements as outlined in Sec.  438.5(c)(2). 
We note that this proposal is similar to the concurrent submission for 
the proposed MLR reporting at Sec.  438.74 and proposed ILOS projected 
and final cost percentage reporting at Sec.  438.16(c). We considered 
proposing that States submit the final SDP report to CMS upon 
completion of the report, separately and apart from the rate 
certification. However, we believe there should be consistency across 
States for when this report is submitted to CMS for review, and we 
believe receiving this report and the rate certification at the same 
time would enable CMS to review them concurrently.
    As the proposed denominator for the final SDP cost percentage would 
be based on the actual total capitation payments and the actual total 
State directed payments paid as a separate payment term (see section 
I.B.2.l. of this proposed rule for details on this proposal for 
separate payment terms) paid by States to managed care plans, we 
recognize that calculating the final SDP cost percentage would take 
States and actuaries some time. For example, changes to the eligibility 
file and revised rate certifications for rate amendments may impact the 
final capitation payments that are a component of the calculation. 
Given these factors, we believe that 2 years is an adequate amount of 
time to accurately perform the calculation. Under this proposal, for 
example, the final SDP cost percentage report for a managed care 
program that uses a calendar year 2024 rating period would be submitted 
to CMS with the calendar year 2027 rate certification.
    For the evaluation reports, we propose to adopt three requirements 
in Sec.  438.6 (c)(2)(v)(A). First, in Sec.  438.6(c)(2)(v)(A)(1), we 
propose that evaluation reports must include all of the elements 
approved in the evaluation plan required in Sec.  438.6(c)(2)(iv). In 
Sec.  438.6(c)(2)(v)(A)(2), we propose to require that States include 
the 3 most recent and complete years of annual results for each metric 
as required in Sec.  438.6(c)(2)(iv)(A). Lastly, at Sec.  
438.6(c)(2)(v)(A)(3), in acknowledgement of MACPAC's recommendation to 
enhance transparency of the use and effectiveness of SDP arrangements, 
we propose to require that States publish their evaluation reports on 
their public facing website as required under Sec.  438.10(c)(3).
    States consistently have difficulty providing evaluation results in 
the first few years after implementation of an SDP due to the time 
required for complete data collection. Our internal analysis found that 
States' ability to provide evaluation results improved over time. 
Although only 21 percent of proposals included evaluation results in 
year two, 55 percent of proposals included results data in year three, 
and 66 percent of year 4 proposals included the results of the 
evaluation. For this reason, we considered but ultimately did not 
propose that States submit an annual evaluation. Therefore, we propose 
at Sec.  438.6(c)(2)(v)(B) to require States to submit the first 
evaluation report no later than 2 years after the conclusion of the 3-
year evaluation period and that subsequent evaluation reports would 
have to be submitted to CMS every 3 years after.
    In Sec.  438.6(c)(2)(v)(A)(2), we propose to require that 
evaluation reports include the 3 most recent and complete years of 
annual results for each metric as approved under the evaluation plan 
approved as part of the preprint review. Therefore, the first 
evaluation report would be due no later than with the submission of the 
preprint for the sixth rating period after the applicability date for 
the evaluation plan; this evaluation plan would contain results from 
the first 3 years after the applicability date for the evaluation plan. 
We believe that this approach to implementation would allow adequate 
time for States to obtain final and validated encounter data and 
performance measurement data to compile and publish the first 
evaluation report. We also considered a 5 and 10-year period evaluation 
period, but we concluded that seemed to be an unreasonably long time to 
obtain actionable evaluation results. We concluded that a 3-year period 
would provide sufficient time to collect complete data and demonstrate 
evaluation trends over a period of time.
    After submission of the initial evaluation report, States would be 
required to submit subsequent evaluation reports every 3 years. This 
means that States would submit the second evaluation report with the 
SDP preprint submission for the first rating period beginning 9 years 
after the applicability date for the evaluation plan; this evaluation 
report would contain results from years four through six after the 
applicability date for the

[[Page 28142]]

evaluation plan . States would be required to continue submitting 
evaluation reports with this frequency as long as the SDP is 
implemented. We acknowledge that some SDPs will have been operational 
for multiple years when these proposed regulations take effect. We are 
not proposing a different implementation timeline for SDP arrangements 
that predate the compliance deadline for this proposal. For these 
mature payment arrangements, States would be required to submit an 
evaluation report in the fifth year after the compliance date that 
includes the 3 most recent and complete years of annual results for the 
SDP. However, because these types of long-standing payment arrangements 
have been collecting evaluation data since implementation, we would 
expect States to include the evaluation history in the report in order 
to provide the most accurate picture.
    We recognize and share the concerns that oversight bodies have 
expressed regarding the extent to which CMS uses evaluation results to 
inform SDP written prior approval decisions. In response to these 
concerns and as a part of the proposed revisions to Sec.  
438.6(c)(2)(ii), which include the standards that all SDPs must meet, 
we are proposing a new standard at Sec.  438.6(c)(2)(ii)(F) requiring 
that all SDPs must result in achievement of the stated goals and 
objectives in alignment with the State's evaluation plan. We believe 
that the proposed changes would help us to better monitor the impact of 
SDPs on quality and access to care and would help standardize our 
review of SDP proposal submissions under Sec.  438.6(c) while allowing 
us to disapprove SDPs that do not meet their stated quality goals and 
objectives.
    We are also making a concurrent proposal at Sec.  438.358(c)(7) to 
include a new optional EQR activity to support evaluation requirements, 
which would give States the option to leverage a CMS-developed protocol 
or their EQRO to assist with evaluating SDPs. We believe this proposed 
optional activity would reduce burden associated with these new 
requirements and is discussed in more detail in section I.B.5.c.3 of 
this proposed rule. we are considering, and invite public comment on, 
requiring that States procure an independent evaluator for SDP 
evaluations in the final rule based on comments received. In 
consideration of the myriad of new proposed requirements within this 
proposed rule, we weighed the value of independent evaluation with 
increased State burden. We are concerned that it would be overly 
burdensome for States to procure independent evaluators for SDPs due, 
in part, to the timing of the final SDP cost percentage submission. In 
section I.B.2. of this proposed rule, we are proposing that the final 
SDP cost percentage be submitted 2 years following completion of the 
applicable rating period, and we propose here that if the final SDP 
cost percentage exceeds the 1.5 percent, States would be required to 
submit an evaluation. While we encourage all States to evaluate their 
SDPs, it could be difficult and time consuming to procure an 
independent evaluator in a timely manner solely for the purpose of the 
SDP evaluation since States would not know definitely whether an 
evaluation is required until 2 years following the rating period. We 
solicit comment on whether we should consider a requirement that States 
use an independent evaluator for SDP evaluations.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on our proposals and the alternatives 
under consideration.
k. Contract Term Requirements (Sec.  438.6(c)(5))
    SDPs are contractual obligations in which States direct Medicaid 
managed care plans on how or how much to pay specified provider classes 
for certain Medicaid-covered services. The current heading for Sec.  
438.6(c) describes paragraph (c) as being about delivery system and 
provider payment initiatives under MCO, PIHP, or PAHP contracts. 
Further, the regulation refers to SDPs throughout as provisions in the 
contract between the MCO, PIHP or PAHP and the State that direct 
expenditures by the managed care plan (that is, payments made by the 
managed care plan to providers). SDPs are to be included in a State's 
managed care rate certification per Sec.  438.7(b)(6) and final 
capitation rates for each MCO, PIHP, and PAHP must be identified in the 
applicable contract submitted for CMS review and approval per Sec.  
438.3(c)(1)(i). Thus, every SDP must be documented in the managed care 
contract and actuarial rate certification.
    Previous guidance issued to States, including in the January 2022 
State Guide to CMS Criteria for Medicaid Managed Care Contract Review 
and Approval (State Guide), indicates that contractual requirements for 
SDPs should be sufficiently detailed for managed care plans to 
operationalize each payment arrangement in alignment with the approved 
preprint(s).\109\ The State Guide includes examples of information that 
States could consider including in their managed care contracts for 
SDPs.\110\ However, despite this guidance, there is a wide variety of 
ways States include these requirements into their contracts, many of 
which lack critical details to ensure that plans implement the 
contractual requirement consistent with the approved SDP. For example, 
some States have sought to include a broad contractual requirement that 
their plans must comply with all SDPs approved under Sec.  438.6(c) 
with no further details in the contract to describe the specific 
payment arrangements that the State is directing the managed care plan 
to implement and follow. Other States have relied on broad contract 
requirements stating that plans must comply with all applicable State 
laws as a method of requiring compliance with State legislation 
requiring plans to pay no less than a particular fee schedule for some 
services. These types of vague contractual provisions represent 
significant oversight risk for both States and CMS.
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    \109\ https://www.medicaid.gov/medicaid/downloads/mce-checklist-state-user-guide.pdf.
    \110\ https://www.medicaid.gov/medicaid/downloads/mce-checklist-state-user-guide.pdf.
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    To reduce this risk and improve the clarity of SDPs for managed 
care plans, we propose to codify at Sec.  438.6(c)(5) minimum 
requirements for the content of a Medicaid managed care contract that 
includes one or more SDP contractual requirement(s). We believe these 
minimum requirements for SDP contract terms would assist States when 
developing their contracts, ensure that managed care plans receive 
necessary information on the State's intent and direction for the SDP, 
facilitate CMS' review of managed care contracts, and ensure compliance 
with the approved SDP preprint. At Sec.  438.6(c)(5)(i) through (v), we 
propose to specify the information that must be documented in the 
managed care contract for each SDP. Proposed Sec.  438.6(c)(5)(i) would 
require the State to identify the start date and, if applicable, the 
end date within the applicable rating period. While most SDPs, 
particularly long-standing contractual requirements, are in effect 
throughout the entire rating period, some SDPs begin in the middle of 
the rating period or are for a limited period of time within a rating 
period. This requirement would ensure that the time period for which 
the SDP applies is clear to the managed care plans.
    Proposed Sec.  438.6(c)(5)(ii) would require the managed care 
contract to

[[Page 28143]]

describe the provider class eligible for the payment arrangement and 
all eligibility requirements. This would ensure compliance with the 
scope of the written prior approval issued by CMS because we have 
implemented paragraph (c)(2)(ii)(B) by requiring States to provide a 
description of the class of providers eligible to participate and the 
eligibility criteria. In addition, a clear contract term will provide 
clear direction to plans regarding the provider class that is eligible 
for the SDPs.
    Proposed Sec.  438.6(c)(5)(iii) would require the State to include 
a description of each payment arrangement in the managed care contract. 
This will ensure compliance with the written prior approval issued by 
CMS and provide clear direction to plans while also assisting CMS in 
its review and approval of Medicaid managed care contracts. For each 
type of payment arrangement, we are proposing to require that specific 
elements be included in the contract at a minimum. For SDPs that are 
minimum fee schedule arrangements, we propose that the contract must 
include: in Sec.  438.6(c)(5)(iii)(A)(1), the fee schedule the plan 
must ensure payments are at or above; in paragraph (c)(5)(iii)(A)(2), 
the procedure and diagnosis codes to which the fee schedule applies; 
and in paragraph (c)(5)(iii)(A)(3), the applicable dates of service 
within the rating period for which the fee schedule applies. We are 
proposing the requirement at paragraph (c)(5)(iii)(A)(3) so that it is 
clear that payment can only be triggered based on service delivery 
within the applicable rating period.
    For minimum fee schedules set at the State plan approved rate as 
described in Sec.  438.6(c)(1)(iii)(A), we propose to require at Sec.  
438.6(c)(5)(iii)(A)(4) that the contract reference the applicable State 
plan page, the date it was approved, and a link to where the currently 
approved State plan page is posted online when possible. For minimum 
fee schedules set at the Medicare rate as described in Sec.  
438.6(c)(1)(iii)(B), we propose to require at Sec.  
438.6(c)(5)(iii)(A)(5), that the contract include the Medicare fee 
schedule and any specific information necessary for implementing the 
payment arrangement. For example, Medicare updates their fee schedules 
annually using a calendar year but Medicaid managed care contracts may 
not be based on a calendar year, such as those that use a State fiscal 
year. Therefore, States would have to identify the publication year of 
the Medicare fee schedule being required by the SDP. As another 
example, the Medicare physician fee schedule includes factors for 
different geographic areas of the State to reflect higher cost areas; 
the Medicaid managed care contract would have to specify if the plans 
are required to apply those factors or use an average of those factors 
and pay the same rate irrespective of the provider's geographic region.
    For uniform increases as described in paragraph (c)(1)(iii)(D), we 
propose at Sec.  438.6(c)(5)(iii)(B)(1) through (5) to require the 
contract to include: (1) whether the uniform increase will be a 
specific dollar amount or a specific percentage increase over 
negotiated rates; (2) the procedure and diagnosis codes to which the 
uniform increase will be applied; (3) the specific dollar amount of the 
increase or percent of increase, or the methodology to establish the 
specific dollar amount or percentage increase; (4) the applicable dates 
of service within the rating period for which the uniform increase 
applies; and (5) the roles and responsibilities of the State and the 
plan, as well as the timing of payment(s), and any other significant 
relevant information.
    For maximum fee schedules as described in paragraph (c)(1)(iii)(E), 
we propose at Sec.  438.6(c)(5)(iii)(C)(1) through (4) to require the 
contract to include: (1) the maximum fee schedule the plan must ensure 
payments are below; (2) the procedure and diagnosis codes to which the 
fee schedule applies; (3) the applicable dates of service within the 
rating period for which the fee schedule applies; and (4) details of 
the State's exemption process for plans and providers to follow if they 
are under contract obligations that result in the need to pay more than 
the maximum fee schedule. We believe an exemption process is necessary 
for payment arrangements that limit how much a managed care plan can 
pay a provider to ensure that the MCO, PIHP, or PAHP retains the 
ability to reasonably manage risk and has discretion in accomplishing 
the goals of the contract.
    For contractual obligations described in paragraph (c)(1)(i) and 
(ii) that condition payment based upon performance, we propose at Sec.  
438.6(c)(5)(iii)(D)(1) through (6) to require that managed care plan 
contracts must include a description of the following elements approved 
in the SDP arrangement: (1) the performance measures that payment will 
be conditioned upon; (2) the measurement period for those metrics; (3) 
the baseline statistics against which performance will be based; (4) 
the performance targets that must be achieved on each metric for the 
provider to obtain the performance-based payment; (5) the methodology 
to determine if the provider qualifies for the performance-based 
payment as well as the amount of the payment; and (6) the roles and 
responsibilities of the State and the plan, the timing of payment(s), 
what to do with any unearned payments if applicable, and other 
significant relevant information. Some States perform the calculations 
to determine if a provider has achieved the performance targets 
necessary to earn performance-based payments, while others delegate 
that function to their managed care plans. Adding this specificity to 
the contract would ensure clarity for both the States and the managed 
care plans.
    For contractual obligations described in paragraphs (c)(1)(i) and 
(ii) that are population or condition-based payments as defined in 
Sec.  438.6(a), we propose at Sec.  438.6(c)(5)(iii)(E) to require the 
contract to describe: (1) the Medicaid covered service(s) that the 
population or condition-based payment is made for; (2) the time period 
that the population-based or condition-based payment covers; (3) when 
the population-based or condition-based payment is to be made and how 
frequently; (4) a description of the attribution methodology, if one is 
used, which must include at a minimum the data used, when the panels 
will be established, how frequently those panels will be updated, and 
how that attribution model will be communicated to providers; and (5) 
the roles and responsibilities of the State and the plan in 
operationalizing the attribution methodology if an attribution 
methodology is used.
    Proposed Sec.  438.6(c)(5)(iv) would require that the State include 
in the managed care contract any encounter reporting and separate 
reporting requirements that the State needs in order to audit the SDP 
and report provider-level payment amounts to CMS as required in Sec.  
438.6(c)(4).
    Proposed Sec.  438.6(c)(5)(v) would require that the State indicate 
in the contract whether the State would be using a separate payment 
term as defined in Sec.  438.6(a) to implement the SDP. This 
information would provide additional clarity for oversight purposes for 
both States and CMS.
    Finally, we propose to require in Sec.  438.6(c)(5)(vi) that all 
SDPs must be specifically described and documented in MCO, PIHP, and 
PAHP contracts no later than 120 days after the start of the SDP or 
approval of the SDP under Sec.  438.6(c)(2)(i), whichever is later. 
This timeframe is consistent with the timeframe being proposed for 
documenting separate payment terms in the managed care contract under 
Sec.  438.6(c)(6)(v). We believe that

[[Page 28144]]

proposing to require States to document the SDP within these timeframes 
is reasonable given that the contract would only have to document the 
SDP and the contract action could be submitted to CMS in draft form so 
long as it included all of the required elements in Sec.  
438.6(c)(5)(i) through (v), as applicable. CMS would not require a 
final signed copy of the contract amendment within this proposed 120-
day timeframe; however, States would still be required to submit a 
final signed contract action prior to CMS' approval of the managed care 
contract.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comments on our proposals.
l. Including SDPs in Rate Certifications and Separate Payment Terms 
(Sec. Sec.  438.6(c)(2)(ii)(J), (c)(6) and 438.7(f))
    Including SDPs in rate certifications. Under current regulations, 
all SDPs must be included in all applicable managed care contract(s) 
and described in all applicable rate certification(s) as noted in Sec.  
438.7(b)(6). As part of our proposed amendment and redesignation of 
current Sec.  438.6(c)(2)(i), we are proposing to re-designate the 
existing regulatory requirement at Sec.  438.6(c)(2)(i) as Sec.  
438.6(c)(2)(ii)(J) to require that each SDP must be developed in 
accordance with Sec.  438.4 and the standards specified in Sec. Sec.  
438.5, 438.7, and 438.8. We are also proposing to remove the current 
provision that SDPs must be developed in accordance with generally 
accepted actuarial principles and practices. We are proposing this edit 
because inclusion of the language ``generally accepted actuarial 
principles and practices'' is duplicative of the language included in 
Sec.  438.4. establishment of SDPs is a State decision. We are 
concerned that inclusion of the duplicative language that SDPs must be 
developed in accordance with generally accepted actuarial principles 
and practices could be interpreted as a requirement for an actuary to 
be involved in the development of the SDP arrangement and adherence to 
actuarial standards of practice (ASOPs), potentially creating 
unnecessary State administrative burden associated with the preprint 
development process. However, we note the proposed rule maintains the 
existing requirement that SDPs must be developed in accordance with 
Sec.  438.4 and the standards specified in Sec. Sec.  438.5, 438.7, and 
438.8. While we believe that an actuary, as defined in Sec.  438.2, 
must develop the capitation rates to ensure they are actuarially sound 
and account for all SDPs when doing so, but we believe States should 
have the flexibility to determine if they wish to involve actuaries in 
the development of each specific SDP arrangement. Because actuaries 
must account for all SDPs approved by CMS and included in the State's 
approved managed care contract in the applicable rate certifications, 
providing all documentation required by CMS, we do recommend that 
States consult with and keep actuaries apprised of SDPs to facilitate 
their development of actuarially sound capitation rates. We also 
believe that for certain SDPs, specifically bundled payments, episode-
based payments, population-based payments and accountable care 
organizations, it would be beneficial for actuaries to assist States in 
the development of these arrangements.
    In accordance with Sec.  438.4(a), actuarially sound capitation 
rates are projected to provide for all reasonable, appropriate and 
attainable costs that are required under the terms of the contract and 
for the operation of the managed care plan for the time period and the 
population covered under the terms of the contract, and capitation 
rates are developed in accordance with the requirements in Sec.  
438.4(b) to be approved by CMS. This includes the requirement in Sec.  
438.4(b)(1) that the capitation rates must be developed with generally 
accepted actuarial principles and practices and in Sec.  438.4(b)(7) 
they must meet any applicable special contract provisions as specified 
in Sec.  438.6, to ensure that all SDPs, which are contractual 
arrangements, are considered as the actuary develops actuarially sound 
capitation rates. (Similarly, withhold and incentive arrangements and 
pass-through payments must be taken into account when capitation rates 
are developed.) We are not proposing changes to the requirements for 
actuarially sound capitation rates; therefore, we will retain and 
reaffirm here applicability of the requirements of that SDPs must be 
developed in such a way as to ensure compliance with Sec.  438.4 and 
the standards specified in Sec.  438.5 and specify further that SDPs 
must also be developed in such a way to ensure compliance with Sec.  
438.7 and Sec.  438.8.
    We solicit public comments on our proposal.
    Separate Payment Terms. Under current regulations, all SDPs must be 
included in all applicable managed care contract(s) and described in 
all applicable rate certification(s) as noted in Sec.  438.7(b)(6). As 
part of the Medicaid Managed Care Rate Development Guide, CMS has 
historically provided guidance on two ways that States could make 
payment to cover SDP obligations in Medicaid managed care contracts: 
through adjustments to the base capitation rates \111\ in alignment 
with the standards described in Sec.  438.5(f) or through a ``separate 
payment term'' \112\ which was described in guidance applicable to 
rating periods beginning between July 1, 2019 and June 30, 2021. 
Separate payment terms are unique to Medicaid managed care SDPs. CMS 
has not previously formally defined separate payment terms in 
regulation.
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    \111\ As defined in Sec.  438.2, capitation payments are a 
payment the State makes periodically to a contractor on behalf of 
each beneficiary enrolled under a contract and based on the 
actuarially sound capitation rate for the provision of services 
under the State plan.
    \112\ This guidance has appeared in the Medicaid Managed Care 
Rate Development Guide for rating periods starting between July 1, 
2019 and June 30, 2021. Medicaid Managed Care Rate Development 
Guides for every rating period are located at https://www.medicaid.gov/medicaid/managed-care/guidance/rate-review-and-rate-guides/.
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    The most common structure for separate payment terms is a State 
first establishes a finite and predetermined pool of funding that is 
paid by the State to the plan(s) separately and in addition to the 
capitation payments for a specific SDP. The pool of funds is then 
disbursed regularly throughout the rating period (for example, 
quarterly) based on the services provided in that portion of the rating 
period (for example, quarter) to increase total provider payments or 
reach a specific payment rate target. Typically, States divide the 
dedicated funding pool into equal allotments (for example, four if 
making quarterly payments to their plans). They then review the 
encounter data for the service(s) and provider class identified in the 
approved preprint for the quarter that has just ended and divide the 
allotment by the total service utilization across all providers in the 
defined class (for example, inpatient discharges for all rural 
hospitals) to determine a uniform dollar amount to be paid in addition 
to the initial payment by the managed care plan for rendered services. 
The State will then pay the quarterly allotment to the managed care 
plans, separate from the capitation rate payment, and direct them to 
use that allotment for additional retroactive payments to providers for 
the utilization that occurred in the quarter that just ended. The State 
will repeat this process each quarter, with the uniform increase 
changing for each quarter depending on utilization but being paid 
uniformly to providers in the defined class for the services within 
that quarter (for example, inpatient discharges for rural hospitals). 
Other

[[Page 28145]]

States have chosen to make payments semi-annually, annually, or 
monthly. States have also utilized separate payment terms for SDPs that 
are performance-based payments rather than uniform increases (for 
example, pay for performance under which payment is conditioned upon 
provider performance).
    As noted earlier, separate payment terms are paid separate and 
apart from capitation rate payments; they are not included in 
capitation rates. The development of the separate payment term is 
frequently done by the State rather than the State's actuaries; CMS has 
never required actuaries to certify the reasonableness of the amount of 
the separate payment term, but only that the separate payment term is 
consistent with what was approved in the SDP preprint. However, CMS has 
always required that separate payment terms be documented in the 
State's rate certification and that SDPs, including those that utilize 
separate payment terms, must be developed in accordance with Sec.  
438.4 and the standards in Sec. Sec.  438.5, 438.7 and 438.8. CMS has 
asked actuaries to document the separate payment terms in the State's 
rate certification because they are required payments for services 
under the risk-based contract.
    Depending on the size and scope of the SDP and the provider payment 
rates assumed in the capitation rate development, separate payment 
terms can have a significant impact on the assessment of the actuarial 
soundness of the rates. In some cases, capitation rates may not be 
sufficient without taking separate payment terms into account. When 
examined in conjunction with the capitation rates, CMS has found that 
amounts included in separate payment terms can, when combined with 
capitation payment amounts, represent a significant portion of the 
total payment made under the Medicaid managed care contract. For 
example, in one State, the separate payment term for an SDP for 
inpatient hospital services represented 40 percent of the total amount 
paid in certain rate cells.
    In some cases, the provider payment rates assumed in the 
development of the capitation rates, absent the SDP paid through a 
separate payment term to the plan(s), are so low that the capitation 
rates would likely not be actuarially sound. In the example above, 
considering how low the payment rates were absent the SDP paid to the 
plans through a separate payment term in this State, it would be 
difficult for an actuary to determine that the capitation rates are 
actuarially sound. However, the additional payments made as part of the 
SDP for these providers raise the effective provider payment rates, and 
after considering all payments made to the plan (the base capitation 
rates and the separate payment term payments for the SDP) the actuary 
may be able to determine that the capitation rates are actuarially 
sound. This is not the case for all States and for all SDPs; however, 
this example highlights the need to account for the impact of separate 
payment terms on the assessment of the actuarial soundness of the 
capitation rates. Additionally, since the contract requires that the 
managed care plans pay the SDP to providers, the separate payment term 
must be included within the actuarial certification for the rates to be 
considered actuarially sound as defined in Sec.  438.4(a). For this 
reason, we consider separate payment terms part of the contract with 
the managed care plans that is subject to the requirements of section 
1903(m)(2)(A) of the Act, and a necessary part of certifying the 
actuarial soundness of capitation rates under this provision. As such, 
we propose to regulate them under this authority.
    Over time, the number of SDPs approved by CMS using separate 
payment terms has increased substantially. According to our internal 
analysis, 41.5 percent of all SDPs that CMS has reviewed and approved 
from May 2016 through March 2022 were included in the State's rate 
certification submission as a separate payment term. While there has 
been some fluctuation over time in this trend, the share of SDPs that 
use separate payment terms has increased from 42 percent of all SDPs 
that began in calendar year 2020 to 55 percent of all SDPs that began 
in calendar year 2021.\113\
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    \113\ Our internal analysis examines trends based upon when a 
payment arrangement began. Since States have different rating 
periods, this can refer to different time frames for different 
States. For example, payment arrangements that began in calendar 
year 2020 would include payment arrangements that were in effect for 
CY 2020 rating periods, which operated between January 1, 2020 
through December 31, 2020, as well as SFY 2021 rating periods, which 
for most States were operated between July 1, 2020 through June 30, 
2021.
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    In our January 2021 SMDL, we published additional guidance on SDPs, 
and expressed our growing concern with the increased use of separate 
payment terms.\114\ We noted, ``[a]s CMS has reviewed State directed 
payments and the related rate certifications, CMS has identified a 
number of concerns around the use of separate payment terms. 
Frequently, while there is risk for the providers, there is often 
little or no risk for the plans related to the directed payment, which 
is contrary to the nature of risk-based managed care. This can also 
result in perverse incentives for plans that can result in shifting 
utilization to providers in ways that are not consistent with Medicaid 
program goals.''
---------------------------------------------------------------------------

    \114\ https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.
---------------------------------------------------------------------------

    To better understand why States choose to pay plans for their SDPs 
through a separate payment term, we started collecting information from 
States as part of the revised preprint form published in January 2021. 
States were required to start using this revised preprint for SDP 
requests for rating periods beginning on or after July 1, 2021. In the 
revised preprint form, States must identify if any portion of the SDP 
would be included in the rate certification as a separate payment term 
and if so, to provide additional justification as to why this is 
necessary and what precludes the State from covering the costs of SDPs 
as an adjustment to the capitation rates paid to managed care plans.
    From the data we have collected as well as discussions with States, 
we have noted that there are a number of reasons why States use 
separate payment terms. For example, States have noted particular 
challenges with including VBP arrangements in capitation rates. They 
have asserted that it is difficult to project individual provider level 
performance in a way that lends itself to inclusion in standard rate 
development practices. Additionally, performance measurement often does 
not align with States' rating periods, further complicating the 
standard rate development process.
    Several States also noted that even for fee schedule-based SDPs, 
such as uniform payment increases, incorporation into standard rate 
development practices presents challenges. States assert that using a 
separate payment term offers administrative simplicity to the State 
agency in administering the SDPs because distributing a pre-determined 
amount of funding among the plans is much easier than relying on 
actuarial projections. Further, the use of a separate payment term also 
promotes the ease of tracking and verification of accurate payment to 
providers from the managed care plans required under the SDP. This is 
particularly important when States are implementing legislative 
directives that require an appropriation of funding be dedicated to a 
specific purpose. State legislatures, in some instances, have 
identified a specific dollar amount that they want to invest in 
increasing reimbursement for a particular service, potentially to 
respond to an acute concern around

[[Page 28146]]

access. Incorporating this funding into the State's capitation rates 
through standard rate development would not ensure that plans did not 
use this funding, or portions of this funding, for other purposes. 
Additionally, even with the proper tracking, States would have to 
specify a particular minimum fee schedule or uniform increase at the 
start of the rating period to include in rate development and ensure it 
went to the appropriate providers for the appropriate services. While 
such a methodology is permissible and used effectively by a number of 
States today, some States have noted challenges in utilizing such an 
approach, particularly if the SDP is targeting a narrow set of 
providers.
    States have also noted that utilization often cannot be predicted 
adequately; thus, including dedicated funding into base rates may not 
always result in the funding being distributed as intended by the 
legislature. Absent the ability to use separate payment terms, States 
are likely to resort to requiring plans to make interim payments based 
on historical utilization and then reconciling to current utilization, 
often after the end of the rating period, to ensure that all of the 
funding was used as directed by the legislature. As noted in section 
I.B.2.h. of this proposed rule, we have significant concerns with this 
practice in States that already require plans to make interim payments 
based on historical utilization and then reconcile to current 
utilization. As part of this proposed rulemaking, we have proposed to 
prohibit such payment methodologies in Sec.  438.6(c)(2)(vii).
    States also stated that separate payment terms reduce the burden on 
managed care plans by limiting the need to update claims systems. In 
fact, one State noted that they shifted from incorporating a particular 
SDP as an adjustment to capitation rates to implementing the SDP 
through a separate payment term because their managed care plans did 
not have the ability to update or modify their claims payment systems 
in a manner that would ensure accurate payment of the increases 
required under the State's SDP if the funding was built into the 
capitation payment. The State noted that the managed care plans had 
dedicated significant technical resources and still could not implement 
the changes needed accurately.
    As noted earlier, CMS has a strong preference that SDPs be included 
as adjustments to the capitation rates since that method is most 
consistent with the nature of risk-based managed care. However, we 
recognize that States believe there is utility in the use of separate 
payment terms for specific programmatic or policy goals. We believe 
separate payment terms are one tool for States to be able to make 
targeted investments in response to acute concerns around access to 
care. However, we continue to believe that, while separate payment 
terms often retain risk for the providers as opposed to guaranteeing 
them payment irrespective of the Medicaid services they deliver to 
Medicaid managed care enrollees, there is often little or no risk for 
the plans related to separate payment terms under an SDP, which is 
contrary to the nature of risk-based managed care.
    Therefore, we believe that it is necessary to establish regulatory 
requirements regarding the use of separate payment terms to fulfill our 
obligations for fiscal and programmatic oversight. Because the use of 
separate payment terms is limited to SDPs that must be tied to 
utilization and delivery of services to Medicaid enrollees under the 
managed care contract and the potential impact of separate payment 
terms on the assessment of actuarial soundness and certification of 
capitation rates, we consider separate payment terms part of the 
contract with the a managed care plan that is subject to 1903(m)(2)(A) 
requirements, and we propose to regulate them under this authority. 
States are generally not permitted to direct the expenditures of a 
Medicaid managed care plan under the contract between the State and the 
plan or to make payments to providers for services covered under the 
contract between the State and the plan (Sec. Sec.  438.6 and 438.60) 
unless SDP requirements are satisfied.
Proposed Regulatory Changes--Contract Requirements
    First, we propose to amend Sec.  438.6(a) to define ``separate 
payment term'' as a pre-determined and finite funding pool that the 
State establishes and documents in the Medicaid managed care contract 
for a specific SDP for which the State has received written prior 
approval. Payments made from this funding pool are made by the State to 
the MCOs, PIHPs or PAHPs exclusively for SDPs for which the State has 
received written prior approval and are made separately and in addition 
to the capitation rates identified in the contract as required under 
Sec.  438.3(c)(1)(i).
    CMS recognizes that some separate payment terms in the past may not 
have fit this definition. For example, one State makes one payment 
monthly that is inclusive of both the capitation payment and the 
separate payment term. The State then contractually requires the 
managed care plans to hold a portion of the monthly payment in a 
reserve that the State later directs the plans how to pay to providers 
under an approved SDP. In this example, the State initially indicated 
to CMS that the SDP was accounted for through adjustments to base data 
in capitation rates. However, the State later agreed with CMS that the 
contractual requirement to hold a portion of the monthly payment in a 
reserve that the State later directed was more in alignment with 
separate payment terms. To be clear, such a practice would not be 
considered an adjustment to base rates or part of capitation rate 
development under this proposed rule; instead it would, under our 
proposed rule, fall under the proposed definition of a separate payment 
term and would have to comply with all proposed requirements for SDPs 
and separate payment terms in the proposed revisions to Sec.  438.6(c).
    We propose a new Sec.  438.6(c)(6) that would specify requirements 
for the use of separate payment terms. First, we propose a new Sec.  
438.6(c)(6)(i) to require that all separate payment terms are reviewed 
and approved as part of the review of the SDP in Sec.  438.6(c)(2). 
This is effectively current practice today; when a State indicates that 
an SDP is included in the applicable rate certification(s) through a 
separate payment term, the approved preprint is checked to ensure that 
it also indicates that the SDP utilizes a separate payment term. This 
requirement would codify this operational practice. We believe 
reviewing and approving the separate payment term as part of the SDP 
review and approval process would be mutually beneficial for CMS and 
States because they are inextricably linked given the proposed 
definition of a separate payment term. We believe this would also 
enable us to track of the use of separate payment terms more quickly 
and accurately.
    Because we are proposing to require that separate payment terms are 
approved as part of the review and approval of the SDPs in Sec.  
438.6(c)(2)(i) (redesignated from 438.6(c)(2)(ii)), we believe we 
should explicitly address those SDPs that do not require written prior 
approval to ensure clarity for States. Therefore, we propose a new 
requirement at Sec.  438.6(c)(6)(ii) that would expressly prohibit 
States from using separate payment terms to fund SDPs that are exempted 
from the written prior approval process--specifically, minimum fee 
schedules using State plan approved rates in Sec.  438.6(c)(1)(iii)(A) 
and minimum fee schedules using approved Medicare fee schedules, as

[[Page 28147]]

proposed in Sec.  438.6(c)(1)(iii)(B). Such payment arrangements must 
be included as an adjustment to the capitation rates identified in the 
contract, as required under Sec.  438.3(c)(1)(i).
    At Sec.  438.6(c)(6)(iii), we propose to require that each separate 
payment term be specific to both an individual SDP approved under Sec.  
438.6(c)(2)(i) (redesignated from 438.6(c)(2)(ii)) and to each Medicaid 
managed care program to provide clarity in the contract for the plan 
and facilitate State and Federal oversight of such terms. SDPs approved 
under Sec.  438.6(c)(2) can apply to more than one Medicaid managed 
care program. Requiring that each separate payment term be specific to 
both the SDP approved under Sec.  438.6(c)(2)(i) (redesignated from 
438.6(c)(2)(ii)) and each Medicaid managed care program would 
facilitate monitoring and oversight help ensure clarity and consistency 
between the approval of the separate payment term and the SDP, the 
managed care plan contract, and the rate certification.
    Additionally, we are proposing a new requirement at Sec.  
438.6(c)(6)(iv) that the separate payment term would not exceed the 
total amount documented in the written prior approval for each SDP for 
which we have granted written prior approval. Under current practice, 
the total dollar amount for the separate payment term has acted as a 
threshold to ensure alignment between the rate certification and the 
SDP; States that documented more for the separate payment term in the 
rate certification(s) than the total dollars documented in the preprint 
under current practice have to either revise the rate amendment so that 
the total dollars for the separate payment term does not exceed what 
was captured in the preprint or submit an amendment to the preprint. If 
States choose to amend the preprint under current practice, the State 
is required to explain the cause of the increase (for example, a change 
in payment methodology, or expansion of the provider class); and then 
verify that the payment analysis has not changed or if it has, then 
update the payment analysis to ensure that the total payment rate is 
still reasonable, appropriate and attainable.\115\ This proposed 
requirement would strengthen this practice by requiring that the amount 
included in both the rate certification(s) and contract(s) for each 
separate payment term cannot exceed the amount documented as part of 
the SDP review and approval. The total dollar amount documented in the 
written prior approval for the State directed payment would instead act 
as a maximum that could not be exceeded in the Medicaid managed care 
contract(s) and rate certification(s) that include the SDP without 
first obtaining written CMS approval of an amendment to the SDP as 
noted below. We emphasize that we currently review rate certifications 
to verify that the total dollars across all applicable Medicaid managed 
care programs do not exceed the total dollars identified in the State 
directed payment documentation approved by CMS. If the total dollars 
included in rate certifications exceed the total dollars identified in 
the State directed payment documentation, the State then has to either 
reduce the total dollars included in the rate certification for the 
separate payment term or, most commonly, submit an amendment to the 
preprint for review and approval by CMS. This process causes 
significant delays and administrative burden for both the State and the 
Federal government, and therefore, we believe a regulation prohibiting 
States from exceeding the total dollars for the separate payment term 
identified in the State directed payment documentation is appropriate 
and important.
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    \115\ As noted in section I.B.2.f. of this proposed rule, CMS 
requires States to demonstrate that SDPs result in provider payment 
rates that are reasonable, appropriate, and attainable as part of 
the preprint review process in alignment with the guidance published 
in State Medicaid Director Letter #21-001 published on January 8, 
2021. We are proposing to codify this requirement in Sec.  
438.6(c)(2(ii)(I).
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    We have also considered requiring that the separate payment term 
must equal exactly the total amount documented for each SDP for which 
we have granted written prior approval. Instead of acting as a maximum, 
the total dollar amount for the separate payment term would act as both 
a minimum and a maximum; the State's contract and rate certifications 
would have to include exactly the total dollar amount identified in the 
SDP approved by CMS. We did not propose this alternative as we are 
concerned that requiring the total amount for the separate payment term 
to act as both a minimum and maximum could be too administratively 
burdensome; however, we solicit comments on both our proposal to 
require that the total dollars documented in the SDP approved by CMS 
under (c)(2) would act as a maximum as well as this alternative option 
of the total dollars documented in the SDP approved by CMS under 
(c)(2)(i) as both a minimum and a maximum.
    Historically, separate payment terms have only been documented in 
the State's preprint review and in the State's rate certifications; the 
details of when and how these payments would be made by the State to 
the plans was often not clear to CMS or the plans. This lack of clarity 
presents significant oversight concerns for these separate payment 
terms because it makes tracking the payments made from the State to the 
plan difficult to identify, particularly on the CMS-64 form on which 
States claim FFP. It also presents challenges for ensuring timely 
payment to plans and, ultimately, providers. CMS believes that just as 
the final capitation rates must be specifically identified in the 
applicable contract submitted for CMS review and approval, so too 
should separate payment terms associated with SDPs.
    As previously noted in this section, CMS maintains that while there 
is risk for the providers as opposed to guaranteeing them payment 
irrespective of the Medicaid services they deliver to Medicaid managed 
care enrollees, there is often little or no risk for the plans related 
to the SDP to the extent it is included in contracts as a separate 
payment term, which is contrary to the nature of risk-based managed 
care. This becomes even more concerning when States retroactively amend 
the separate payment term, sometimes even after the end of the rating 
period.
    To illustrate this, we provide the following examples. Example 1: 
States that include SDPs into their contracts and rate certifications 
through separate payment terms must have the total dollars for the 
separate payment term certified in the rate certification(s). The State 
would then look at the utilization over a defined period, for example, 
one quarter, and divide one-fourth of the total dollars certified in 
the separate payment term by the utilization during that quarter to 
determine a uniform dollar amount increase. Example 1 illustrates a 
common practice for SDPs that use separate payment terms: it allows the 
uniform dollar amount applied to utilization to vary from one quarter 
to another, but it ensures that the total dollars dedicated to the 
State directed payment are fully expended.
    Example 2: Some States have used this same methodology in example 
1, but instead of having their actuaries certify the total dollar 
amount prospectively, they would have their actuaries certify an 
estimate of the total dollars and then have their actuaries recertify a 
higher amount later, often after all the payments under the separate 
payment term have been made.
    Example 2 not only removes all risk from the plans for the SDP, but 
also removes all risk from the providers when the actuary recertifies a 
total dollar amount later, often after all the payments under the 
separate payment

[[Page 28148]]

term have been made. Such practices are contradictory to the 
prospective nature of risk-based managed care. In our experience, such 
payment arrangements are not driven by furthering particular goals and 
objectives identified in the State's managed care quality strategy, but 
rather by the underlying financing of the non-Federal share associated 
with the SDPs. We note financing requirements in statute and regulation 
are applicable across the Medicaid program irrespective of the delivery 
system (for example, fee-for-service, managed care, and demonstration 
authorities), and are similarly applicable whether a State elects to 
direct payments under Sec.  438.6(c) or not.
    To curtail these concerning practices, we propose to require as 
part of Sec.  438.6(c)(6)(v) that States must document the separate 
payment term in the State's managed care contracts no later than 120 
days after the start of the payment arrangement or written prior 
approval of the SDP, whichever is later. We believe that proposing to 
require States to document the separate payment term within these 
timeframes is reasonable given that the contract amendment would only 
have to document the separate payment term and the related SDP; the 
contract action could be submitted to CMS in draft form so long as it 
included all of the required elements. CMS would not require a final 
signed copy of the amendment within this proposed 120-day timeframe; 
however, States would still be required to submit a final signed 
contract action prior to CMS' approval of the managed care contract.
    To further the fiscal and programmatic integrity of separate 
payment terms, we propose in Sec.  438.6(c)(6)(v)(A) to prohibit States 
from amending the separate payment term after CMS approval except to 
account for an amendment to the payment methodology that is first 
approved by CMS as an amendment to the approved State directed payment. 
We recognize that a change in payment methodology would potentially 
result in the need to amend the separate payment term as it could 
impact the total dollar amount. However, to avoid the current practice 
where States include a total dollar amount in the rate certification(s) 
other than what is in the approved SDP preprint, CMS is proposing to 
require that CMS first approve the amendment to the preprint before the 
separate payment term can be amended. We believe this proposal would 
also ensure that some level of risk is maintained and that States do 
not retroactively add additional funding with the goal of removing all 
risk from the SDP arrangement. Such actions do not align with the 
fundamental principles of Medicaid managed care.
    Alternatively, we are also considering including a proposal to 
permit amendments to the separate payment term to account for a change 
in the total aggregate dollars to be paid by the State to the plan 
where there is no change in the non-Federal portion of the total 
aggregate dollars. We are considering this alternative in recognition 
that the Federal portion of the total aggregate dollars may fluctuate 
due to Federal statute changes that are outside the State's control. We 
acknowledge that due to this, the total dollars, which includes the 
Federal share, cannot be perfectly predicted by States at the start of 
a State's rating period. We did not include this alternative proposal 
out of concern that it may have negative unintended consequences. We 
solicit comment on both the exception we are proposing and this 
alternative additional exception that we are considering.
    To improve transparency of States' use of separate payment terms 
and to ensure that managed care plans have clear information on the 
contractual requirements associated to State directed payments linked 
to a separate payment term, in Sec.  438.6(c)(6)(v)(B)(1) through (4), 
we propose four pieces of information that would be documented in the 
State's Medicaid managed care plan contracts: (1) the total dollars 
that the State would pay to the plans for the individual SDP that CMS 
gave written prior approval; (2) the timing and frequency of payments 
that would be made under the separate payment term from the State to 
the plans; (3) a description or reference to the contract requirement 
for the specific SDP for which the separate payment term would be used; 
and (4) any reporting that the State requires to ensure appropriate 
reporting of the separate payment term for purposes of MLR reporting 
under Sec.  438.8.
Proposed Regulatory Changes--Rate Certification for Separate Payment 
Terms
    To reflect our proposals discussed above that would require States 
to document separate payment terms in their managed care rate 
certifications, we propose changes to Sec.  438.7. Specifically, we 
propose to add a new Sec.  438.7(f) that would require the State, 
through its actuary, to certify the total dollar amount for each 
separate payment term as detailed in the State's Medicaid managed care 
contract, consistent with the requirements of Sec.  438.6(c)(6). 
Requiring that all separate payment terms be included in the rate 
certification to plans is also current practice today and provides a 
complete picture of all payments made by States to plans under risk 
contracts.
    We also propose to codify many existing practices that we currently 
employ when reviewing State directed payments that use separate payment 
terms. In Sec.  438.7(f)(1), we propose that the State may pay each 
MCO, PIHP, or PAHP a different amount under the separate payment term 
compared to other MCOs, PIHPs, or PAHPs so long as the aggregate total 
dollars paid to all MCOs, PIHPs, and PAHPs does not exceed the total 
dollars of the separate payment term for each respective Medicaid 
managed care program included in the Medicaid managed care contract. In 
Sec.  438.7(f)(2), we propose that the State, through its actuary, 
would have to provide an estimate of the impact of the separate payment 
term on a rate cell basis, as paid out per the SDP approved by CMS 
under Sec.  438.6(c)(2)(i). Both of these proposed regulatory 
requirements are part of current operational practice today as 
documented in the Medicaid Managed Care Rate Development Guide.\116\ 
Having the estimated impact of the separate payment term on a rate cell 
basis helps to evaluate the actuarial soundness of the capitation 
rates. In Sec.  438.7(f)(3), we propose that no later than 12 months 
following the end of the rating period, the State would have to submit 
documentation to CMS that includes the total amount of the separate 
payment term in the rate certification consistent with the distribution 
methodology described in the State directed payment for which the State 
obtained written prior approval to facilitate oversight and monitoring 
of the separate payment term.
---------------------------------------------------------------------------

    \116\ Medicaid Managed Care Rate Development Guides for every 
rating period are located at https://www.medicaid.gov/medicaid/managed-care/guidance/rate-review-and-rate-guides/.
---------------------------------------------------------------------------

    Finally, we are proposing at Sec.  438.7(f)(4) to require States to 
submit a rate certification or rate certification amendment 
incorporating the separate payment term within 120 days of either the 
start of the payment arrangement or written prior approval of the SDP, 
whichever is later. This proposal is aligned with the proposed contract 
requirement in Sec.  438.6(c)(6)(v).
    As previously noted we strongly prefer that SDPs be included as 
adjustments to capitation rates since that method is most consistent 
with the nature of risk-based managed care. Our

[[Page 28149]]

proposals to amend Sec.  438.6(a) to add a new definition for separate 
payment term, the addition of Sec. Sec.  438.6(c)(6) and 438.7(f) are 
intended to maintain the State's ability to use separate payment terms 
while implementing necessary guardrails for fiscal and programmatic 
oversight. However, given our longstanding concern with separate 
payment terms, CMS is considering, and invites comment on, requiring 
all SDPs to be included only through risk-based adjustments to 
capitation rates and eliminate the State's ability to use separate 
payment terms altogether in the final rule based on comments received. 
Prohibiting the use of separate payment terms would align with CMS' 
stated preference and would be most consistent with the nature of risk-
based managed care. However, many States currently use separate payment 
terms for existing SDPs; prohibiting their use could cause some 
disruptions for States.
    Another alternative CMS is considering, and invites comment on, is 
further prohibiting the use of separate payment terms not only to SDPs 
described in paragraphs (c)(1)(iii)(A) and (B), but to all SDPs 
described in paragraph (c)(1)(iii). Under this alternative, States 
would only be able to use separate payment terms for value-based 
initiatives described in paragraphs (c)(1)(i) and (ii). This 
alternative would still allow States to use separate payment terms for 
some payment arrangements and could incentivize States to consider 
quality-based payment models that can better improve health outcomes 
for Medicaid managed care enrollees. this proposal recognizes the 
difficulties that States and their actuaries may face in incorporating 
some value-based payment initiatives into capitation rate development 
as compared to fee schedules as described in paragraph (c)(1)(iii).
    For each of these two alternatives, we acknowledge that some States 
currently use separate payment terms. Therefore, these alternative 
proposals could cause some disruptions as States evaluate changes to 
SDPs. If CMS adopts one of the alternatives for a total payment rate 
limit on SDP expenditures in the final rule, we also seek public 
comment on whether or not CMS should consider a transition period in 
order to mitigate any disruptions.
    We seek public comment on whether either of these alternative 
approaches we are considering should be adopted in the final rule, as 
well as comments on our proposals.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comment on our proposals.
m. SDPs Included Through Adjustments to Base Capitation Rates (Sec.  
438.7(c)(4) Through (6))
    We also propose three additional changes to Sec.  438.7(c) to 
address adjustments to managed care capitation rates that are used for 
SDPs. Specifically, we propose to add a new regulatory requirement at 
Sec.  438.7(c)(5) specifying that retroactive adjustments to capitation 
rates resulting from an SDP must be the result of an approved SDP being 
added to the contract, an amendment to an already approved SDP, a State 
directed payment described in Sec.  438.6(c)(1)(iii)(A) or (B), or a 
material error in the data, assumptions, or methodologies used to 
develop the initial rate adjustment such that modifications are 
necessary to correct the error. This requirement would align with the 
proposed requirement at Sec.  438.6(c)(6)(v)(A). We believe this 
proposed regulatory requirement is necessary to ensure the fiscal 
integrity of SDPs and their impact on rate development. While not as 
frequent, we have also observed States, through their actuaries, 
submitting amendments to rates for SDPs included through adjustments to 
base rates that do not reflect changes in payment methodology, changes 
in benefit design, or general actuarial practices, but instead appear 
to be related to financing of the non-Federal share. We do not view 
such actions as consistent with the prospective and risk-based nature 
of Medicaid managed care. It also creates significant administrative 
burden for both States and the Federal government, by delaying review 
of associated rate certifications.
    Additionally, we propose a new regulatory requirement at Sec.  
438.7(c)(4) that States must submit a revised rate certification for 
any changes in the capitation rate per rate cell, as required under 
Sec.  438.7(a) for any special contract provisions related to payment 
in Sec.  438.6 not already described in the rate certification, 
regardless of the size of the change in the capitation rate per rate 
cell. States are permitted the flexibility under Sec.  438.7(c)(3) to 
increase or decrease the capitation rate per rate cell up to 1.5 
percent during the rating period without submitting a revised rate 
certification for rate changes unrelated to special contract 
provisions, including SDPs, and ILOSs as proposed in section I.B.4.e. 
of this proposed rule. We believe that providing this same flexibility 
for changes to rates for special contract provisions, including SDPs, 
is incongruent with the existing requirement at Sec.  438.7(b)(6) that 
the rate certification include a description of any of the special 
contract provisions related to payment in Sec.  438.6 that are applied 
in the contract. In addition, we believe it is also inconsistent with 
ensuring appropriate program integrity, such as the 105 percent 
threshold in 438.6(b)(2) and existing and proposed SDP standards. 
Therefore, our proposal here addresses and clarifies this requirement.
    Finally, we propose a new regulatory requirement at Sec.  
438.7(c)(6) to require that States must submit the required rate 
certification documentation for SDPs incorporated through adjustments 
to base rates (either the initial rate certification or a revised rate 
certification) no later than 120 days after either the start date of 
the SDP approved under Sec.  438.6(c)(2)(i) (redesignated from Sec.  
438.6(c)(2)(ii)) or 120 days after the date CMS issued written prior 
approval of the SDP, whichever is later.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comment on our proposals.
n. Appeals (Sec.  430.3(d))
    As outlined under Sec.  438.6(c), SDPs are arrangements that allow 
States to require managed care plans to make specified payments to 
healthcare providers when the payments support overall Medicaid program 
goals and objectives (for example, funding to ensure certain minimum 
payments are made to safety net providers to ensure access or quality 
payments to ensure providers are appropriately rewarded for meeting 
certain program goals). Section 438.6(c) was issued by CMS because this 
type of State direction of managed care payment goes against the 
general premise of managed care in which a contracted organization 
assumes risk from the State for the delivery of care to its 
beneficiaries. As a result, we established a process whereby States 
must submit a ``preprint'' form to CMS to document how the SDP complies 
with the Federal requirements outlined in Sec.  438.6(c). If the 
proposal does comply, we issue written prior approval. Subsequent to 
written prior approval, the SDP is permitted to be included in the 
relevant managed care organization contract and rate certification 
documents. This process is required by CMS for most SDPs.
    As discussed throughout this proposed rule, the volume of State

[[Page 28150]]

requests for written approval to implement State directed payment 
arrangements has grown significantly in both number and total dollars 
included in managed care plan capitation rates since Sec.  438.6(c) was 
promulgated in the 2016 final rule.
    Based on our review of SDP prior approval requests, we have 
observed that States use SDPs not only as routine payment mechanisms, 
such as to set minimum fee schedules or provide uniform increases, but 
also for more complex payment arrangements, such as to implement Total 
Cost of Care (TCOC) programs, and multi-metric and multi-year VBPs. CMS 
provides technical assistance to States at all stages of SDP 
development to help States develop SDP arrangements that meet their 
programmatic goals and comply with Sec.  438.6(c). This technical 
assistance can involve both verbal and written assistance, as well as 
the exchange of CMS-generated question sets and State responses. The 
State responses are shared internally with Federal review partners who 
provide subject matter expertise, which may include those representing 
managed care policy and operations, quality, and actuarial science, 
which is then shared with the State to inform SDP revisions and ensure 
compliance with the regulations.
    Providing this technical assistance has become increasingly 
challenging as the number and complexity of States' SDP requests has 
increased. To date, when CMS and States have found themselves unable to 
reach agreement on an SDP proposal and we are unable to issue prior 
written approval, States have agreed to withdraw the submission. 
However, as SDPs have matured as a State tool, they have outgrown this 
informal process of State rescission. The proposals in this rule would 
further specify and strengthen the SDP regulations and we believe it is 
appropriate to begin formally disapproving proposals that cannot comply 
with the regulations.
    A disapproval for an SDP could be issued for many reasons, 
including impermissible financing of the non-Federal share, failure to 
show improvement in the proposed quality evaluation report in the 
timeframe required, or non-compliance with the controlling regulations 
in part 438. To be consistent with other CMS processes which issue 
formal disapprovals, such as those for SPA submissions and 
disallowances of State Medicaid claims, there should be a formal 
process for States to appeal should CMS issue disapproval of written 
prior approval for a State's SDP proposal. The alternative is that a 
State may seek redress in the courts, which can be costly and slow for 
both CMS and the States. We believe that States will benefit from and 
appreciate an established, consistent administrative process with which 
they are familiar.
    Under our authority under section 1902(a)(4) of the Act to 
establish methods for proper and effective operations in Medicaid, we 
propose to add a new Sec.  430.3(d) that would explicitly permit 
disputes that pertain to written disapprovals of SDPs under Sec.  
438.6(c) to be heard by the Health and Human Services (HHS) Department 
Appeals Board (the Board) in accordance with procedures set forth in 45 
CFR part 16. As described in that section, the Board is comprised of 
members appointed by the HHS Secretary it conducts de novo review of 
certain agency decisions under the procedures at 45 CFR part 16 and its 
corresponding appendix A. The Board has a robust administrative 
adjudication process as well experience resolving disputes between CMS 
and States involving the Medicaid program, as it already reviews 
Medicaid disallowances under Title XIX of the Act using the procedures 
set forth at 45 CFR part 16.
    Applying those procedures to CMS's decision to deny a State's SDP 
request, the State would have 30 days to appeal to the Board after an 
appellant receives a final written decision from CMS communicating a 
disapproval of a State directed payment. The case would then be 
assigned a presiding Board member who would preside over procedural 
matters and conduct record development in the case. Within 10 days of 
receiving the notice of appeal, the Board would assess the filing for 
completeness and jurisdiction. If it is found to be appropriately 
filed, the Board would acknowledge the notice and outline the next 
steps in the case. Under existing 45 CFR 16.16, the Board may even 
allow additional parties to participate if there is a ``clearly 
identifiable and substantial interest in the outcome of the dispute'' 
in the discretion of the Board. The State would then have 30 days to 
file its appeal brief, which would contain its argument for why the 
final decision of CMS was in error, and its appeal file, which would 
include the documents on which its arguments are based. Then, CMS would 
have 30 days to submit its brief in response to the State's brief as 
well as any additional supporting documentation not already contained 
in the record. The State would be given fifteen days to submit its 
optional reply.
    Under the Board's process, parties would be encouraged to work 
cooperatively to develop a joint appeal file and stipulate to facts 
alleviating the need to submit documentation. At any time, the Board 
may request additional documentation or information, request additional 
briefings, hold conferences, set schedules, issue orders to show cause, 
and take other steps as appropriate to ``develop a prompt, sound 
decision'' per existing 45 CFR 16.9. Although there is no general right 
to a hearing in cases heard under 45 CFR part 16, States appealing a 
CMS disapproval of a proposed State directed payment under this 
proposed process could request a hearing or oral argument, or the Board 
may call for one sua sponte should it determine its decision-making 
would be enhanced by such proceedings. Generally, the Board's 
proceedings are held in Washington, DC, but may be held in an HHS 
Regional Office or ``other convenient facility near the appellant.'' 
Decisions are issued by the Board in three-member panels. Under 45 CFR 
16.23, the Board has established general goals for its consideration of 
cases within 6 to 9 months; however, the paramount concern of the Board 
is to take the time needed to review a record fairly and adequately in 
order to produce a sound decision. Mediation may be used under 45 CFR 
16.18 as an alternative or preliminary process to resolve the issues 
between the parties.
    As an alternative to our proposal described above to use the Board 
for such decisions, we also considered permitting appeals of SDP 
written disapprovals to be heard by the CMS Offices of Hearings and 
Inquiries (OHI) and the CMS Administrator for final agency action, as 
governed by part 430, subpart D. The current jurisdiction of OHI stems 
from section 1902 of the Act, under which it hears appeals arising from 
decisions to disapprove Medicaid State Plan material under Sec.  430.18 
or to withhold Federal funds under Sec.  430.35 for noncompliance of a 
State Plan. The OHI process is overseen by a presiding officer who 
makes a recommendation to the Administrator, who issues the final 
decision. The process is initiated upon issuance of a written 
disapproval.
    If we were to use this process for disapproval of SDPs, the hearing 
officer would mail the State a notice of hearing or opportunity for 
hearing related to an SDP disapproval that is also published in the 
Federal Register. The hearing would be scheduled either in the CMS 
Regional Office or another place designated by the hearing officer for 
convenience and necessity of the parties between 30 and 60 days after 
notice. Before the hearing, issues may be added, removed, or modified, 
to also be published in the Federal Register and

[[Page 28151]]

with twenty days' notice to the State before the hearing, unless all 
issues have been resolved, in which case the hearing is terminated.
    Under this process, the State and CMS would be given 15 days to 
provide comment and information regarding the removal of an issue. 
Before the hearing, other individuals or groups would be able to 
petition to join the matter as a party within 15 days after notice is 
posted in the Federal Register. The State and CMS would be able to file 
comments on these petitions within five days from receipt. The 
presiding officer would determine whether to recognize additional 
parties. Alternatively, any person or organization would be able to 
file an amicus curiae (friend of the court) as a non-party, should 
their petition to do so be granted. The parties would have the right to 
conduct discovery before the hearing under Sec.  430.86 and to 
participate in prehearing conferences under Sec.  430.83.
    At the hearing, parties would make opening statements, submit 
evidence, present and cross-examine witnesses, and present oral 
arguments.\117\ The transcript of the hearing along with stipulations, 
briefs, and memoranda would be filed with CMS and may be inspected and 
copied in the office of the CMS Docket Clerk. After the expiration of 
the period for post hearing brief, the presiding officer would certify 
the record and recommendation to the Administrator. The Administrator 
would serve a copy to the parties who have 20 days to file exceptions 
or support to the recommendation. The Administrator would then issue 
its final decision within 60 days. The decision of the Administrator 
under this section is the final decision of the Secretary and 
constitutes ``final agency action'' within the meaning of 5 U.S.C. 704 
and a ``final determination'' within the meaning of section 1116(a)(3) 
of the Act and Sec.  430.38. Should the Administrator preside directly, 
they will issue a decision within 60 days after expiration of the 
period for submission of post hearing briefs. Hearings using this CMS/
OHI and Administrator review process most often take over 1 year to 
reach final resolution.
---------------------------------------------------------------------------

    \117\ 42 CFR 430.83.
---------------------------------------------------------------------------

    We believe the Board would be the most appropriate entity to hear 
appeals of disapprovals of SDPs proposals for the following reasons. 
Foremost, while both the Board's and OHI's processes can resolve 
disputes, we believe the Board's shorter goal resolution time of 6 to 9 
months would better facilitate timely approval of managed care plan 
contracts and the payment of capitation payments. Medicaid managed care 
uses a prospective payment system of capitation payments and anything 
that delays approval of the managed care plans' contracts can have a 
significant adverse impact on a State's managed care program. 
Additionally, the Board's processes have the added flexibilities of 
allowing for mediation under 45 CFR 16.18, as well as not requiring, 
but allowing, a hearing, as described in 45 CFR 16.11. These 
differences in the Board regulations give additional options and 
possible efficiencies to the parties. Therefore, while we believe both 
processes would be adequate for appeals of any disapproval of a State 
directed payment, for the reasons described above, we believe the 
processes under the Board would be the most appropriate proposal for 
inclusion in Sec.  430.3(d).
    We seek public comment on whether the Board or OHI appeals 
processes would best serve the purposes of resolving disputes fairly 
and efficiently.
o. Reporting Requirements To Support Oversight (Sec.  438.6(c)(4))
    Many States with managed care programs are using the authority in 
Sec.  438.6(c) to direct managed care plans' payments to certain 
providers. States' increasing use of these arrangements has been cited 
as a key area of oversight risk for CMS. Several oversight bodies, 
including MACPAC, OIG, and GAO, have authored reports focused on CMS 
oversight of SDPs.118 119 120 Both GAO and MACPAC have 
recommended that we collect and make available provider-specific 
information about Medicaid payments to providers, including SDPs.
---------------------------------------------------------------------------

    \118\ Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
    \119\ U.S. Department of Health and Human Services Office of the 
Inspector General, ``Aspects of Texas' Quality Incentive Payment 
Program Raise Questions About Its Ability To Promote Economy and 
Efficiency in the Medicaid Program,'' A-06-18-07001, December 21, 
2020, available at https://oig.hhs.gov/oas/reports/region6/61807001.asp.
    \120\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
---------------------------------------------------------------------------

    As discussed in section I.B.3. of this proposed rule, CMS' current 
review and approval process for SDPs is prospective; that is, we do not 
consistently nor systematically review the actual amounts that States 
provide to managed care plans for these SDPs \121\ nor the actual 
amounts that managed care plans pay to providers. CMS published a 
revised preprint form in January 2021 that requires States to provide 
an estimated total dollar amount that will be included in the 
capitation rates for the SDP arrangement; \122\ however, States are not 
required to report to CMS on the actual expenditures associated with 
these arrangements in any separate or identifiable way. On a limited 
basis, we perform in-depth State-level medical loss ratio (MLR) reviews 
and Financial Management Reviews (FMRs) that include the actual amounts 
paid through SDPs. But without the systematic collection of actual 
payment amounts, we cannot determine exactly how much is being paid 
under these arrangements, to what extent actual expenditures differ 
from the estimated dollar amounts approved by CMS under a State's 
proposal, and whether Federal funds are at risk for impermissible or 
inappropriate payments.
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    \121\ Consistent with the requirements for separate payment 
terms outlined in the Medicaid managed care rate guide, CMS requires 
States to (1) submit documentation to CMS includes the total amount 
of the payment into the rate certification's rate cells consistent 
with the distribution methodology included in the approved State 
directed payment preprint, as if the payment information had been 
known when the rates were initially developed; and (2) submit a rate 
amendment to CMS if the total amount of the payment or distribution 
methodology is changed from the initial rate certification.
    \122\ https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-4386c-preprint-template.pdf.
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    We concur with the oversight bodies that it is important that we 
gain more information and insight into actual SDP spending to help us 
fulfill our oversight and monitoring obligations. We propose two 
approaches, one near term and one longer term, for collecting both 
aggregate and provider-level information. The first proposal would use 
existing MLR reporting as a vehicle to collect actual expenditure data 
associated with SDPs. Specifically, in Sec.  438.8(k), we propose to 
require that managed care plans include SDPs and associated revenue as 
separate lines in their MLR reports to States; specifically, the amount 
of payments to providers made under SDPs that direct the managed care 
plan's expenditures as specified in Sec.  438.6(c) and the payments 
from the State to the managed care plans for expenditures related to 
these SDPs. In turn, we propose to require that managed care plan-level 
SDP expenditure reporting be explicitly reflected in States' annual 
summary MLR reporting to CMS, as required under Sec.  438.74. See 
section I.B.3. of this proposed rule for more information about these 
proposals.
    We also propose to establish a new requirement at Sec.  438.6(c)(4) 
for States to annually submit data, no later than 180

[[Page 28152]]

days after each rating period, to CMS' Transformed Medicaid Statistical 
Information System (T-MSIS), and in any successor format or system 
designated by CMS, specifying the total dollars expended by each MCO, 
PIHP, and PAHP for SDPs that were in effect for the rating period, 
including amounts paid to individual providers. The purpose of this 
reporting would be to gain more information and insight into actual SDP 
spending at the individual provider-level. As MACPAC noted in their 
June 2022 Report to Congress, ``[State directed payments] are a large 
and rapidly growing form of Medicaid payments to providers, but we do 
not have provider-level data on how billions of dollars in directed 
payments are being spent''.\123\ The Commission noted that SDPs are 
larger than Disproportionate Share Hospital (DSH) and Upper Payment 
Limit (UPL) supplemental payments, but there is much less data on who 
is receiving them.\124\ Currently, States must provide CMS with 
specific information for FFS supplemental payments that are made to 
individual providers; however, there is no such requirement for States 
or managed care plans to provide this type of quantitative, provider-
specific data separately for SDPs. We believe implementing a provider-
level SDP reporting requirement would facilitate our understanding of 
provider-level Medicaid reimbursement across delivery systems.
---------------------------------------------------------------------------

    \123\ Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
    \124\ Medicaid and CHIP Payment and Access Commission, 
``Oversight of Managed Care Directed Payments,'' June 2022, 
available at https://www.macpac.gov/wp-content/uploads/2022/06/Chapter-2-Oversight-of-Managed-Care-Directed-Payments-1.pdf.
---------------------------------------------------------------------------

    We propose to develop and provide the form through which the 
reporting would occur so that there would be one uniform template for 
all States to use. We propose in Sec.  438.6(c)(4) the minimum data 
fields that would need to be collected to provide the data needed to 
perform proper oversight of SDPs. Proposed Sec.  438.6(c)(4)(i) through 
(v) outlines the minimum data fields: provider identifiers, enrollee 
identifiers, managed care plan identifiers, procedure and diagnosis 
codes, and allowed, billed, and paid amounts. Paid amounts would 
include the amount that represents the managed care plan's negotiated 
payment amount, the amount of the State directed payments, the amount 
for any pass-through payments under Sec.  438.6(d), and any other 
amounts included in the total paid to the provider. When contemplating 
the FFS supplemental payment reporting, we considered how States should 
have the information being requested readily available, ``[i]ncluding 
the provider-specific payment amounts when approved supplemental 
payments are actually made and claimed for FFP, as the aggregate 
expenditures reported on the CMS-64 comprise the individual, provider-
specific payment amounts''.\125\ Similarly, we believe States and their 
managed care plans already collect provider-level SDP data, including 
the negotiated rate between the plan and provider and any additional 
SDPs (or pass-through payments specified at Sec.  438.6(d)) that are 
made to the provider. We seek comment on whether these are the 
appropriate minimum data fields to require and what provider-level SDP 
data States currently collect as part of their monitoring and oversight 
of SDPs.
---------------------------------------------------------------------------

    \125\ https://www.medicaid.gov/federal-policy-guidance/downloads/smd21006.pdf.
---------------------------------------------------------------------------

    We recognize that there are existing data collection processes and 
systems established between CMS and States that could likely support 
this SDP reporting, and would like to rely on these systems to the 
extent they could help minimize additional or duplicative reporting by 
States. For instance, we considered the existing system and reporting 
structure that States are using for FFS supplemental payment reporting. 
The Consolidated Appropriations Act (CAA) of 2021 established new 
reporting requirements for Medicaid FFS supplemental payments under 
both State plan or demonstration authorities consistent with section 
1902(a)(30)(A) of the Act.126 127 We issued guidance in 
December 2021 outlining the information that States must report to CMS 
as a condition of approval for a State plan or SPA that would provide 
for a supplemental payment, beginning with supplemental payments data 
about payments made on or after October 1, 2021.
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    \126\ The CAA included Division CC, Title II, Section 202 
(section 202), which added section 1903(bb) of the Act to specify 
new supplemental payment reporting requirements.
    \127\ Demonstration authority includes uncompensated care (UC) 
pool payments, delivery system reform incentive payments (DSRIP), 
and possibly designated State health program (DSHP) payments to the 
extent that such payments meet the definition of supplemental 
payment as specified in section 1903(bb)(2) of the Act.
---------------------------------------------------------------------------

    Under these FFS requirements, each quarter, each State must submit 
reports on supplemental payment data through the Medicaid Budget and 
Expenditure System (MBES), as a requirement for a State plan or State 
plan amendment that would provide for a supplemental payment. The data 
collection involves both narrative information, as well as 
quantitative, provider-specific data on supplemental payments. The 
narrative information includes descriptions of the supplemental payment 
methodology, determination of eligible providers, description of the 
timing of the payments, and justification for compliance with section 
1902(a)(30)(A) of the Act. The quantitative, provider-specific data 
collection includes detailed provider-specific accounting of 
supplemental payments made within the quarter, including: provider 
name, provider ID number, and other provider identifiers; Medicaid 
authority (FFS or demonstration authority); Medicaid service category 
for the supplemental payments; aggregate base payments made to the 
provider; and aggregate supplemental payments made to the provider, 
which will reflect the State's claim for Federal financial 
participation.
    This supplemental payment reporting is included in the MBES to 
capture the entire set of data reporting elements required in section 
1903(bb)(1)(B) of the Act in one central location. MBES is familiar to 
States, in part because of State's quarterly expenditure reporting on 
the CMS-64 form. We can view additional reporting of provider-specific 
base and supplemental FFS payment amount information in MBES in the 
context of actual State expenditures for Medicaid. We could consider 
taking a similar approach for SDPs by adding reporting in MBES to 
capture provider-specific SDP data.
    As another option, we considered encounter data reported through T-
MSIS as the method for collecting SDP provider-specific payment 
amounts. Specifically, T-MSIS could work well for SDPs that are 
specifically tied to an encounter or claim, such as minimum fee 
schedules or uniform dollar or percentage increases. Current 
regulations at Sec.  438.242(c)(3) require States to submit all 
enrollee encounter data, including the allowed amount and paid amounts, 
and these paid amounts should be inclusive of State directed payments 
that are tied to an encounter or claim. We could build additional data 
fields in T-MSIS to capture more details about the paid amount, 
including the amount that was the managed care plan's negotiated 
payment amount, the amount of the State directed payments, the amount 
for any pass-through payments under Sec.  438.6(d), and any other 
amounts included in the total payment amount paid to the provider. This 
level of detail would provide the information we need for analysis and

[[Page 28153]]

oversight of SDP spending, and it would be consistent with the managed 
care plan payment analysis proposed in Sec.  438.207(b)(3) (see section 
I.B.1.d. of this proposed rule). There are various fields currently 
captured in T-MSIS via monthly encounter submissions (for example, 
national provider identifier, enrollee identifiers, managed care plan 
identifiers, procedure and diagnosis codes, billed, allowed, and paid 
amounts) that could help us determine provider-specific SDP 
reimbursement. We believe utilizing T-MSIS in this manner would 
substantially reduce unnecessary or duplicative reporting from States, 
would be an effective method to collect the data with minimal 
additional burden on managed care plans and States, and it would enable 
comprehensive analyses since the data would be included with all other 
T-MSIS data.
    Lastly, we considered whether to utilize a separate reporting 
mechanism for this new reporting of SDP provider-level data. For 
example, we could explore building a new reporting portal, similar to 
the one developed for the submission of the Managed Care Program Annual 
Report. However, this would take considerable time and resources to 
develop and would be separate and distinct from all other SDP data, 
making it more difficult to perform comprehensive analyses. We also 
considered whether to permit States to submit the proposed reporting 
using a Word or Excel template sent to a CMS mailbox. While this would 
be the fastest way to collect the data, it too presents challenges for 
integrating the data with other data collected by CMS for analyses.
    Because we believe T-MSIS to be the most efficient option, we 
propose in Sec.  438.6(c)(4) to require States to submit data to T-MSIS 
as the method for collecting provider-specific payment amounts under 
SDPs. As specified in proposed Sec.  438.6(c)(4)(i)(E), provider-
specific paid amounts would include a plan's negotiated payment amount, 
the amount of the State directed payments, the amount for any pass-
through payments under Sec.  438.6(d), and any other amounts included 
in the total paid to the provider. States would submit this data to CMS 
no later than 180 days after each rating period. We believe 180 days 
permits adequate time for claims run out, submission of the necessary 
data to the State, and for the State to format the data for submission 
to CMS. We also propose in Sec.  438.6(c)(4) that States would have to 
comply with this new reporting requirement after the rating period that 
begins after we release reporting instructions for submitting the 
information required by this proposal. We seek public comment on our 
proposal to use T-MSIS for this new reporting, or whether another 
reporting vehicle such as MBES, or other alternatives described in this 
proposed rulemaking would be better suited for SDP reporting. We also 
seek comment on how T-MSIS or another reporting vehicle could support 
capturing value-based payment arrangements in which payment is not 
triggered by an encounter or claim.
    We also propose a conforming requirement at Sec.  438.6(c)(5)(iv) 
to align with the proposal in Sec.  438.6(c)(4); proposed paragraph 
(c)(5)(iv) would require States to document any reporting requirements 
necessary to comply with Sec.  438.6(c)(4) in their managed care 
contracts.
    We consider these data reporting proposals to be a two-prong 
approach, with the MLR proposed requirements explained in section 
I.B.3. of this proposed rule serving as a short-term step and the 
provider-specific data reporting proposed here being a longer-term 
initiative. We believe this would ensure the appropriate content and 
reporting while also giving States sufficient time to prepare for each 
proposal based on the level of new burden. While some managed care 
plans and States may assert that these proposals increase 
administrative burden unnecessarily, we believe that the increased 
transparency associated with these enhanced standards would benefit 
both State and Federal government oversight of SDPs. Implementing these 
proposals for State and managed care plan reporting of actual SDP 
expenditures would provide CMS more complete information when 
evaluating, developing, and implementing possible changes to Medicaid 
payment policy and fiscal integrity policy.
    For discussion on the proposed applicability dates for the 
proposals outlined in this section, see section I.B.2.p. of this 
proposed rule.
    We solicit public comment on these proposals.
p. Applicability and Compliance Dates (Sec. Sec.  438.6(c)(4) and 
(c)(8), and 438.7(g)(2))
    We propose that States and managed care plans would have to comply 
with Sec.  438.6(a), (c)(1)(iii), (c)(2)(i), (c)(2)(ii)(A) through (C), 
(c)(2)(ii)(E), (c)(2)(ii)(G), (c)(2)(ii)(I) through (J), (c)(2)(vi)(A), 
(c)(3), (c)(6)(i) through (iv), and 438.7(c)(4), (c)(5), and (f)(1) 
through (3) upon the effective date of the final rule, as these 
proposals are either technical corrections or clarifications of 
existing policies and standards. We propose that States and managed 
care plans would have to comply with Sec.  438.6(c)(2)(iii), (vi)(B), 
(vi)(C)(1) and (2) no later than the first rating period for contracts 
with MCOs, PIHPs and PAHPs beginning on or after the effective date of 
the final rule as these newly proposed requirements will provide States 
with increased flexibility and not require States to make changes to 
existing arrangements. We propose that States and managed care plans 
would have to comply with Sec.  438.6(c)(2)(ii)(H), (c)(2)(vi)(C)(3) 
and (4), (c)(2)(vii), (c)(2)(viii) and (ix), and (c)(5)(i) through (v) 
no later than the first rating period for contracts with MCOs, PIHPs 
and PAHPs beginning on or after 2 years after the effective date of the 
final rule. We believe this is a reasonable timeframe for compliance 
because it allows States sufficient time to operationalize the 
timelines and requirements for preprint submissions that are newly 
established in these proposals while balancing the need to strengthen 
CMS oversight.
    We further propose that States and managed care plans would have to 
comply with Sec.  438.6(c)(2)(ii)(D), (F), (c)(2)(iv), (c)(2)(v), and 
(c)(7) no later than the first rating period for contracts with MCOs, 
PIHPs and PAHPs beginning on or after 3 years after the effective date 
of the final rule as we believe States will need a sufficient period of 
time to address the policy elements within these proposals and 
operationalize them via various reporting, documentation and submission 
processes. For Sec.  438.6(c)(2)(ii)(D) and (F), (c)(2)(iv) and (v), 
and (c)(7), we are considering requiring compliance for the first 
rating period beginning on or after 1 year, or 2 years after the 
effective date of the final rule, but we are proposing the first rating 
period beginning on or after 3 years after the effective date of the 
final rule because we believe it strikes a balance between the work 
States would need to do to comply with these proposals and the urgency 
with which we believe these proposals should be implemented in order to 
strengthen and ensure appropriate and efficient operation of the 
Medicaid program. We solicit comment on the proposal and alternatives.
    We propose that States and managed care plans would have to comply 
with Sec. Sec.  438.6 (c)(5)(vi), and (c)(6)(v), and 438.7(c)(6) and 
(f)(4) no later than the first rating period for contracts with MCOs, 
PIHPs and PAHPs beginning on or after 4 years after the effective date 
of the final rule. Because these proposals establish new submission

[[Page 28154]]

timelines and new requirements for contract and rate certification 
documentation, and because States could view the new requirements as 
substantial changes to the SDP process, we are proposing a longer 
timeline for compliance. We are considering requiring compliance no 
later than the first rating period beginning on or after 3 years after 
effective date of the final rule to align with the compliance dates in 
the proposals described in the paragraph above; however, to provide 
States adequate time to implement strong policies and procedures to 
address the newly proposed requirements before submitting the relevant 
contract and rate certification documentation, we are proposing the 
longer period for States to adjust and come into compliance. We solicit 
comment on the proposal and alternative.
    Finally, as outlined in proposed Sec.  438.6(c)(4), States would be 
required to submit the initial TMSIS report subsequent to the first 
rating period following the release of CMS guidance on the content and 
form of the report.
    We have proposed these applicability dates in Sec. Sec.  
438.6(c)(4) and (c)(8), and 438.7(g).
    We solicit public comment on these proposals.
3. Medical Loss Ratio (MLR) Standards (Sec. Sec.  438.8, 438.3, and 
457.1203)
    In the 2016 final rule, we finalized Medicaid and CHIP managed care 
regulations in Sec. Sec.  438.8(k) and 457.1203(f) respectively, that 
require managed care plans to annually submit reports of their MLR to 
States, and, at Sec. Sec.  438.74 and 457.1203(e) respectively, we 
require States to submit annually a summary of those reports to CMS. 
These sections were issued based on our authority under sections 
1903(m)(2)(A)(iii), 1902(a)(4), and 2101(a) of the Act based on the 
rationale that actuarially sound capitation rates must be utilized for 
MCOs, PIHPs, and PAHPs. Additionally, actuarial soundness requires that 
capitation payments cover reasonable, appropriate, and attainable costs 
in providing covered services to enrollees in Medicaid managed care 
programs. We propose to amend our requirements under the same authority 
and rationale that we describe below.
    Medical loss ratios are one tool that CMS and States can use to 
assess whether capitation rates are appropriately set by generally 
illustrating how capitation funds are spent on claims and quality 
improvement activities as compared to administrative expenses. More 
specifically, MLR calculation and reporting can be used to demonstrate 
that adequate amounts of the capitation payments are spent on services 
for enrollees. With MLR reporting, States have more information to 
understand how the capitation payments made for enrollees in managed 
care programs are expended, resulting in responsible fiscal stewardship 
of total Medicaid and CHIP expenditures.
    Medicaid and CHIP managed care MLR reporting requirements align, 
generally, with Marketplace standards for Qualified Health Plans (QHPs) 
and Medicare Advantage standards for Medicare Advantage organizations 
(MAOs). As we noted in the preamble to the 2015 managed care proposed 
rule,\128\ alignment with Marketplace or Medicare Advantage standards 
supports administrative simplicity for States and health plans to 
manage health care delivery across different product lines and eases 
the administrative burden on issuers and regulators that work in all of 
those contexts and markets (80 FR 31101). We also noted that a 
consistent methodology across multiple markets (private, Medicare, 
Medicaid, and CHIP) would allow for administrative efficiency for the 
States in their roles regulating insurance and Medicaid/CHIP, and for 
issuers and managed care plans to collect and measure data necessary to 
calculate an MLR and provide reports. In addition, a consistent 
standard would allow comparison of MLR outcomes consistently from State 
to State and among commercial, Medicare, and Medicaid/CHIP managed care 
plans (80 FR 31107).
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    In general, Medicaid and CHIP managed care MLR reporting 
requirements have remained aligned over time with the Marketplace MLR 
requirements; however, CMS finalized some regulatory changes for QHP 
MLR reporting in 45 CFR 158.140, 158.150, and 158.170 effective July 1, 
2022.\129\ To keep the Medicaid and CHIP managed care regulations 
aligned with these new Marketplace provisions, we propose several 
revisions to our requirements in the following areas:
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     Requirements for clinical or quality improvement standards 
for provider incentive arrangements;
     Prohibited administrative costs in quality improvement 
activity (QIA) reporting; and
     Additional requirements for expense allocation methodology 
reporting.
    In addition, we propose changes to specify timing of updates to 
credibility adjustment factors; when Medicaid and CHIP managed care 
plans are required to resubmit MLR reports to the State; the level of 
data aggregation required for State MLR summary reports to CMS; 
contract requirements related to reporting of overpayments; and new 
reporting requirements for SDPs.
a. Standards for Provider Incentives (Sec. Sec.  438.3(i), 438.8(e)(2), 
457.1201, and 457.1203)
    We are revising standards for provider incentives to remain 
consistent with our goals of alignment with the Marketplace when 
appropriate, and to ensure that capitation rates are actuarially sound 
and based on reasonable expenditures for covered services under the 
contract. Under section 1903(m)(2)(A)(iii) of the Act and implementing 
regulations, FFP is not available for State expenditures incurred for 
payment (as determined under a prepaid capitation basis or under any 
other risk basis) for services provided by a managed care plan unless 
the prepaid payments are made on an actuarially sound basis. This 
requirement is made applicable to PIHPs and PAHPs under authority in 
section 1902(a)(4) of the Act. As specified in current regulations at 
Sec.  438.4(a), actuarially sound Medicaid capitation rates are 
projected to provide for all reasonable, appropriate, and attainable 
costs as well as the operation of the MCO, PIHP, or PAHP required under 
the terms of the contract.
    While Medicaid managed care plans are required to calculate and 
report an MLR to the State, States are not required to establish a 
minimum MLR requirement; although under current regulations at Sec.  
438.4(b)(9), capitation rates must be developed in a way that the 
managed care plan would reasonably achieve an MLR of at least 85 
percent. Under current regulations at Sec.  438.8(c), if a State elects 
to require that their managed care plans meet a minimum MLR 
requirement, the minimum must be set to at least 85 percent. Further, 
under Sec.  438.8(j), States may establish a remittance arrangement 
based on an MLR requirement of 85 percent or higher. As a general 
matter, remittance arrangements based on minimum MLRs may provide value 
to States by requiring managed care plans to remit a portion of their 
capitation payments to States when spending on covered services and 
QIAs is less than the minimum MLR requirements.

[[Page 28155]]

    At existing Sec. Sec.  438.3(i)(1) and 457.1201(h), respectively, 
Medicaid and CHIP managed care plan contracts must require compliance 
with the provider plan incentive requirements in Sec. Sec.  422.208 and 
422.210.\130\ In this section, we refer to the term ``incentive'' to 
mean both incentive and bonus payments to providers. Under Sec.  
422.208(c), managed care plans may enter into a physician incentive 
plan with a health care provider, but plans must meet requirements 
applicable to those arrangements in Sec.  422.208(c) through (g), and 
under Sec.  422.208(c)(1) plans cannot make a payment, directly or 
indirectly, as an inducement to reduce or limit medically necessary 
services. A Medicaid and CHIP managed care plan may make incentive 
payments to a provider if the provider agrees to participate in the 
plan's provider network. These payment arrangements may be based solely 
on an amount negotiated between the plan and the provider. Medicaid and 
CHIP managed care plans can implement provider incentive arrangements 
that are not based on quality improvement standards or metrics; 
however, provider incentive payments must be included as incurred 
claims when managed care plans calculate their MLR, per Sec. Sec.  
438.8(e)(2)(iii)(A) and 457.1203(c) respectively. Further, provider 
incentive payments may influence the development of future capitation 
rates, and Medicaid managed care plans may have a financial incentive 
to inappropriately pay provider incentives when the plans are unlikely 
to meet minimum MLR requirements. Additionally, these payments may 
inappropriately inflate the numerator of the MLR calculation and reduce 
or eliminate remittances, if applicable. Additionally, including such 
data in the base data used for rate development may inappropriately 
inflate future capitation rates.
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    \130\ As specified in Sec.  438.3(i)(2), in applying the 
provisions of Sec. Sec.  422.208 and 422.210 of this chapter, 
references to ``MA organization,'' ``CMS,'' and ``Medicare 
beneficiaries'' must be read as references to ``MCO, PIHP, or 
PAHP,'' ``State,'' and ``Medicaid beneficiaries,'' respectively.
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Vulnerabilities With Managed Care Plans' Provider Incentive Contracting 
Practices
    As part of our Medicaid managed care program integrity oversight 
efforts, CMS recently conducted several in-depth reviews of States' 
oversight of managed care plan MLR reporting. These reviews included 
examinations of the contract language for provider incentive 
arrangements between managed care plans and network providers. As part 
of these reviews, CMS identified several examples of managed care plan 
practices that could make an incentive payment inappropriate to include 
in the numerator. For example, there were inconsistent documentation 
and contracting practices for incentive payments in contracts between 
some Medicaid managed care plans and their network providers, including 
State acceptance of attestations of these arrangements from senior 
managed care plan leadership when contract documentation was lacking. 
These reviews also noted that many managed care plans' contracts with 
network providers did not base the incentive payments on a requirement 
for the providers to meet quantitative clinical or quality improvement 
standards or metrics. In fact, examination of these contracts between 
managed care plans and their network providers revealed that some 
managed care plans did not require a provider to improve their 
performance in any way to receive an incentive payment. Additionally, 
many of the incentive arrangements were not developed prospectively 
with clear expectations for provider performance. Finally, we 
identified provider incentive performance periods that did not align 
with the MLR reporting period and provider incentive contracts that 
were signed after the performance period ended.
Contract Requirements for Provider Incentive Payment Arrangements
    Based on these reviews, we are concerned that if a provider 
incentive arrangement is not based on basic core contracting practices 
(including sufficient supporting documentation and clear, prospective 
quantitative quality or performance metrics), it may create an 
opportunity for a managed care plan to more easily pay network 
providers solely to expend excess funds to increase their MLR numerator 
under the guise of paying incentives. This potential loophole could 
also be used to help managed care plans avoid paying remittances. Also, 
this practice could artificially inflate future capitation rates. To 
address these concerns, we are proposing additional requirements on 
provider incentive arrangements in Sec.  438.3(i).
    In a new Sec.  438.3(i)(3) and (4) for Medicaid, and included in 
separate CHIP regulations through an existing cross-reference at Sec.  
457.1201(h), we propose to require that the State, through its 
contract(s) with a managed care plan, must include specific provisions 
related to provider incentive contracts. Specifically, the proposed 
changes would require in Sec.  438.3(i)(3)(i) and (ii) that incentive 
payment contracts between managed care plans and network providers have 
a defined performance period that can be tied to the applicable MLR 
reporting period(s), and such contracts must be signed and dated by all 
appropriate parties before the commencement of the applicable 
performance period. We also propose, in Sec.  438.3(i)(3)(iii), that 
all incentive payment contracts must include well-defined quality 
improvement or performance metrics that the provider must meet to 
receive the incentive payment. In addition, in Sec.  438.3(i)(3)(iv), 
we propose that incentive payment contracts must specify a dollar 
amount that can be clearly linked to successful completion of these 
metrics as well as a date of payment. We note that managed care plans 
would continue to have flexibility to determine the appropriate quality 
improvement or quantitative performance metrics to include in the 
incentive payment contracts. In addition, the proposed changes would 
also require in Sec.  438.3(i)(4)(i) that the State's contracts must 
define the documentation that the managed care plan must maintain to 
support these arrangements. In Sec.  438.3(i)(4)(ii), we propose that 
the State must prohibit managed care plans from using attestations as 
documentation to support the provider incentive payments. In Sec.  
438.3(i)(4)(iii), we propose that the State's contracts require that 
managed care plans must make the incentive payment contracts and 
supporting documentation available to the State both upon request and 
at any routine frequency that the State establishes. Finally, we 
propose that States and managed care plans would have to comply with 
Sec.  438.3(i)(3) and (4) no later than the rating period for contracts 
with MCOs, PIHPs, and PAHPs beginning on or after 60 days following the 
effective date of the final rule as we believe this is a reasonable 
timeframe for compliance. Therefore, we have proposed this 
applicability date in Sec.  438.3(v) for Medicaid, and through a 
proposed cross-reference at Sec.  457.1200(d) for separate CHIPs, and 
we seek public comment on this proposal. Other changes proposed to 
Sec.  438.3(v) are outlined in section I.B.4.i. of this proposed rule.
    We also propose to amend Sec.  438.608 to cross-reference these 
requirements in the program integrity contract requirements section. 
Specifically, we propose to add a new Sec.  438.608(e) that notes the 
requirements for provider incentives in Sec.  438.3(i)(3) and (4). This 
proposed requirement is equally

[[Page 28156]]

applicable for separate CHIPs through an existing cross-reference at 
Sec.  457.1285.
Alignment With Marketplace Regulations for Provider Incentive 
Arrangements \131\
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    Effective July 1, 2022, the Marketplace regulations at 45 CFR 
158.140(b)(2)(iii) were revised to require issuers to tie provider 
bonuses and incentives payments to clearly-defined, objectively 
measurable, and well-documented clinical or quality improvement 
standards for these costs to qualify as expenditures in the MLR 
numerator. In contrast, current Medicaid and CHIP managed care 
regulations for provider incentive arrangements do not require these 
payments to be based on quality or performance metrics. This 
inconsistency hinders the comparison of MLR data between the 
Marketplace issuers and Medicaid and CHIP managed care plans, which is 
important given the high number of health plans that are both sold in 
the Marketplace and Medicaid managed care plans as well as the frequent 
churn of individuals between Marketplace, Medicaid, and CHIP coverage. 
To address the potential for inappropriate inflation of the MLR 
numerator as well as facilitate data comparability, we propose in Sec.  
438.8(e)(2)(iii)(A) for Medicaid, which is included in separate CHIP 
regulations through an existing cross-reference at Sec.  457.1203(c), 
to require that for a provider bonus or incentive payment to be 
included in the MLR numerator, the provider bonus or incentive 
arrangement would have to require providers to meet clearly-defined, 
objectively measurable, and well-documented clinical or quality 
improvement standards to receive the bonus or incentive payment. This 
change would prohibit Medicaid and CHIP managed care plans from 
including provider bonus or incentive payments that are not based on 
clinical or quality improvement standards in their MLR numerator, which 
would improve the accuracy of their MLR, as well as other components of 
managed care programs that rely on reported MLRs, such as capitation 
rate development and remittances. Further, a consistent methodology 
across multiple markets would allow for administrative efficiency for 
the States as they monitor their Medicaid and CHIP programs, and for 
issuers and managed care plans to collect and measure data necessary to 
calculate an MLR and provide reports.
    We believe that by requiring States' contracts with managed care 
plans to specify how provider bonus or incentive payment arrangements 
would be structured in managed care plans' provider contracts, 
transparency around these arrangements would improve. In addition, by 
requiring the contracts to include more specific documentation 
requirements, CMS and States would be better able to ensure that 
provider bonus or incentive payments are not being used either to 
inappropriately increase the MLR to avoid paying potential remittances, 
inflate future capitation rates, or to simply move funds from a 
Medicaid managed care plan to an affiliated company. The proposals 
would increase transparency into provider bonuses and incentives, 
improve the quality of care provided by ensuring that bonuses and 
incentives are paid to providers that demonstrated furnishing high-
quality care, and protect Medicaid and CHIP programs against fraud and 
other improper payments. We are seeking comment on these proposed 
requirements, including whether any additional documentation 
requirements should be specified in regulation. We propose that States 
and managed care plans would be required to comply with these 
requirements 60 days after the effective date of this final rule as we 
believe these proposals are critical for fiscal integrity in Medicaid 
and CHIP. We considered an alternative compliance date of no later than 
the rating period for contracts with MCOs, PIHPs and PAHPs beginning on 
or after 60 days following the effective date of the final rule; 
however, we are concerned this is not soon enough. We seek comment on 
this proposal.
b. Prohibited Costs in Quality Improvement Activities (Sec. Sec.  
438.8(e)(3) and 457.1203(c))
    The preamble to the Marketplace regulations that took effect on 
July 1, 2022 indicated that examinations of MLR reporting of issuers 
found ``wide discrepancies in the types of expenses that issuers 
include in QIA expenses'' and that inconsistency ``creates an unequal 
playing field among issuers'' (87 FR 692). Therefore, to provide 
further clarity on the types of costs that may be included in MLR 
calculations in the future, CMS modified Marketplace regulations for 
QIA expenditures in 45 CFR 158.150(a), effective July 1, 2022, to 
prohibit the inclusion of indirect or overhead expenses that do not 
directly improve health care quality when reporting QIAs.
    In Medicaid and separate CHIP regulations at Sec. Sec.  438.8(e)(3) 
and 457.1203(c) respectively, we included QIA activities that meet the 
Marketplace MLR requirements, but we did not explicitly include a 
prohibition on managed care plans including indirect or overhead 
expenses when reporting QIA costs in the MLR because the commercial 
regulations did not have this exclusion at the time. As a result, the 
current Medicaid MLR regulations do not require managed care plans to 
exclude indirect or overhead QIA expenditures. For example, 
expenditures for facility maintenance, utilities, or marketing may be 
included in the MLR even though these expenses do not directly improve 
health care quality. As a result, Medicaid or CHIP managed care plans 
may include these types of costs as QIA costs in the MLR numerator, 
which could result in inappropriately inflated MLRs, and a different 
standard existing in the Marketplace and Medicaid and CHIP markets. 
This difference in standards could pose a potential administrative 
burden for managed care plans that participate in both Medicaid and 
CHIP and the Marketplace because managed care plans may include 
different types of expenses in reporting QIA.
    To align Medicaid and CHIP MLR QIA reporting requirements with the 
Marketplace requirements and to improve clarity on the types of QIA 
expenditures that should be included in the MLR numerator, we propose 
to amend Sec.  438.8(e)(3)(i) for Medicaid, which is included in 
separate CHIP regulations through an existing cross-reference at Sec.  
457.1203(c), to add a reference to the Marketplace regulation that 
prohibits the inclusion of overhead or indirect expenses that are not 
directly related to health care quality improvement. This change would 
provide States with more detailed QIA information to improve MLR 
reporting consistency, allow for better MLR data comparisons between 
the Marketplace and Medicaid and CHIP markets, and reduce 
administrative burden for managed care plans that participate in both 
Medicaid and CHIP and the Marketplace. We propose that these 
requirements would be effective 60 days after the effective date of 
this final rule as we believe these proposals are critical for fiscal 
integrity in Medicaid and CHIP. We considered an alternative effective 
date of no later than the rating period for contracts with MCOs, PIHPs 
and PAHPs beginning on or after 60 days following the effective date of 
the final rule; however, we are concerned this is not soon enough. We 
seek

[[Page 28157]]

comment on the applicability date for these proposals.
c. Additional Requirements for Expense Allocation Methodology 
(Sec. Sec.  438.8(k)(1)(vii) and 457.1203(f))
    As specified in current regulations at Sec. Sec.  438.8(k)(1)(vii) 
and 457.1203(f) respectively, Medicaid and CHIP managed care plans must 
provide a report of the methodology or methodologies that they used to 
allocate certain types of expenditures for calculating their MLR. 
Examples of these types of expenditures include overhead expenses such 
as facility costs or direct expenses such as employee salaries. If a 
plan operates multiple lines of business, for example in both Medicaid 
and the Marketplace, it must indicate in the Medicaid MLR report how 
the share of certain types of costs were attributed to the Medicaid 
line of business. However, the Medicaid MLR regulations in Sec.  
438.8(g) and (k)(1)(vii) do not require managed care plans to submit 
information about the types of expenditures allocated to the Medicaid 
line of business and do not require managed care plans to specify how 
each type of expenditure was allocated to the Medicaid MLR.
    Recent CMS State-level Medicaid MLR reviews noted a lack of expense 
allocation information in managed care plans' MLR reports to States. 
Specifically, CMS determined that several plans operated in multiple 
markets, for example, Medicaid and Medicare Advantage, and failed to 
adequately describe how certain costs that may apply across multiple 
lines of business were allocated to the Medicaid MLR report. Examples 
of these expenses include: quality improvement expenses, taxes, 
licensing or regulatory fees, and non-claims costs. The impact of this 
lack of transparency is that it may be impossible for a State to 
determine if the managed care plan's allocation of the applicable 
expenses to the Medicaid line of business was reasonable. For example, 
if a managed care plan operating in multiple markets does not provide 
information on how quality improvement activity expenses were allocated 
to the Medicaid MLR, the State will be unable to determine if the MLR 
numerator is inappropriately inflated.
    The Marketplace regulations in 45 CFR 158.170(b) require 
significantly more detail for expense allocation in QHPs' MLR 
reporting. Specifically, Sec.  158.170(b) requires a description of the 
types of expenditures that were allocated, how the expenses met the 
criteria for inclusion in the MLR, and the method(s) used to aggregate 
these expenses. We propose to require in Sec.  438.8(k)(1)(vii) for 
Medicaid, which is included in CHIP regulations through an existing 
cross-reference at Sec.  457.1203(f), that managed care plans must 
include information that reflects the same information required under 
Marketplace requirements in the MLR report that they submit to the 
State. Specifically, in Sec.  438.8(k)(1)(vii), we propose to add to 
the existing text that plans' descriptions of their methodology must 
include a detailed description of the methods used to allocate 
expenses, including incurred claims, quality improvement expenses, 
Federal and State taxes and licensing or regulatory fees, and other 
non-claims costs, as described Sec.  158.170(b). These revisions would 
improve State MLR oversight by providing States with more detailed 
information to ensure the appropriateness of managed care plans' 
expense allocation. These proposed requirements would align with 
Marketplace regulations and reduce administrative burden for managed 
care plans. We propose that States and managed care plans would be 
required to comply with these requirements 60 days after the effective 
date of this final rule as we believe these proposals are critical for 
fiscal integrity in Medicaid and CHIP. We considered an alternative 
compliance date of no later than the rating period for contracts with 
MCOs, PIHPs and PAHPs beginning on or after 60 days following the 
effective date of the final rule; however, we are concerned that is not 
soon enough. We seek comment on this proposal.
d. Credibility Factor Adjustment to Publication Frequency (Sec. Sec.  
438.8(h)(4) and 457.1203(c))
    Section 2718(c) of the Public Health Service Act charged the 
National Association of Insurance Commissioners (NAIC) with developing 
uniform methodologies for calculating measures of the expenditures that 
make up the MLR calculation, and to address the special circumstances 
of smaller plans. The NAIC model regulation allows smaller plans to 
adjust their MLR calculations by applying a ``credibility adjustment.'' 
Under Sec. Sec.  438.8(h) and 457.1203(c) respectively, Medicaid and 
CHIP managed care calculated MLRs may be adjusted using credibility 
factors to account for potential variability in claims due to random 
statistical variation. These factors are applied to plans with fewer 
enrollees to adjust for the higher impact of claims variability on 
smaller plans. As stated in Sec.  438.8(h)(4), CMS is responsible for 
developing and publishing these factors annually for States and managed 
care plans to use when reporting MLRs for plans with fewer enrollees. 
In the 2015 Medicaid and CHIP managed care proposed rule (80 FR 31111), 
we proposed adopting a credibility adjustment methodology along with 
assurances to monitor and reevaluate credibility factors ``in light of 
developing experience with the Affordable Care Act reforms.'' In the 
2015 proposed rule (80 FR 31111), we also proposed to update the 
credibility adjustment method within the parameters of the methodology 
proposed in that proposed rule. We finalized this proposal without 
revision in the 2016 final rule (81 FR 27864). The Medicaid managed 
care credibility adjustment factors were published on July 31, 2017 at 
https://www.medicaid.gov/federal-policy-guidance/downloads/cib073117.pdf.
    Since this publication of the credibility adjustment factors in 
2017, the factors have not changed. The factors were originally 
developed using a statistical model applying the Central Limit Theorem 
(80 FR 31111). This model produced credibility factors that were not 
expected to change annually. Therefore, we believe that annual updates 
to these factors are not required, and we propose to modify Sec.  
438.8(h)(4) for Medicaid, which is included in separate CHIP 
regulations through an existing cross-reference at Sec.  457.1203(c), 
to remove ``On an annual basis.'' If we determine that the factors need 
to be updated, we would use the methodology specified at Sec.  
438.8(h)(4)(i) through (vi). We are not proposing any revisions to 
Sec.  438.8(h)(4)(i) through (vi) in this rule. We propose that these 
changes would be effective 60 days after the effective date of this 
final rule as we believe this timeframe is reasonable. We seek comment 
on this proposal.
e. MCO, PIHP, or PAHP MLR Reporting Resubmission Requirements 
(Sec. Sec.  438.8(m) and 457.1203(f))
    Medicaid and CHIP managed care plans are required to resubmit MLR 
reports to States under certain circumstances. In the 2015 managed care 
proposed rule preamble, we noted that States may make retroactive 
changes to capitation rates that could affect the MLR calculation for a 
given MLR reporting year and that when that occurred, the MCO, PIHP, or 
PAHP would need to recalculate the MLR and provide a new report with 
the updated figures (80 FR 31113). We also indicated that ``In any 
instance where a State makes a retroactive change to the capitation 
payments for an MLR reporting year where the report has already been 
submitted to the State, the

[[Page 28158]]

MCO, PIHP, or PAHP must re-calculate the MLR for all MLR reporting 
years affected by the change and submit a new report meeting the 
requirements in paragraph (k) of this section.'' This regulation was 
finalized in 2016 without changes (81 FR 27864). However, the reference 
in the regulation to changes to capitation ``payments'' rather than 
``rates'' has caused confusion about when managed care plans should 
resubmit MLR reports to the State, and has contributed to additional 
administrative burden by requiring plans to resubmit MLR reports to the 
State and by requiring States to review multiple MLR report submissions 
from managed care plans.
    As part of our Medicaid MLR report compliance reviews, we have 
heard from several States that MLR reports from MCOs, PIHPs, or PAHPs 
are often resubmitted to the State. These resubmissions usually 
resulted from payments the State made to the managed care plan as part 
of the retroactive eligibility review process. As part of this process 
in these States, the State reviews beneficiary eligibility records to 
determine if an individual qualifies for retroactive eligibility. If an 
enrollee qualifies for retroactive eligibility, the State modifies the 
number of capitation payments that were made to a plan; however, the 
State does not retroactively modify the capitation rate for a group of 
members. When a State modifies the number of payments, but not the rate 
of payment to a managed care plan, we believe that it is unnecessary 
for a plan to resubmit the MLR to the State. For separate payment 
terms, only used for SDPs, the proposed regulation changes would 
require the State to document in the managed care plan contracts the 
total dollars that the State would pay to the plans for the individual 
State directed payment; the timing and frequency of payments that would 
be made under the separate payment term from the State to the plans; a 
description or reference to the contract requirement for the specific 
State directed payment for which the separate payment term would be 
used; and any reporting that the State requires to ensure appropriate 
reporting of the separate payment term for purposes of MLR reporting 
under Sec.  438.8. If the State modifies a separate payment term, the 
MLR would need to be resubmitted to the State. See further details in 
section I.B.2.l. of this proposed rule.
    We propose to amend Sec.  438.8(m) for Medicaid, which is included 
in separate CHIP regulations through an existing cross-reference at 
Sec.  457.1203(f), to specify that an MCO, PIHP, or PAHP would only be 
required to resubmit an MLR report to the State when the State makes a 
retroactive change to capitation rates. Specifically, we propose to 
replace ``payments'' with ``rates'' and to insert ``retroactive rate'' 
before the word ``change.'' These changes would decrease administrative 
burden for both managed care plans and States by reducing the number of 
MLR report submissions while retaining our original intent. We propose 
that these changes would be effective 60 days after the effective date 
of this final rule as we believe this timeframe is reasonable to 
alleviate State and plan administrative burden. We considered an 
alternative effective date no later than the rating period for 
contracts with MCOs, PIHPs and PAHPs beginning on or after 60 days 
following the effective date of the final rule; however, we do not 
believe additional time is necessary. We seek comment on this proposal.
f. Level of MLR Data Aggregation (Sec. Sec.  438.74 and 457.1203(e))
    As specified in existing requirements at Sec. Sec.  438.8(k) and 
457.1203(f) respectively, Medicaid and CHIP managed care plans are 
required to submit detailed MLR reports to States, and States, as 
required in Sec.  438.74 for Medicaid and Sec.  457.1203(e) for 
separate CHIP, must submit a summary description of those reports to 
CMS. In the preamble to the 2015 managed care proposed rule (80 FR 
31113), we described the term ``summary'' as meaning an abbreviated 
version of the more detailed reports required from managed care plans 
in Sec.  438.8(k), but did not refer to a Statewide aggregation of data 
across managed care plans. The proposed regulatory text for Sec.  
438.74 did not include the words ``for each'' and was finalized as 
proposed. In our compliance reviews of State summary MLR reports, 
several States provided MLR data aggregated over the entire State and 
neglected to provide the abbreviated MLR report for each plan. These 
submissions of MLR summary reports that omitted information by plan 
indicate States' confusion with what is required for these reports.
    To correct this issue, we propose to amend Sec.  438.74(a) for 
Medicaid, which is included in separate CHIP regulations through an 
existing cross-reference at Sec.  457.1203(e), to note explicitly that 
State MLR summary reports must include the required elements for each 
MCO, PIHP, or PAHP that is contracted with the State. To specify that 
the MLR information would have to be reported for each managed care 
plan, we propose in Sec.  438.74(a)(1) to replace ``the'' with ``each'' 
before ``report(s).'' In addition, in Sec.  438.74(a)(2), we propose to 
add language to specify that the information listed as required in the 
summary description must be provided for each MCO, PIHP, or PAHP under 
contract with the State. These changes would specify that States must 
provide MLR information for each managed care plan in their annual 
summary reports to CMS. We propose that States and managed care plans 
would be required to comply with these changes 60 days after the 
effective date of this final rule as we believe these proposals are 
critical for fiscal integrity in Medicaid and CHIP. We considered an 
alternative compliance date of no later than the rating period for MCO, 
PIHP and PAHP contracts beginning on or after 60 days following the 
effective date of the final rule; however, we are concerned this is not 
soon enough. We seek comment on this proposal.
g. Contract Requirements for Overpayments (Sec. Sec.  438.608(a)(2) 
and(d)(3), and 457.1285)
    In the 2016 final rule, we aimed to strengthen State and Medicaid 
and CHIP managed care plan responsibilities to protect against fraud 
and other overpayments in State Medicaid and CHIP programs, in part, by 
enhancing reporting requirements to support actuarial soundness payment 
provisions and program integrity efforts (81 FR 27606). Overpayments 
are defined in Sec.  438.2 as any payment made to a network provider by 
a MCO, PIHP, or PAHP to which the network provider is not entitled 
under Title XIX of the Act or any payment to a MCO, PIHP, or PAHP by a 
State to which the MCO, PIHP, or PAHP is not entitled under Title XIX 
of the Act. These overpayments may be the result of fraud, waste, 
abuse, or other billing errors. Regardless of cause, overpayments 
should be excluded from the capitation rate because they do not 
represent reasonable, appropriate, or attainable costs.
    The 2016 final rule also enhanced the integrity of capitation 
payments, in part, by requiring at Sec.  438.608(d)(3) for Medicaid, 
and included in separate CHIP regulations through an existing cross-
reference at Sec.  457.1285, that State contracts with managed care 
plans include provisions specifying that managed care plans must report 
the recoveries of overpayments annually. This reporting to the State is 
critical to the actuarial soundness of capitation rates because managed 
care plans must exclude overpayments from their incurred claims, which 
is also a key element in the numerator of the MLR calculation. As 
required in Sec.  438.5(b)(5), States must consider Medicaid managed

[[Page 28159]]

care plans' past reported MLR and the projected MLR in the development 
of capitation rates. If a managed care plan's MLR numerator does not 
exclude overpayments, the MLR may be inappropriately inflated. Section 
438.608(d)(4) requires that the State use the results of the 
information and documentation collected under Sec.  438.608(d)(3) for 
setting actuarially sound Medicaid capitation rates consistent with the 
requirements in Sec.  438.4.
    This proposed rule seeks to modify Sec.  438.608(a)(2), which 
requires managed care plan contracts to include a provision for the 
prompt reporting of all overpayments identified or recovered 
(specifying those due to potential fraud) to the State; and Sec.  
438.608(d)(3), which requires managed care plan contracts to include 
annual reports on plan recoveries of overpayments. Both proposed 
changes are included in separate CHIP regulations through an existing 
cross-reference at Sec.  457.1285. The proposed changes aim to ensure 
that Medicaid and CHIP managed care plans report comprehensive 
overpayment data to States in a timely manner, which would better 
position States to execute program integrity efforts and develop 
actuarially sound capitation rates.
Defining ``Prompt'' Reporting (Sec. Sec.  438.608(a)(2) and 457.1285))
    Current regulations at Sec.  438.608(a)(2) require that States 
include a provision in their contracts with managed care plans for the 
prompt reporting to the State of all overpayments identified or 
recovered, specifying the overpayments due to potential fraud. However, 
the term ``prompt'' is not defined. Although a time period is not 
defined, prompt reporting of identified or recovered overpayments is 
important because it can enable a State to expeditiously take action 
against a provider to prevent further inappropriate activity, including 
potential fraud. With prompt reporting of managed care plan 
overpayments, the State is better equipped to identify similar 
overpayments and prevent future overpayments across its networks and 
managed care programs.
    CMS' oversight efforts and other program integrity reviews have 
revealed that States interpret the promptness requirement under Sec.  
438.608(a)(2) inconsistently. For example, some States do not define 
``prompt'' in managed care plan contracts, instead deferring to managed 
care plans' interpretation of the timeframe to report overpayments; 
this lack of definition can result in inconsistent overpayment 
reporting among managed care plans and States. Our reviews also 
revealed that some States do not use a consistent timeframe across 
managed care plan contracts when requiring the reporting of 
overpayments. As a result, managed care plans may not report identified 
or recovered overpayments within a timeframe that enables States to 
effectively and swiftly investigate and take appropriate administrative 
action against providers that may be committing fraudulent activities 
across networks and managed care programs.
    We believe that establishing a uniform definition of the term 
``prompt'' would provide clarity to States and managed care plans, 
thereby enhancing ongoing communication between managed care plans and 
States, particularly as it relates to program integrity practices. 
Therefore, we propose to amend Sec.  438.608(a)(2) for Medicaid, and 
included in separate CHIP regulations through an existing cross-
reference at Sec.  457.1285, to define ``prompt'' as within 10 business 
days of identifying or recovering an overpayment. We believe 10 
business days would provide a managed care plan sufficient time to 
investigate overpayments and determine whether they are due to 
potential fraud or other causes, such as billing errors, and also 
quickly provide the State with awareness to mitigate other potential 
overpayments across its networks and managed care programs. With a 
clear and consistent overpayment reporting requirement, States would be 
better equipped to: direct managed care plans to look for specific 
network provider issues, identify and recover managed care plan and 
fee-for-service claims that are known to be unallowable, take 
corrective actions to correct erroneous billing practices, or consider 
a potential law enforcement referral. We are seeking public comment on 
the proposed 10 business day timeframe and whether reporting should be 
from date of identification or recovery, or instead on a routine basis, 
such as monthly. We propose that States and managed care plans would be 
required to comply with these requirements 60 days after the effective 
date of this final rule as we believe these proposals are critical for 
fiscal integrity in Medicaid and CHIP. We considered an alternative 
effective date of no later than the rating period for contracts with 
MCOs, PIHPs and PAHPs beginning on or after 60 days following the 
effective date of the final rule; however, we do not believe additional 
time is necessary. We seek comment on this proposal.
Identifying Overpayment Reporting Requirements (Sec. Sec.  
438.608(d)(3) and 457.1285)
    The overpayment reporting provisions in 42 CFR part 438, subpart H 
require managed care plans to recover the overpayments they identify, 
and in turn, report those identified overpayments to the State for 
purpose of setting actuarially sound capitation rates. In the 2015 
proposed rule, we stated that ``MCOs, PIHPs, and PAHPs must report 
improper payments and recover overpayments they identify from network 
providers. States must take such recoveries into account when 
developing capitation rates. Therefore, capitation rates that include 
the amount of improper payments recovered by an MCO, PIHP, or PAHP as 
projected costs would not be considered actuarially sound.'' (80 FR 
31119). It was our expectation that ``such recoveries'' include 
recoveries of all identified overpayments. This intent is also 
reflected in Sec.  438.608(a)(2), which states that managed care plans 
must report both ``identified or recovered'' overpayments to the State. 
However, the words ``identified or'' were omitted from the related 
regulatory text at Sec.  438.608(d)(3). Program integrity reviews and 
investigations conducted since the 2016 final rule have found that 
language in Sec.  438.608(d)(3) providing that managed care plans only 
report ``recovered overpayments'' has created an unintentional effect 
of managed care plans' reporting partial overpayment data for 
capitation rate calculations. This omission may have also 
disincentivized managed care plans from investing in the resources 
necessary to recover identified overpayments in the interest of 
maintaining a higher MLR. For example, we have identified instances in 
which managed care plans identified an overpayment, but did not recover 
the entire overpayment from the provider due to negotiating or settling 
the overpayment to a lesser amount. In other cases, managed care plans 
identified an overpayment that was resolved by applying an offset to 
future payments to the provider instead of recovering the full 
overpayment in the impacted rating period. These situations resulted in 
the managed care plans only reporting a relatively small or no 
overpayment recovery amount to the State in the impacted rating period, 
instead of the full amount of the identified overpayment. This 
inconsistent reporting does not reflect our original intent in imposing 
the current requirements in Sec.  438.608(d)(3), and prevents the State 
from accounting

[[Page 28160]]

for the full amount of the identified overpayment in the impacted 
rating period when developing capitation rates as required under Sec.  
438.608(d)(4).
    To address these issues, we propose to revise Sec.  438.608(d)(3) 
for Medicaid and separate CHIP regulations through an existing cross-
reference at Sec.  457.1285, to specify our original intent that any 
overpayment (whether identified or recovered) must be reported by 
Medicaid or CHIP managed care plans to the State. Through this proposed 
change, we believe that managed care plans and States would have more 
consistency in the overpayment reporting requirements at Sec.  
438.608(a)(2) and (d)(3) by requiring reporting to the State all 
overpayments, whether identified or recovered. By ensuring that both 
identified and recovered overpayments are reported, States and CMS 
would be more assured that capitation rates account for only 
reasonable, appropriate, and attainable costs covered under the 
contract. We propose that States and managed care plans would be 
required to comply with these requirements 60 days after the effective 
date of this final rule as we believe these proposals are critical for 
fiscal integrity in Medicaid and CHIP. We considered an alternative 
effective date no later than the rating period for contracts with MCOs, 
PIHPs and PAHPs beginning on or after 60 days following the effective 
date of the final rule; however, we are concerned that is not soon 
enough. We seek comment on this proposal.
h. Reporting of SDPs in the Medical Loss Ratio (MLR) (Sec. Sec.  
438.8(e)(2)(iii) and (f)(2), 438.74, 457.1203(e) and (f))
    Many States are using the authority in Sec.  438.6(c) to direct 
Medicaid managed care plans' payments to certain providers. See section 
I.B.2.e. of this proposed rule for more information. States' increasing 
use of SDP arrangements has been cited as a key area of oversight risk 
for CMS. Several advisory and oversight bodies, including MACPAC, the 
HHS OIG, and GAO, have authored reports focused on CMS oversight of 
SDPs.132 133 134 The scope, size, and complexity of the SDP 
arrangements being submitted by States for approval has also grown 
steadily and quickly. For calendar year 2022, CMS received 298 
preprints from States. In total, as of December 2022, CMS has reviewed 
more than 1,100 SDP proposals and approved 993 proposals since the 2016 
final rule was issued.
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    \132\ https://www.macpac.gov/publication/june-2022-report-to-congress-on-medicaid-and-chip/ June 2022 Report to Congress on 
Medicaid and CHIP, Chapter 2.
    \133\ https://oig.hhs.gov/oas/reports/region6/61807001.asp.
    \134\ https://www.gao.gov/products/gao-22-105731.
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    SDPs also represent a notable amount of spending. MACPAC reported 
that CMS approved SDP arrangements in 37 States, with spending 
exceeding more than $25 billion for SDPs through 2020.\135\ GAO also 
reported that at least $20 billion has been approved by CMS for 
preprints with payments to be made on or after July 1, 2021, across 79 
proposals.\136\
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    \135\ https://www.macpac.gov/wp-content/uploads/2022/06/MACPAC_June2022-WEB-Full-Booklet_FINAL-508-1.pdf.
    \136\ https://www.gao.gov/assets/gao-22-105731.pdf.
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    Under our current review and approval process for SDPs we ask 
States to estimate projected SDP expenditures, but we do not review the 
actual amounts that States provide to Medicaid managed care plans for 
these payment arrangements, and we do not review the actual amounts 
that Medicaid managed care plans pay to providers. We retrospectively 
review SDP actual amounts as part of State-level MLR reviews and in-
depth reviews of State expenditures where Federal dollars are at risk, 
known as Financial Management Reviews; however, these reviews are 
limited to only a few States each year. We do not conduct other formal 
retrospective reviews of actual SDP expenditures. Thus, we rarely 
confirm with States that SDP actual spending amounts were reasonably 
consistent with the CMS-approved estimated amounts. Instead, we require 
States to provide the estimated total payment amounts for these 
arrangements as part of the current approval process. We are also aware 
that some States are permitting managed care plans to retain a portion 
of SDPs for administrative costs when plans make these payments to 
providers. Because States are not required to provide the actual 
expenditures associated with these arrangements in any separate or 
identifiable way, we cannot determine exactly how much is being paid 
under these arrangements and whether Federal funds are at risk for 
impermissible or inappropriate payment.
    We propose new reporting requirements for Medicaid SDPs in 
Sec. Sec.  438.8 and 438.74 to align with the reporting that is 
currently required for Medicaid FFS supplemental payments. CMS FFS 
supplemental payment guidance notes that ``[i]nformation about all 
supplemental payments under the State plan and under demonstration is 
necessary to provide a full picture of Medicaid payments.'' \137\ While 
States must provide CMS with the amounts for FFS supplemental payments, 
there is no requirement for States or managed care plans to provide 
actual payment data separately for SDPs. Implementing a new requirement 
for both State and managed care plan reporting of actual SDP 
expenditures would support CMS oversight activities to better 
understand provider-based payments across delivery systems.
---------------------------------------------------------------------------

    \137\ https://www.medicaid.gov/federal-policy-guidance/downloads/smd21006.pdf.
---------------------------------------------------------------------------

    To address the need for additional information on the actual 
amounts paid as SDPs, we propose to require Medicaid managed care plans 
to include SDPs and associated revenue as separate lines in the MLR 
reports required at Sec.  438.8(k). The managed care MLR reporting 
requirements at Sec.  438.8(k) were codified in the 2016 final rule, 
and States have substantial experience in obtaining and reviewing MLR 
reports from their managed care plans. To date, our MLR guidance has 
not addressed the inclusion of SDPs in the MLR; this proposal would 
specify these requirements by amending Sec.  438.8(k) to ensure that 
Medicaid SDPs would be separately identified in annual MLR reporting.
    Specifically, at Sec.  438.8(e)(2)(iii)(C), we propose to require 
that managed care plan expenditures to providers that are directed by 
the State under Sec.  438.6(c), including those that do and do not 
require prior CMS approval, must be included in the MLR numerator. In 
Sec.  438.8(f)(2)(vii), we propose to require that State payments made 
to Medicaid MCOs, PIHPs, or PAHPs for approved arrangements under Sec.  
438.6(c) be included in the MLR denominator as premium revenue. We 
propose that States and managed care plans are required to comply with 
these changes in Sec.  438.8(e)(2)(iii)(C) and (f)(2)(vii) 60 days 
after the effective date of the final rule as we believe these 
proposals are critical for fiscal integrity in Medicaid. We considered 
an alternative compliance date of no later than the rating period for 
contracts with MCOs, PIHPs and PAHPs beginning on or after 60 days 
following the effective date of the final rule; however, we are 
concerned this is not soon enough, given the fiscal integrity risks 
that are involved. We seek comment on this proposal.
    We also propose to require that the managed care plans' MLR reports 
to States as required in Sec.  438.8(k) include two additional line 
items. The first item at Sec.  438.8(k)(1)(xiv) requires reporting of 
Medicaid managed care plan

[[Page 28161]]

expenditures to providers that are directed by the State under Sec.  
438.6(c). The second item at Sec.  438.8(k)(1)(xv) requires reporting 
of Medicaid managed care plan revenue from the State to make these 
payments. We propose, in Sec.  438.8(k)(xvi), that States and managed 
care plans would be required to comply with Sec.  438.8(k)(1)(xiv) and 
(xv) no later than the first rating period for contracts with MCOs, 
PIHPs, and PAHPs beginning on or after the effective date of the final 
rule. We considered an alternative effective date where States and plan 
would comply with these requirements 60 days after the effective date 
of this final rule. However, we were concerned this may not be a 
reasonable timeframe for compliance as the new reporting requirements 
may require State and managed care plans to make changes to financial 
reporting systems and processes. We seek public comment on this 
proposal.
    For separate CHIPs, we do not propose to adopt the new reporting 
requirements at Sec.  438.8(k)(1)(xiv) and (xv) because SDPs are not 
applicable to separate CHIP managed care plans. For this reason, we 
propose to amend Sec.  457.1203(f) to exclude any references to SDPs 
for managed care plan MLR reporting. For clarity, we also propose to 
make a technical change at Sec.  457.1203(f) to include the word ``in'' 
before the cross-reference to Sec.  438.8.
    To assist in CMS oversight of these arrangements, the plan-level 
SDP expenditure reporting should be reflected in States' annual summary 
MLR reports to CMS. As part of States' annual summary MLR reporting 
that is required under Sec.  438.74, we propose to require two 
additional line items. The first item at Sec.  438.74(a)(3)(i) requires 
State reporting of the amount of payments made to providers that direct 
Medicaid MCO, PIHP, or PAHP expenditures under Sec.  438.6(c). The 
second item at Sec.  438.74(a)(3)(ii) requires State reporting of the 
amount of payments, including amounts included in capitation payments, 
that the State makes to Medicaid MCOs, PIHPs, or PAHPs for approved 
SDPs under Sec.  438.6(c). We propose, in Sec.  438.74(a)(4), that 
States would be required to comply with Sec.  438.74(a)(3) no later 
than the rating period for contracts with MCOs, PIHPs, and PAHPs 
beginning on or after 60 days following the effective date of the final 
rule as we believe this is a reasonable timeframe for compliance. We 
considered an alternative effective date where States would comply with 
the new requirement 60 days after the effective date of this final 
rule. However, we were concerned this may not be a reasonable timeline 
for compliance as these changes may require States to make changes to 
financial reporting systems and processes. We seek public comment on 
this proposal.
    We do not propose to adopt the new SDP reporting requirements for 
separate CHIPs at Sec.  438.74 since expenditures under Sec.  438.6(c) 
are not applicable to separate CHIP managed care plans. However, since 
existing separate CHIP regulations at Sec.  457.1203(e) currently 
cross-reference to the reporting requirements at Sec.  438.74, we 
propose to amend Sec.  457.1203(e) to exclude any references to SDPs in 
State MLR reporting.
    While some managed care plans and States may oppose these proposals 
as increasing administrative burden, we believe that the increased 
transparency associated with these enhanced standards would benefit 
both State and Federal government oversight of SDPs. Implementing these 
new requirements for both State and managed care plan reporting of 
actual SDP expenditures would support CMS' understanding of provider-
based payment across delivery systems.
4. In Lieu of Services and Settings (ILOSs) (Sec. Sec.  438.2, 438.3, 
438.7, 438.16, 438.66, 457.1201, 457.1207)
a. Overview of ILOS Requirements (Sec. Sec.  438.2, 438.3(e), 438.16, 
457.1201(e))
    In the 2016 final rule, we finalized Sec.  438.3(e) for Medicaid, 
which was included in separate CHIP regulations through cross-reference 
at Sec.  457.1201(e), and specified in Sec.  438.3(e)(2) that managed 
care plans have flexibility under risk contracts to provide a 
substitute service or setting for a service or setting covered under 
the State plan, when medically appropriate and cost effective, to 
enrollees at the managed care plan and enrollee option (81 FR 27538 and 
27539). A substitute service or setting provided in lieu of a covered 
State plan service or setting under these parameters is known as an 
``in lieu of service or setting'' (ILOS). In the 2015 notice of 
proposed rulemaking, we stated that, under risk contracts, managed care 
plans have historically had the flexibility to offer an ILOS that meets 
an enrollee's needs (80 FR 31116). Within the 2016 final rule, we 
clarified that this ILOS authority continues to exist for States and 
managed care plans, subject to Sec.  438.3(e)(2). We believe ILOS 
authority is inherent in a risk contract in accordance with section 
1903(m)(2)(A) of the Act which addresses risk-based capitation 
payments, which are defined in Sec.  438.2. Additionally, we rely on 
the authority in section 1902(a)(4) of the Act to establish methods for 
proper and effective operations in Medicaid with respect to PIHPs and 
PAHPs. ILOSs are incorporated into the applicable States' contracts 
with its managed care plans and associated capitation rates, and are 
subject to CMS review and approval in accordance with Sec.  438.3(a) 
and Sec.  438.7(a) respectively.
    ILOSs are utilized by States and their managed care plans to 
strengthen access to, and availability of, covered services and 
settings, or reduce or prevent the need for covered services and 
settings. As outlined in the guidance issued on January 7, 2021 \138\ 
and January 4, 2023 \139\ respectively, ILOSs can be an innovative 
option States may consider employing in Medicaid and CHIP managed care 
programs to address social determinants of health (SDOHs) and health-
related social needs (HRSNs). The use of ILOSs can also improve 
population health, reduce health inequities, and lower overall health 
care costs in Medicaid. We further believe that ILOSs can be used, at 
the option of the managed care plan and the enrollee, as immediate or 
longer term substitutes for State plan-covered services and settings, 
or when the ILOSs can be expected to reduce or prevent the future need 
to utilize the State plan-covered services and settings. The 
investments and interventions implemented through ILOSs may also offset 
potential future acute and institutional care, and improve quality, 
health outcomes, and enrollee experience. For example, offering 
medically tailored meals as an ILOS may improve health outcomes and 
facilitate greater access to care to HCBS, thereby preventing or 
delaying enrollees' need for nursing facility care. We encourage 
managed care plans to leverage existing State and community level 
resources, including through contracting with community-based 
organizations and other providers that are already providing such 
services and settings and that have expertise working with Medicaid and 
CHIP enrollees. We believe there is a great deal of State and managed 
care plan interest in utilizing ILOSs to help address many of the unmet 
physical, behavioral, developmental, long-term care, and other needs of 
Medicaid and CHIP enrollees. We expect that States' and managed care 
plans' use of ILOSs, as well as associated Federal expenditures for 
these services and settings, will

[[Page 28162]]

continue to increase. We acknowledge that ILOSs can offer many benefits 
for enrollees, but we also believe it is necessary to ensure adequate 
assessment of these substitute services and settings prior to approval, 
and ongoing monitoring for appropriate utilization of ILOSs and 
beneficiary protections. Additionally, we believe there must be 
appropriate fiscal protections and accountability of expenditures on 
these ILOSs which are alternative services and settings not covered in 
the State plan. Therefore, we propose to revise the regulatory 
requirements for ILOSs to specify the nature of the ILOSs that can be 
offered and ensure appropriate and efficient use of Medicaid and CHIP 
resources, and that these investments advance the objectives of the 
Medicaid and CHIP programs.
---------------------------------------------------------------------------

    \138\ https://www.medicaid.gov/federal-policy-guidance/downloads/sho21001.pdf.
    \139\ https://www.medicaid.gov/federal-policy-guidance/downloads/smd23001.pdf.
---------------------------------------------------------------------------

    To ensure clarity on the use of the term ``in lieu of service or 
setting'' and the associated acronym ``ILOS,'' we propose to add a 
definition in Sec.  438.2 for Medicaid to define an ``in lieu of 
service or setting (ILOS)'' as a service or setting that is provided to 
an enrollee as a substitute for a covered service or setting under the 
State plan in accordance with Sec.  438.3(e)(2) and acknowledge that an 
ILOS can be used as an immediate or longer term substitute for a 
covered service or setting under the State plan, or when the ILOS can 
be expected to reduce or prevent the future need to utilize State plan-
covered service or setting. For separate CHIP, we propose to align by 
adding ``In lieu of service or setting (ILOS) is defined as provided in 
Sec.  438.2 of this chapter'' to the definitions at Sec.  457.10. Given 
this proposed definition and associated acronym, we also propose 
several conforming changes in Sec.  438.3(e)(2). We propose to revise 
Sec.  438.3(e)(2) to remove ``services or settings that are in lieu of 
services or settings covered under the State plan'' and replace it with 
``an ILOS''. We propose to revise Sec.  438.3(e)(2)(i) and (ii) to 
remove ``alternative service or setting'' and replace it with ``ILOS.'' 
In Sec.  438.3(e)(2)(iii), we propose to remove ``in lieu of services'' 
and replace it with ``ILOS is'', and remove the ``and'' at the end of 
this requirement given new requirements that will be proposed. We 
propose to revise Sec.  438.3(e)(2)(iv) to remove ``in lieu of services 
are'' and replace it with ``the ILOS is, and add the term ``and 
settings'' after ``covered State plan covered services'' to accurately 
reflect that ILOSs are substitute services and settings for State plan 
services and settings. Additionally, we added an ``and'' at the end of 
this requirement given a new proposed addition of Sec.  438.3(e)(2)(v) 
that is described later in this section. The proposed changes at Sec.  
438.3(e) are equally applicable to separate CHIP managed care plan 
contract requirements through the existing cross-reference at Sec.  
457.1201(e).
    Because we are making numerous proposals related to ILOSs, we 
believe adding a cross reference in Sec.  438.3(e)(2)(v) to a new 
section would make it easier for readers to locate all of the 
provisions in one place and the designation flexibility of a new 
section would enable us to better organize the provisions for 
readability. To do this, we propose to create a new Sec.  438.16 titled 
ILOS requirements for Medicaid, and we propose to amend Sec.  
457.1201(c) and (e) to include cross-references to Sec.  438.16 to 
adopt for separate CHIP. Our proposals in Sec.  438.16 would be based 
on several key principles, described in further detail in sections 
I.B.4.b. through I.B.4.h. of this proposed rule. These principles 
include that ILOSs would have to: (1) meet general parameters; (2) be 
provided in a manner that preserves enrollee rights and protections; 
(3) be medically appropriate and cost effective substitutes for State 
plan services and settings, (4) be subject to monitoring and oversight; 
and (5) undergo a retrospective evaluation, when applicable. We also 
propose parameters and limitations for ILOSs, including our proposed 
requirements for ILOSs to be appropriately documented in managed care 
plan contracts and considered in the development of capitation rates, 
and our proposed risk-based approach for State documentation and 
evaluation requirements of any managed care plan contracts that include 
ILOSs. CMS intends to continue our review of ILOSs as part of our 
review of the States' managed care plan contracts in accordance with 
Sec.  438.3(a), and associated capitation rates in accordance with 
Sec.  438.7(a). CMS has the authority to deny approval of any ILOS that 
does not meet standards in regulatory requirements, and thereby does 
not advance the objectives of the Medicaid program, as part of our 
review of the associated Medicaid managed care plan contracts and 
capitation rates.
    We acknowledge that one of the most commonly utilized ILOSs is 
inpatient mental health or substance use disorder treatment provided 
during a short term stay (no more than 15 days during the period of the 
monthly capitation payment) in an institution for mental diseases 
(IMD). Due to the statutory limitation on coverage of services provided 
in an IMD in accordance with language in section 1905(a) of the Act 
following section 1905(a)(30) of the Act, our ability to permit States 
to make a monthly Medicaid capitation payment for an enrollee who 
receives services in an IMD is limited as outlined in Sec.  438.6(e), 
and uniquely based on the nature of risk-based payment (see 80 FR 31116 
for further details on this policy). Other than as an ILOS, in 
accordance with Sec. Sec.  438.3(e)(2) and 438.6(e), FFP is not 
available for any medical assistance under Title XIX for services 
provided to an individual, ages 21 to 64, who is a patient in an IMD 
facility. We are not proposing changes regarding the coverage of short 
term stays in an IMD as an ILOS, or payments to MCOs and PIHPs for 
enrollees who are a patient in an IMD in Sec.  438.6(e) (see 81 FR 
27555 through 27563 for further details on the existing policy). In 
acknowledgement of the unique parameters necessary for coverage of 
services provided in IMDs as an ILOS, given the statutory limitations, 
we do not believe Sec.  438.16 should apply to a short term IMD stay as 
an ILOS. For example, a short term stay in an IMD as an ILOS is 
excluded from the calculation for an ILOS cost percentage, described in 
further detail in section I.B.4.b. of this proposed rule, as the costs 
of a short term IMD stay must not be used in rate development given the 
statutory limitation, and instead States must use the unit costs of 
providers delivering the same services included in the State plan as 
required in Sec.  438.6(e). Additionally, as described in Sec.  
438.6(e), States may only make a monthly capitation payment to an MCO 
or PIHP for an enrollee aged 21 to 64 receiving inpatient treatment in 
an IMD when the length of stay in an IMD is for a short term stay of no 
more than 15 days during the period of the monthly capitation payment. 
Therefore, we propose to add Sec.  438.3(e)(2)(v) to explicitly provide 
an exception from the applicability of Sec.  438.16 for short term 
stays, as specified in Sec.  438.6(e), for inpatient mental health or 
substance use disorder treatment in an IMD. This proposal does not 
replace or alter existing Federal requirements and limitations 
regarding the use of short term IMD stays as an ILOS, or the 
availability of FFP for capitation payments to MCOs and PIHPs for 
enrollees who utilize an IMD.
    We do not propose to adopt the IMD exclusion for separate CHIP 
since there are no similar payment restrictions for stays in an IMD in 
separate CHIP. As long as a child is not applying for or renewing their 
separate CHIP coverage while a resident of an IMD, the child remains 
eligible for separate CHIP and any covered State plan services or ILOSs 
while in an IMD consistent with the

[[Page 28163]]

requirements of Sec.  457.310(c)(2)(ii). For this reason, we propose to 
amend Sec.  457.1201(e) to exclude references to IMDs in the cross-
reference to Sec.  438.3(e).
    States and managed care plans will continue to be obligated to 
comply with other applicable Federal requirements for all ILOS, 
including short term IMD stays. This includes, but is not limited to, 
those requirements outlined in Sec. Sec.  438.3(e)(2), 438.6(e), and 
438.66. As required in Sec.  438.66(a) through (c), States must 
establish a system to monitor performance of their managed care 
programs. When ILOSs are included in a managed care plan's contract, 
they too must be part of the State's monitoring activities. As part of 
such monitoring, States must ensure that all ILOSs, including short 
term stays in an IMD, are medically appropriate, cost effective, and at 
the option of the enrollee and managed care plan.
b. ILOS General Parameters (Sec. Sec.  438.16(a) Through (d), 
457.1201(c) and (e))
    We believe ILOSs can give States and managed care plans 
opportunities to strengthen access to care, address unmet needs of 
Medicaid and CHIP enrollees, and improve the health of Medicaid and 
CHIP beneficiaries. However, we believe it is necessary to implement 
appropriate Federal protections to ensure the effective and efficient 
use of Medicaid and CHIP resources, particularly since these services 
and settings are not State plan-covered services and settings furnished 
under managed care plan contracts, and we rely on the authority in 
sections 1902(a)(4) and 2101(a) of the Act to establish methods for 
proper and effective operations in Medicaid and CHIP respectively. 
Therefore, to ensure States and managed care plans utilize ILOSs 
effectively and in a manner that best meets the needs of the enrollees 
as well as that related Federal expenditures are reasonable and 
appropriate, we propose several key requirements in Sec.  438.16.
    We believe that a limitation on the types of substitute services or 
settings that can be offered as an ILOS would be a key protection to 
ensure an ILOS is an appropriate and efficient use of Medicaid and CHIP 
resources, and we believe this is a reasonable method to ensure proper 
and effective operations in Medicaid and CHIP in accordance with 
authority in sections 1902(a)(4) and 2101(a) of the Act, respectively. 
We believe that the services and settings that could be provided as an 
ILOS should be consistent with the services and settings that could be 
authorized under the Medicaid or CHIP State plan or a program 
authorized through a waiver under section 1915(c) of the Act. As 
further described in section I.B.4.a. of this proposed rule, we believe 
the only Medicaid exception should be a short term stay in an IMD for 
the provision of inpatient mental health or substance use disorder 
treatment, which already has appropriate safeguards per requirements 
outlined in Sec.  438.6(e). Therefore, we propose to require in Sec.  
438.16(b) that an ILOS must be approvable as a service or setting 
through a State plan amendment, including sections 1905(a), 1915(i), or 
1915(k) of the Act, or a waiver under section 1915(c) of the Act. For 
example, personal care homemaker services are approvable as a covered 
service in a waiver under section 1915(c) of the Act, and would be an 
approvable ILOS if it is a medically appropriate and cost effective 
substitute for a service or setting covered under the State plan.
    For separate CHIP, we similarly propose that ILOSs must be 
consistent with services and settings approvable under sections 2103(a) 
through (c), 2105(a)(1)(D)(ii), and 2110(a) of the Act as well as the 
services and settings identified in Sec.  438.16(b). For this reason, 
we propose to adopt the requirements proposed at Sec.  438.16(b) by 
amending Sec.  457.1201(e) to include a new cross-reference to Sec.  
438.16(b). We also remind States that the use of an ILOS does not 
absolve States and managed care plans of their responsibility to comply 
with other Federal requirements. States must ensure that contracts with 
managed care plans comply with all applicable Federal and State laws 
and regulations in accordance with Sec. Sec.  438.3(f) and 457.1201(f). 
For example, with the exception of short term IMD stays as described in 
section I.B.4.a. of this proposed rule, ILOSs must adhere to general 
prohibitions on payment for room and board under Title XIX of the Act. 
Additionally, States and managed care plans must ensure access to 
emergency services in accordance with the Emergency Medical Treatment 
and Labor Act and compliance with the Americans with Disabilities Act 
and Section 504 of the Rehabilitation Act. Moreover, consistent with 
Sec.  438.208(c)(3), States must comply with person-center planning 
requirements as applicable.
    Because ILOSs are provided as substitutes for State plan-covered 
services and settings, we believe that we have an obligation to ensure 
appropriate fiscal protections for Medicaid and CHIP investments in 
ILOSs, and that there should be a limit on the amount of expenditures 
for ILOSs to increase accountability, reduce inequities in the services 
and settings available to beneficiaries across managed care and fee-
for-service delivery systems, and ensure enrollees receive State plan-
covered services and settings. We rely on the authority in section 
1902(a)(4) of the Act to establish methods for proper and efficient 
operations in Medicaid and section 2101(a) of the Act for establishing 
efficient and effective health assistance in CHIP. To determine a 
reasonable limit on expenditures for ILOSs, we propose to limit 
allowable ILOS costs to a portion of the total costs for each managed 
care program that includes ILOS(s), hereinafter referred to as an ILOS 
cost percentage. States claim FFP for the capitation payments they make 
to managed care plans. Capitation payments are based on the actuarially 
sound capitation rates as defined in Sec.  438.2, for Medicaid, and 
rates are developed with ``actuarially sound principles'' as required 
for separate CHIP at Sec.  457.1203(a). The utilization and cost 
associated with ILOSs are accounted for in the development of Medicaid 
and separate CHIP capitation rates in accordance with Sec. Sec.  
438.3(e)(2)(iv) and 457.1201(e) respectively. Therefore, we propose in 
Sec.  438.16(c), that the ILOS cost percentage must be calculated based 
on capitation rates and capitation payments as outlined in further 
detail in this section. In section I.B.2.l. of this proposed rule, CMS 
proposes requirements for State directed payments as a separate payment 
term, and we also believe these costs should be accounted for in the 
denominator of the ILOS cost percentage as these are payments made by 
the State to the managed care plans. The reporting requirements in this 
proposal are authorized by sections 1902(a)(6) and 2107(b)(1) of the 
Act which require that States provide reports, in such form and 
containing such information, as the Secretary may from time to time 
require.
    Given that actuarially sound capitation rates are developed 
prospectively based on historical utilization and cost experience, as 
further defined in Sec.  438.5, we believe that an ILOS cost percentage 
and associated expenditure limit should be measured both on a projected 
basis when capitation rates are developed and on a final basis after 
capitation payments are made by States to the managed care plans. 
Therefore, we propose to define both a ``projected ILOS cost 
percentage'' and ``final ILOS cost percentage'' in Sec.  438.16(a) as 
the amounts for each managed care program that includes ILOS(s) using 
the calculations proposed in Sec.  438.16(c)(2)

[[Page 28164]]

and (3), respectively. Additional details on these percentages are 
provided later in this section. We also believe the projected ILOS cost 
percentage and final ILOS cost percentage should be measured distinctly 
for each managed care program as capitation rates are typically 
developed by program, ILOSs available may vary by program, and each 
managed care program may include differing populations, benefits, 
geographic areas, delivery models, or managed care plan types. For 
example, one State may have a behavioral health program that covers 
care to most Medicaid beneficiaries through PIHPs, a physical health 
program that covers physical health care to children and pregnant women 
through MCOs, and a program that covers physical health and MLTSS to 
adults with a disability through MCOs. Another State may have several 
different managed care programs that serve similar populations and 
provide similar benefits through MCOs, but the delivery model and 
geographic areas served by the managed care programs vary. We addressed 
managed care program variability within the 2016 final rule when we 
noted that ``This clarification in the regulatory text to reference 
``managed care program'' in the regulatory text is to recognize that 
States may have more than one Medicaid managed care program--for 
example physical health and behavioral health . . .'' (81 FR 27571). 
Therefore, we do not believe it would be consistent with our intent to 
develop an ILOS cost percentage by aggregating data from more than one 
managed care program since that would be inconsistent with rate 
development, the unique elements of separate managed care programs, and 
the ILOSs elements (target populations, allowable provider types, etc.) 
that vary by managed care program. Developing the ILOS cost percentage 
by managed care program would further ensure appropriate fiscal 
safeguards for each managed care program that includes ILOS(s). We 
believe 5 percent is a reasonable limit on ILOS expenditures because it 
is high enough to ensure that ILOSs would be used effectively to 
achieve their intended purpose, but still low enough to ensure 
appropriate fiscal safeguards. This proposed 5 percent limit would be 
similar to incentive arrangements at Sec.  438.6(b), which limits total 
payment under contracts with incentive arrangements to 105 percent of 
the approved capitation payments attributable to the enrollees or 
services covered by the incentive arrangement. In Sec.  438.6(b)(2), we 
note that total payments in excess of 105 percent will not be 
actuarially sound. We believe this existing limitation for incentive 
arrangements allows States to design and motivate quality and outcome-
based initiatives while also maintaining fiscal integrity. We believe a 
similar threshold would be necessary and appropriate for ILOSs. 
Therefore, we propose, at Sec.  438.16(c)(1)(i), to require that the 
projected ILOS cost percentage could not exceed 5 percent and the final 
ILOS cost percentage could not exceed 5 percent.
    For separate CHIP, we require States at Sec.  457.1203(a) to 
develop capitation rates consistent with actuarially sound principles, 
but at Sec.  457.1203(b) we allow for States to establish higher 
capitation rates if necessary to ensure sufficient provider 
participation or provider access or to enroll providers who demonstrate 
exceptional efficiency or quality in the provision of services. While 
we do not impose a similar limit for incentive arrangements in separate 
CHIP capitation rates as we do for Medicaid capitation rates, we wish 
to align with Medicaid in limiting projected and final ILOS cost 
percentages to 5 percent of capitation payments for separate CHIPs. For 
this reason, we propose to amend Sec.  457.1203(b) to adopt 5 percent 
ILOS cost percentage limits by amending Sec.  457.1201(c) to include a 
new cross-reference to Sec.  438.16(c)(1).
    We also propose, in Sec.  438.16(c)(1)(ii), that the State's 
actuary would have to calculate the projected ILOS cost percentage and 
final ILOS cost percentage on an annual basis and recalculate these 
projections annually to ensure consistent application across all States 
and managed care programs. Furthermore, to ensure that the projected 
ILOS cost percentage and final ILOS cost percentage would be developed 
in a consistent manner with how the associated ILOS costs would be 
included in rate development, we propose at Sec.  438.16(c)(1)(iii) to 
require that the projected ILOS cost percentage and the final ILOS cost 
percentage would have to be certified by an actuary and developed in a 
reasonable and appropriate manner consistent with generally accepted 
actuarial principles and practices. An ``actuary'' is defined in Sec.  
438.2 as an individual who meets the qualification standards 
established by the American Academy of Actuaries for an actuary and 
follows the practice standards established by the Actuarial Standards 
Board, and who is acting on behalf of the State to develop and certify 
capitation rates. Therefore, we believe that the actuary that would 
certify the projected and final ILOS cost percentages should be the 
same actuary that developed and certified the capitation rates that 
included ILOS(s). For separate CHIP, we do not require actuarial 
certification of capitation rates and are not adopting the requirement 
at Sec.  438(c)(1)(iii). We propose to amend Sec.  457.1201(c) to 
exclude requirements for certification by an actuary. However, we 
remind States that separate CHIP rates must be developed using 
``actuarially sound principles'' in accordance with Sec.  457.1203(a).
    We propose at Sec.  438.16(c)(2), that the projected ILOS cost 
percentage would have to be calculated by dividing the portion of the 
total capitation payments that would be attributable to all ILOSs, 
excluding short term stays in an IMD as specified in Sec.  438.6(e), 
for each managed care program (numerator) by the projected total 
capitation payments for each managed care program, including all State 
directed payments in effect under Sec.  438.6(c) and pass-through 
payments in effect under Sec.  438.6(d), and the projected total State 
directed payments that are paid as a separate payment term as described 
in Sec.  438.6(c)(6) (denominator). We also propose, at Sec.  
438.16(c)(3), that the final ILOS cost percentage would have to be 
calculated by dividing the portion of the total capitation payments 
that is attributable to all ILOSs, excluding a short term stay in an 
IMD as specified in Sec.  438.6(e), for each managed care program 
(numerator) by the actual total capitation payments for each managed 
care program, including all State directed payments in effect under 
Sec.  438.6(c) and pass-through payments in effect under Sec.  
438.6(d), and the actual total State directed payments that are paid as 
a separate payment term as described in Sec.  438.6(c)(6) 
(denominator). We believe these proposed numerators and denominators 
for the projected and final ILOS cost percentages would be an accurate 
measurement of the projected and final expenditures associated with 
ILOSs and total program costs in each managed care program in a risk-
based contract. For separate CHIP, we propose to align with the 
projected and final ILOS cost percentage calculations by amending Sec.  
457.1201(c) to include cross-references to Sec.  438.16(c)(2) through 
(3). However, since pass-through payments and State directed payments 
are not applicable to separate CHIP, we propose to exclude all 
references to pass-through payments and State directed payments at 
Sec.  457.1201(c).
    We considered proposing that the actual expenditures of the managed 
care plans for ILOSs and total managed care program costs, tied to 
actual paid amounts in encounter data, be the numerator and denominator 
for the final

[[Page 28165]]

ILOS cost percentage. However, we determined this would be inconsistent 
with how States claim FFP for capitation payments in a risk contract 
(based on the actuarially sound capitation rates as defined in Sec.  
438.2 for each managed care program, rather than on the actual plan 
costs for delivering ILOSs based on claims and encounter data 
submitted). Consistent with all services and settings covered under the 
terms of the managed care plans' contracts, we acknowledge the actual 
plan experience will inform prospective rate development in the future, 
but it is an inconsistent measure for limiting ILOS expenditures 
associated with FFP retroactively. We believe expenditures for short 
term stays in an IMD would have to be excluded from the numerator of 
these calculations as they are excluded from the proposed requirements 
outlined in Sec.  438.16. We also believe the denominator of these 
calculations should include all State directed payments and pass-
through payments that are included into capitation rates as outlined in 
Sec.  438.6(c) and (a) respectively. It is necessary to include these 
State directed payments and pass-through payments to ensure that the 
projected and final expenditures would accurately reflect total 
capitation payments.
    We believe the projected ILOS cost percentage should be included in 
the rate certification for each managed care program that includes 
ILOS(s) and any subsequent revised rate certification (for example, 
rate amendment) as applicable, such as those that change the ILOSs 
offered, capitation rates, pass-through payments and/or State directed 
payments. As previously described in this section, we propose at Sec.  
438.16(c)(1)(iii) that the actuary who certifies the projected ILOS 
cost percentage would have to be the same actuary who develops and 
certifies the associated Medicaid capitation rates and the State 
directed payments paid as a separate payment term (see section I.B.2.l. 
of this proposed rule for details on this proposal for separate payment 
terms). We also believe that including this percentage within the rate 
certification would reduce administrative burden for States and 
actuaries while also ensuring consistency between how this percentage 
would be calculated and how ILOS costs would be accounted for in rate 
development. Therefore, we propose to require, at Sec.  
438.16(c)(5)(i), that States annually submit to CMS for review the 
projected ILOS cost percentage for each managed care program as part of 
the Medicaid rate certification required in Sec.  438.7(a). For 
separate CHIP, we do not require actuarial certification of capitation 
rates or review by CMS, and for this reason we do not adopt the new 
requirement proposed at Sec.  438.16(c)(5)(i) for separate CHIP.
    As the proposed denominator for the final ILOS cost percentage, in 
Sec.  438.16(c)(3)(i), would be based on the actual total capitation 
payments and the State directed payments paid as a separate payment 
term (see section I.B.2.l. of this proposed rule for details on this 
proposal for separate payment terms) paid by States to managed care 
plans, we recognize that calculating the final ILOS cost percentage 
would take States and actuaries some time. For example, changes to the 
eligibility file and revised rate certifications for rate amendments 
may impact the final capitation payments that are a component of the 
calculation. We also believe documentation of the final ILOS cost 
percentage is a vital component of our monitoring and oversight as it 
would ensure that the expenditures for ILOSs comply with the proposed 5 
percent limit; and therefore, must be submitted timely. Given these 
factors, we believe that 2 years is an adequate amount of time to 
accurately perform the calculation. Therefore, we propose, at Sec.  
438.16(c)(5)(ii), to require that States must submit the final ILOS 
cost percentage report to CMS with the rate certification for the 
rating period beginning 2 years after the completion of each 12-month 
rating period that included an ILOS(s). Under this proposal, for 
example, the final ILOS cost percentage report for a managed care 
program that uses a calendar year 2024 rating period would be submitted 
to CMS with the calendar year 2027 rate certification. For separate 
CHIP, we do not require review of capitation rates by CMS and do not 
propose to adopt the requirements at Sec.  438.16(c)(5)(ii) for 
separate CHIP.
    We considered requiring the final ILOS cost percentage be submitted 
to CMS within 1 year after the completion of the rating period that 
included ILOS(s) to receive this data in a more timely fashion. 
However, we were concerned this may not be adequate time for States and 
actuaries given the multitude of factors described previously in this 
section. We request comment on whether our assumption that 1 year is 
inadequate is correct.
    We also believe that it is appropriate for States' actuaries to 
develop a separate report to document the final ILOS cost percentage, 
rather than including it in a rate certification, because the final 
ILOS cost percentage may require alternate data compared to the base 
data that were used for prospective rate development, given the timing 
of base data requirements as outlined in Sec.  438.5(c)(2). However, 
this final ILOS cost percentage could provide details that should 
inform prospective rate development, such as through an adjustment 
outlined in Sec.  438.5(b)(4), so we believe it should be submitted 
along with the rate certification. We note that this proposal is 
similar to the concurrent submission necessary for the MLR reporting at 
Sec.  438.74. We considered proposing that States submit this report 
separately to CMS upon completion. However, we believe there should be 
consistency across States for when this report is submitted to CMS for 
review, and we believe receiving this report and the rate certification 
at the same time would enable CMS to review them concurrently. For 
these reasons, we propose, at Sec.  438.16(c)(5)(ii), to require that 
States submit the final ILOS cost percentage annually to CMS for review 
as a separate report concurrent with the rate certification submission 
required in Sec.  438.7(a). We intend to issue additional guidance on 
the standards and documentation requirements for this report. For 
separate CHIP, we do not require review of capitation rates by CMS and 
do not propose to adopt the requirements at Sec.  438.16(c)(5)(ii) for 
separate CHIP.
    We believe there must be appropriate transparency on the managed 
care plan costs associated with delivering ILOSs to aid State oversight 
and monitoring of ILOSs, and to ensure proper and effective operations 
in Medicaid in accordance with authority in section 1902(a)(4) of the 
Act. Therefore, we propose, in Sec.  438.16(c)(4), that States provide 
to CMS a summary report of the actual managed care plan costs for 
delivering ILOSs based on claims and encounter data provided by the 
managed care plans to States. We also believe this summary report 
should be developed concurrently and consistently with the final ILOS 
cost percentage to ensure appropriate fiscal safeguards for each 
managed care program that includes ILOS(s). We believe this summary 
report should be developed for each managed care program consistent 
with the rationale described in section I.B.4.b. of this proposed rule 
for developing the ILOS cost percentage for each managed care program. 
Therefore, in Sec.  438.16(a), we propose to define a ``summary report 
for actual MCO, PIHP and PAHP ILOS costs'' and propose that this 
summary report be calculated for each managed

[[Page 28166]]

care program that includes ILOSs. We also propose, in Sec.  
438.16(c)(1)(ii), that this summary report be calculated on an annual 
basis and recalculated annually. We propose, in Sec.  
438.16(c)(1)(iii), that this summary report be certified by an actuary 
and developed in a reasonable and appropriate manner consistent with 
generally accepted actuarial principles and practices. Finally, we 
propose, in Sec.  438.16(c)(5)(ii), that this summary report be 
submitted to CMS for review within the actuarial report that includes 
the final ILOS cost percentage. For separate CHIP, we do not require 
similar actuarial reports and do not propose to adopt the annual ILOS 
cost report requirements by excluding references to them at Sec.  
457.1201(c).
    To balance States' administrative burden with ensuring fiscal 
safeguards and enrollee protections related to ILOSs, we believe it 
would be appropriate to use a risk-based approach for States' 
documentation and evaluation requirements. This proposed reporting 
requirement is authorized by sections 1902(a)(6) and 2107(b)(1) of the 
Act which requires that States provide reports, in such form and 
containing such information, as the Secretary may from time to time 
require. Therefore, we propose that the ILOS documentation States would 
have to submit to CMS, as well as an evaluation States would have to 
complete, would vary based on a State's projected ILOS cost percentage 
for each managed care program. We believe the projected ILOS cost 
percentage would be a reasonable proxy for identifying States that 
offer a higher amount of ILOSs, in comparison to overall managed care 
program costs, and likely could have a corresponding higher impact to 
Federal expenditures. As we considered the types of State activities 
and documentation that could vary under this proposed risk-based 
approach, we considered which ones would be critical for all States to 
undertake for implementation and continual oversight of the use of 
ILOSs, but would not require our review unless issues arose that 
warranted additional scrutiny. We propose that documentation 
requirements for States with a projected ILOS cost percentage that is 
less than or equal to 1.5 percent would undergo a streamlined review, 
while States with a higher projected ILOS cost percentage would have 
more robust documentation requirements. Additionally, we propose States 
with a higher final ILOS cost percentage would be required to submit an 
evaluation of ILOSs to CMS. These parameters are explained further in 
sections I.B.4.d. and g. of this proposed rule.
    As we considered a reasonable percentage for this risk-based 
approach, we evaluated flexibilities currently offered in part 438 to 
assess if similar thresholds would be reasonable for this purpose. 
These flexibilities included the opportunity available to States to 
adjust rates without the requirement for a revised rate certification. 
Specifically, we are referring to the 1 percent flexibility for States 
that certify rate ranges in accordance with Sec.  438.4(c)(2)(iii) and 
the 1.5 percent flexibility for States that certify capitation rates in 
accordance with Sec.  438.7(c)(3). An additional flexibility currently 
available to States relates to incentive arrangements. In accordance 
with Sec.  438.6(b)(2), total payment under States' managed care plan 
contracts with incentive arrangements are allowed to be no greater than 
105 percent of the approved capitation payments attributable to the 
enrollees or services covered by the incentive arrangement. As we 
evaluated a reasonable and appropriate threshold to utilize for this 
risk-based approach, we explored utilizing similar flexibilities of 1 
percent, 1.5 percent and 5 percent, and also considered 2.5 percent as 
a mid-point in this 5 percent range.
    We do not believe 5 percent is a reasonable percentage for this 
risk-based approach as this is the proposed limit for the projected and 
final ILOS cost percentages described in this section. We believe a 
greater degree of State documentation, and CMS oversight, is necessary 
for States that offer ILOSs that represent a higher share of overall 
managed care program costs, and likely have a corresponding higher 
impact on Federal expenditures. In the 2020 final rule, we finalized 
Sec.  438.4(c)(2)(iii) to permit States that certify rate ranges to 
make rate adjustments up to 1 percent without submitting a revised rate 
certification. Our rationale was that States using rate ranges were 
already afforded additional flexibility given the certification of rate 
ranges so it was not appropriate to utilize the same 1.5 percent 
flexibility that is offered to States that certify capitation rates (85 
FR 72763). We do not believe a similar rationale is appropriate or 
relevant for this proposal, and thus, we do not believe 1 percent would 
be the most appropriate threshold. We are also concerned that utilizing 
2.5 percent for a risk-based approach would result in inadequate 
Federal oversight to ensure program integrity, such as fiscal 
safeguards and enrollee protections related to ILOSs. We believe 1.5 
percent, a de minimis amount, is appropriate to propose for utilization 
of a risk-based approach for States' documentation and evaluation 
requirements, and associated CMS review, as ILOS expenditures less than 
or equal to 1.5 percent would likely be a relatively minor portion of 
overall managed care program expenditures. Therefore, we propose 1.5 
percent for this risk-based approach in Sec.  438.16(d)(2); States with 
a projected ILOS cost percentage that exceeds 1.5 percent would be 
required to adhere to additional requirements described in sections 
I.B.4.d. and g. of this proposed rule. For separate CHIP, we propose to 
adopt the new documentation requirements for States with a cost 
percentage that exceeds 1.5 percent at Sec.  438.16(d)(2) by amending 
Sec.  457.1201(e) to include a cross-reference to Sec.  438.16(d)(2).
c. Enrollee Rights and Protections (Sec. Sec.  438.3(e), 457.1201(e), 
457.1207)
    Consistent with the ILOS definition proposed in Sec.  438.2, ILOSs 
are immediate or longer term substitutes for State plan-covered 
services and settings, or when the ILOSs can be expected to reduce or 
prevent the future need to utilize the covered services and settings 
under the State plan. They can be utilized to improve enrollees' health 
care outcomes, experience, and overall care; however, ILOSs are an 
option and not a requirement for managed care plans. While ILOSs are 
offered to Medicaid and CHIP enrollees at the option of the managed 
care plan, the provision of an ILOS is also dependent on the enrollees' 
willingness to use the ILOS instead of the State plan-covered service 
or setting. Medicaid managed care enrollees are entitled to receive 
covered services and settings under the State plan consistent with 
section 1902(a)(10) of the Act. As ILOSs can be offered as substitutes 
for covered State plan services and settings that Medicaid enrollees 
are otherwise entitled to, we believe that it is of the utmost 
importance that we identify the enrollee rights and managed care 
protections for individuals who are offered or opt to use an ILOS 
instead of receiving State plan-covered service or setting. To ensure 
clarity for States, managed care plans, and enrollees on the rights and 
protections afforded to enrollees who are eligible for, offered, or 
receive an ILOS, we propose to add new Sec.  438.3(e)(2)(ii)(A) and (B) 
under Sec.  438.3(e)(2)(ii) to specify our meaning of enrollee rights 
and protections that are not explicitly stated elsewhere in part 438. 
We believe it would be appropriate to add this clarity to Sec.  
438.3(e)(2)(ii) as these are not new rights or protections, but rather, 
existing rights and protections that we believe

[[Page 28167]]

should be more explicitly stated for all ILOSs, including short-term 
IMD stays.
    We propose to specify, in Sec.  438.3(e)(2)(ii)(A), that an 
enrollee who is offered or utilizes an ILOS would retain all rights and 
protections afforded under part 438, and if an enrollee chooses not to 
receive an ILOS, they would retain their right to receive the service 
or setting covered under the State plan on the same terms as would 
apply if an ILOS was not an option. We believe this proposed addition 
would ensure clarity that the rights and protections guaranteed to 
Medicaid managed care enrollees under Federal regulations remain in 
full effect when an enrollee is eligible to be offered or elects to 
receive an ILOS. For example, enrollees retain the right to make 
informed decisions about their health care and to receive information 
on available treatment options and alternatives as required in Sec.  
438.100(b)(2)(iii). To ensure that enrollee rights and protections 
would be clearly and consistently provided to enrollees, we propose to 
revise Sec.  438.10(g)(2)(ix) to explicitly require that the rights and 
protections in Sec.  438.3(e)(2)(ii) be included in enrollee handbooks 
if ILOSs are added to a managed care plan's contract. For separate 
CHIP, enrollee rights and protections are unique from those offered to 
Medicaid enrollees, and are instead located under subparts K and L of 
part 457. To acknowledge these differences, we propose to amend Sec.  
457.1207, (which includes an existing cross-reference to Sec.  438.10) 
to reference instead to the separate CHIP enrollee rights and 
protections under subparts K and L of part 457. Protections to ensure 
that managed care enrollees have the ability to participate in 
decisions regarding their health care, and have avenues to raise 
concerns including their right to appeals related to adverse benefit 
determinations and grievances are critical to ensure that ILOSs are 
utilized in a reasonable, appropriate, and effective manner.
    We believe safeguards and protections for enrollees that elect to 
use an ILOS should be specified, particularly since ILOS costs can vary 
compared to costs for the State plan service or setting for which it is 
a substitute. Specifically, we want to make clear that the provision or 
offer of an ILOS may not be used coercively or with the intent to 
interfere with the provision or availability of State plan-covered 
service and setting that an enrollee would otherwise be eligible to 
receive. Therefore, we propose to add Sec.  438.3(e)(2)(ii)(B) to 
ensure that an ILOS would not be used to reduce, discourage, or 
jeopardize an enrollee's access to services and settings covered under 
the State plan, and a managed care plan may not deny an enrollee access 
to a service or setting covered under the State plan on the basis that 
an enrollee has been offered an ILOS as a substitute for a service or 
setting covered under the State plan, is currently receiving an ILOS as 
a substitute for a service or setting covered under the State plan, or 
has utilized an ILOS in the past. While ILOSs can be effective 
substitutes for services and settings covered under the State plan, we 
want to ensure consistent and clear understanding for enrollees, 
States, and managed care plans on how ILOSs can be appropriately 
utilized to meet an enrollee's needs.
    For separate CHIP, we propose to adopt the enrollee rights and 
protections at Sec.  438.3(e)(2)(ii)(A) and (B) through an existing 
cross-reference at Sec.  457.1201(e). However, separate CHIP enrollee 
rights and protections are unique from those offered to Medicaid 
enrollees and are instead located under subparts K and L of part 457. 
To acknowledge these differences, we propose to amend Sec.  
457.1201(e), which already includes a cross-reference to Sec.  438.3(e) 
to State, ``An MCO, PIHP, or PAHP may cover, for enrollees, services 
that are not covered under the State plan in accordance with Sec.  
438.3(e) of this chapter . . . except . . . that references to enrollee 
rights and protections under part 438 should be read to refer to the 
rights and protections under subparts K and L of this part.''
    We believe that a strong foundation built on these enrollee rights 
and protections would also ensure that ILOSs may have a positive impact 
on enrollees' access to care, health outcomes, experience, and overall 
care. As such, we believe these enrollee rights and protections must be 
clearly documented in States' managed care plan contracts. Therefore, 
we propose this documentation requirement in Sec.  438.16(d)(1)(v). For 
separate CHIP, we propose to adopt the requirement for enrollee rights 
and protections for ILOSs to be documented in managed care plan 
contracts by amending Sec.  457.1201(e) to include a cross-reference to 
Sec.  438.16(d)(1)(v).
d. Medically Appropriate and Cost Effective (Sec. Sec.  438.16(d), 
457.1201(e))
    In Sec.  438.3(e)(2)(i), managed care plans may cover an ILOS if 
the State determines the ILOS is medically appropriate and cost 
effective substitute for a covered State plan service or setting. This 
policy is consistent with authority in section 1902(a)(4) of the Act to 
establish methods for proper and efficient operations in Medicaid as 
well as the nature of capitation payments based on risk-based 
capitation rates recognized in section 1903(m)(2)(A) of the Act. We 
interpret medically appropriate and cost effective substitute to mean 
that an ILOS may serve as an immediate or longer term substitute for a 
covered service or setting under the State plan, or when the ILOS can 
be expected to reduce or prevent the future need to utilize a covered 
service or setting under the State plan. We believe this is a 
reasonable interpretation in acknowledgement that health outcomes from 
any health care services and settings may also not be immediate. We 
offer the following examples to illustrate the difference between an 
ILOS that is an immediate versus longer term substitute for a State 
plan service or setting, or when the ILOS can be expected to reduce or 
prevent the future need to utilize a covered service or setting under 
the State plan.
    For example, transportation to and services provided at a sobering 
center could be offered as a medically appropriate and cost effective 
immediate substitute for target populations for specific State plan 
services or settings, such as an emergency room visit or hospital 
inpatient stay. Alternatively, we can envision target populations for 
which an ILOS, such as housing transition navigation services, might 
serve as a longer term substitute for a covered State plan service or 
setting, or when the ILOS can be expected to reduce or prevent the need 
to utilize the covered service or setting under the State plan, such as 
populations with chronic health conditions and who are determined to be 
at risk of experiencing homelessness. The managed care plan might 
choose to offer medically tailored meals to individuals with a diabetes 
diagnosis and poorly managed A1C levels. While not an immediate 
substitute for a State plan-covered service such as emergency room 
visits or inpatient hospital stays, medically tailored meals 
consistently provided to the individual over a period of time could 
contribute to improved management of the diabetes. In the long term, 
improved management might lead to fewer complications related to 
diabetes and consequentially, fewer emergency room visits and inpatient 
stays thereby demonstrating the ILOS was both medically appropriate and 
cost effective for the individual.
    We believe it is important to ensure appropriate documentation to 
support a State's determination that an ILOS is a medically appropriate 
and cost effective substitute, either long or short term, for a State 
plan-covered service or setting.

[[Page 28168]]

ILOS documentation requirements for States would permit CMS and the 
State to better monitor the use of ILOSs, safeguard enrollee rights, 
facilitate fiscal accountability, and promote transparency to ensure 
the efficient and appropriate use of Medicaid and CHIP resources. 
Therefore, we propose to expand the documentation requirements for 
ILOSs through the addition of requirements in Sec.  438.16. 
Specifically, we propose at Sec.  438.16(d)(1), elements that must be 
included in any managed care plan contract that includes ILOS(s) in 
order to obtain CMS approval consistent with Sec.  438.3(a). In 
accordance with Sec.  438.3(e)(2)(iii), States are already required to 
authorize and identify ILOSs in each managed care plan contract and 
such ILOSs are offered at the option of the managed care plan. 
Therefore, we believe it is consistent with a risk contract to require 
States to provide sufficient detail regarding any ILOSs covered under 
the contract and accounted for in the capitation rates per Sec.  
438.3(e)(2)(iv).
    In our experience reviewing managed care plan contracts, States 
have not always provided sufficient detail in their managed care plan 
contracts for Federal review. For example, some contracts have included 
only general language that ILOSs are provided at the option of the 
managed care plan and have not clearly identified each ILOS that the 
State has authorized in sufficient detail. We believe clarity is needed 
to ensure accountability and transparency in managed care plan 
contracts. Therefore, we propose Sec.  438.16(d)(1)(i) and (ii) to 
require that States would include within each managed care plan 
contract that includes ILOS(s), the name and definition for each ILOS 
and clearly identify the State plan-covered service or setting for 
which each ILOS has been determined to be a medically appropriate and 
cost effective substitute by the State. For separate CHIP, we propose 
to adopt the new documentation requirements at Sec.  438.16(d)(1)(i) 
and (ii) by amending Sec.  457.1201(e) to include the cross-reference. 
By requiring that this information be clearly identified in the 
contract, we believe that managed care plans would have sufficient 
detail on the ILOSs to be able to utilize ILOSs appropriately while 
enabling States and CMS to more effectively monitor each ILOS over 
time. We also believe including this level of detail in the contract 
would be an appropriate fiscal protection to ensure that capitation 
rates are developed in an actuarially sound manner in accordance with 
Sec.  438.4 for Medicaid, and developed with actuarially sound 
principles in accordance with Sec.  457.1203(a) for separate CHIP. 
Actuarially sound capitation rates, as defined in Sec.  438.4(a) for 
Medicaid, and actuarially sound principles as defined at Sec.  457.10 
for CHIP, are projected to provide for all reasonable, appropriate, and 
attainable costs that are required under the terms of the contract and 
for the operation of the managed care plan for the time period and the 
population covered under the terms of the contract. Additionally, for 
Medicaid, such capitation rates must be developed in accordance with 
the requirements in Sec.  438.4(b), including the requirements that the 
actuarially sound capitation rates must be appropriate for the 
populations to be covered and the services to be furnished under the 
contract as required in Sec.  438.4(b)(2).
    The existing regulation Sec.  438.3(e)(2)(i) indicates that a 
managed care plan may offer an ILOS if the State determines that the 
ILOS is a medically appropriate and cost-effective substitute for a 
covered service or setting under the State plan. As noted in section 
I.B.4.a of this proposed rule, we are proposing a definition of ILOS in 
Sec.  438.2 to specify that ILOSs may be determined to be cost 
effective and medically appropriate as immediate or longer-term 
substitutes for State plan-covered services and settings, or when the 
ILOSs can be expected to reduce or prevent the future need to utilize 
State plan-covered services and settings. Current regulations do not 
require States or managed care plans to document any details related to 
the determination of medical appropriateness and cost effectiveness, 
either broadly or for a specific enrollee who is offered an ILOS. For 
managed care plans to appropriately offer ILOSs to enrollees consistent 
with the State's determination of medical appropriateness and cost 
effectiveness, States would have to identify the target populations for 
each ILOS using clear clinical criteria. Prospective identification of 
the target population for an ILOS would also be necessary to ensure 
capitation rates are developed in an actuarially sound manner in 
accordance with Sec.  438.4, including the requirements that the 
actuarially sound capitation rates must be appropriate for the 
populations to be covered and the services to be furnished under the 
contract as required in Sec.  438.4(b)(2) and meet the applicable 
requirements of part 438, including ILOS requirements as required in 
Sec.  438.4(b)(6). For these reasons, we propose a new requirement at 
Sec.  438.16(d)(1)(iii) to require States to document within each 
managed care plan contract the clinically defined target population(s) 
for which each ILOS has been determined to be a medically appropriate 
and cost effective substitute. For separate CHIP, we propose to adopt 
the new documentation requirements at Sec.  438.16(d)(1)(iii) by 
amending Sec.  457.1201(e) to include the cross-reference. We propose 
the phrase ``clinically defined target populations'' as we believe that 
States would have to identify a target population for each ILOS that 
would have to be based on clinical criteria. This would not preclude 
States from using additional criteria to further target certain 
clinically defined populations for ILOSs.
    While States may establish target population(s) for which an ILOS 
is medically appropriate, we believe that the actual determination of 
medical appropriateness should be completed by a provider, for each 
enrollee, using their professional judgement, and assessing the 
enrollee's presenting medical condition, preferred course of treatment, 
and current or past medical treatment to determine if an ILOS is 
medically appropriate for that specific enrollee. Therefore, we 
propose, at Sec.  438.16(d)(1)(iv), to require that the managed care 
plan contract document a process by which a licensed network or managed 
care plan staff provider would have to determine that an ILOS is 
medically appropriate for a specific enrollee. Under this proposal, 
this determination and documentation could be done by either a licensed 
network provider or a managed care plan staff provider to ensure States 
and managed care plans have capacity to implement this requirement, 
consistent with State standards. For separate CHIP, we propose to adopt 
the new documentation requirements at Sec.  438.16(d)(1)(iv) by 
amending Sec.  457.1201(e) to include the cross-reference. The provider 
would have to document the determination of medical appropriateness 
within the enrollee's records, which could include the enrollee's plan 
of care, medical record (paper or electronic), or another record that 
details the enrollee's care needs. This documentation would have to 
include how each ILOS would be expected to address those needs.
    As discussed in section I.B.4.b. of this proposed rule, we propose 
a risk-based approach based on a State's projected ILOS cost 
percentage, for State documentation and evaluation requirements of 
ILOSs that would require standard streamlined documentation to CMS for 
States with a

[[Page 28169]]

projected ILOS cost percentage less than or equal to 1.5 percent while 
States with a projected ILOS cost percentage that exceeds 1.5 percent 
would be required to submit additional documentation. To specify the 
proposed additional documentation requirements for a State with a 
projected ILOS cost percentage that exceeds 1.5 percent, we propose, at 
Sec.  438.16(d)(2), the documentation requirements in paragraphs Sec.  
438.16(d)(2)(i) and (ii), and that this documentation would be 
submitted to CMS concurrent with the managed care plan contract that 
includes the ILOS(s), for review and approval by CMS under Sec.  
438.3(a). We believe concurrent submission is the most efficient, since 
each ILOS must be authorized and identified in States' contracts with a 
managed care plan as required in Sec.  438.3(e)(2)(ii). In Sec.  
438.16(d)(2)(i), we propose that the State submit a description of the 
process and supporting evidence the State used to determine that each 
ILOS would be a medically appropriate service or setting for the 
clinically defined target population(s), consistent with proposed Sec.  
438.16(d)(1)(iii). As ILOSs are often substitutes for State plan-
covered services and settings that have already been determined 
medically appropriate, we expect that States would have to use 
evidence-based guidelines, peer reviewed research, randomized control 
trials, preliminary evaluation results from pilots or demonstrations, 
or other forms of sound evidence to support the State's determination 
of an ILOS' medical appropriateness. Lastly, in Sec.  438.16(d)(2)(ii), 
we propose that the State provide a description of the process and 
supporting data that the State used to determine that each ILOS is a 
cost effective substitute for a State plan-covered service or setting 
for the defined target population(s), consistent with the proposed 
Sec.  438.16(d)(1)(iii). CMS has the authority to deny approval of any 
ILOS that does not meet standards in regulatory requirements, and 
thereby does not advance the objectives of the Medicaid program, as 
part of our review of the associated Medicaid managed care plan 
contracts and capitation rates. For separate CHIP, we propose to adopt 
the new documentation requirements at Sec.  438.16(d)(2) by amending 
Sec.  457.1201(e) to include the cross-reference.
    While we believe that a risk-based approach for States' ILOS 
documentation and evaluation requirements is a reasonable and 
appropriate balance of administrative burden and fiscal safeguards, we 
always reserve the right to ask for additional documentation from a 
State as part of our review and approval of the managed care plan 
contracts and rate certifications as required respectively in 
Sec. Sec.  438.3(a) and 438.7(a), and we are not precluded from doing 
so by our proposal to add Sec.  438.16(d)(2)(i) through (ii). 
Therefore, we propose to require at Sec.  438.16(d)(3) that any State 
must provide additional documentation, whether part of the managed care 
plan contract, rate certification, or supplemental materials, if we 
determine that the requested information would be pertinent to the 
review and approval of a contract that includes ILOS(s). For separate 
CHIP, we propose to adopt the new documentation requirements at Sec.  
438.16(d)(3) by amending Sec.  457.1201(e) to include the cross-
reference, except that references to rate certifications do not apply.
e. Payment and Rate Development (Sec. Sec.  438.3(c), 438.7(b), 
457.1201(c))
    In accordance with existing regulations at Sec.  438.3(e)(2)(iv), 
States are required to ensure the utilization and actual cost of ILOSs 
are taken into account in developing the benefit component of the 
capitation rates that represents covered State plan services, unless a 
statute or regulation explicitly requires otherwise. Additionally, 
through existing regulations at Sec.  438.4(b)(6), States' actuaries 
are required to certify that Medicaid capitation rates have been 
developed in accordance with the ILOS requirements outlined in Sec.  
438.3(e). We relied on authority in section 1903(m)(2)(A)(iii) of the 
Act and regulations based on our authority under section 1902(a)(4) of 
the Act, to establish actuarially sound capitation rates. While ILOS 
utilization and actual costs, when allowed, are included in rate 
development, the existing regulations at Sec.  438.3(c)(1)(ii) do not 
clearly acknowledge the inclusion of ILOSs in the final capitation 
rates and related capitation payments. Existing regulations at Sec.  
438.3(c)(1)(ii) require that the final capitation rates must be based 
only upon services covered under the State plan and additional services 
deemed by the State to be necessary to comply with the requirements of 
part 438 subpart K (Parity in Mental Health and Substance Use Disorder 
Benefits), and represent a payment amount that is adequate to allow the 
managed care plan to efficiently deliver covered services to Medicaid-
eligible individuals in a manner compliant with contractual 
requirements. As an ILOS is not a managed care plan requirement, but 
rather offered at the option of the managed care plan, it would not be 
included within the requirement in Sec.  438.3(c)(2)(ii) related to 
contractual requirements. We propose to revise Sec.  438.3(c)(1)(ii) to 
include ``ILOS'' to ensure clarity on this matter. This technical 
change would be included in separate CHIP regulations through an 
existing cross-reference at Sec.  457.1201(c). We consider this a 
technical correction to Sec.  438.3(c)(1)(ii) as Sec. Sec.  
438.3(e)(2)(iv) and 438.4(b)(6) clearly denote the inclusion of ILOSs 
in rate development and we believe this was inadvertently excluded from 
the final regulatory text in the 2016 final rule.
    Additionally, we propose to revise Sec.  438.7(b)(6) and the 
proposed Sec.  438.7(c)(4) (see section I.B.2.l. of this proposed rule) 
to add ``ILOS in Sec.  438.3(e)(2)'' to ensure any contract provision 
related to ILOSs must be documented in all rate certifications 
submitted to CMS for review and approval. We believe this is necessary 
to ensure compliance with proposed new regulatory requirements in Sec.  
438.16(c)(1)(i) and (c)(4)(i), described in section I.B.4.b. of this 
proposed rule, to ensure that the projected ILOS cost percentage 
documented in the rate certification would not exceed the proposed 5 
percent limit. This is a similar approach to the current requirements 
in Sec.  438.7(b)(6) which require a revised rate certification for any 
change to a contract provisions related to payment in Sec.  438.6, 
including incentive arrangements that have a similar 5 percent limit in 
accordance with Sec.  438.6(b)(2). We intend to issue additional 
guidance in the Medicaid Managed Care Rate Development Guide, in 
accordance with Sec.  438.7(e), on the Federal standards and 
documentation requirements for adequately addressing ILOSs in all rate 
certifications. For separate CHIP, we do not plan to adopt the proposed 
change at Sec.  438.7(b)(6) since rate certifications are not 
applicable to separate CHIP.
    As risk-based capitation rates are developed prospectively, States' 
actuaries will make initial assumptions regarding managed care plan and 
enrollee utilization of ILOSs and associated costs. Since ILOS are 
offered at the option of the managed care plan and Medicaid enrollee, 
States and their actuaries should closely monitor whether managed care 
plans elect to offer these ILOs and enrollees utilize these ILOSs. 
States' actuaries should assess if adjustments to the actuarially sound 
capitation rates are necessary in accordance with Sec. Sec.  438.4, 
438.7(a) and 438.7(c)(2). For example, a rate adjustment may be 
necessary if managed care plan actual uptake of

[[Page 28170]]

ILOSs varies from what is intially assumed for rate development and 
results in an impact to actuarial soundness.
f. State Monitoring (Sec. Sec.  438.16(d) and (e), 438.66(e), 
457.1201(c))
    In the 2016 final rule, we clarified the term ``monitoring'' to 
include oversight responsibilities, and we required standard data 
elements that a State's monitoring system must collect to inform 
performance improvement efforts for its managed care program(s). We 
wish to continue to strengthen State and CMS oversight of each Medicaid 
managed care program with the addition of proposed text to explicitly 
address States' monitoring of ILOSs. We rely on the authority in 
section 1902(a)(4) of the Act to establish methods for proper and 
effective operations in Medicaid.
    Currently, Sec.  438.66 requires that States establish a system to 
monitor performance of managed care programs broadly, Sec.  438.66(b) 
outlines the data elements that a State's system must collect, Sec.  
438.66(c) establishes expectations for State use of such data for 
performance improvement, and Sec.  438.66(e) requires States to provide 
a report on and assessment of each managed care program. When ILOSs are 
included in a managed care plan's contract, they too must be included 
in the State's monitoring activities required in Sec.  438.66(b) and 
(c). We believe States must ensure appropriate monitoring, evaluation, 
and oversight of ILOSs. We believe additional protections are necessary 
to ensure the delivery of ILOSs. In the 2015 notice of proposed 
rulemaking, we proposed expanded State monitoring requirements in Sec.  
438.66 and noted that our experience since the 2002 final rule has 
shown that strong State management and oversight of managed care is 
important throughout a program's evolution, but is particularly 
critical when States transition large numbers of beneficiaries from FFS 
to managed care or when new managed care plans are contracted (see 80 
FR 31158). We subsequently finalized these requirements in the 2016 
final rule. We believe that this logic is also applicable when a State 
expands the use of ILOSs as we have seen in recent years. Therefore, 
our proposals in this section further strengthen these existing Federal 
requirements related to States' monitoring activities for each managed 
care program.
    As with all covered services and settings, States and their managed 
care plans must comply with all enrollee encounter data requirements in 
Sec. Sec.  438.242 and 438.818. We rely on authority in section 
1903(m)(2) of the Act to require sufficient encounter data and a level 
of detail specified by the Secretary. Complete, accurate, and validated 
encounter data would also support the evaluation and oversight of ILOS 
proposals described in sections I.B.4.g. and h. of this proposed rule, 
and ensure appropriate rate development, as described in section 
I.B.4.e. of this proposed rule. In Sec.  438.242(c)(2), we require that 
contracts between a State and its managed care plans provide for the 
submission of enrollee encounter data to the State at a frequency and 
level of detail to be specified by CMS and the State, based on program 
administration, oversight, and program integrity needs. Further, at 
Sec.  438.242(d), States must review and validate that encounter data 
collected, maintained, and submitted to the State by the managed care 
plan is a complete and accurate representation of the services and 
settings provided to enrollees. Because ILOSs may not be easily 
identifiable in CPT[supreg] and Healthcare Common Procedure Coding 
System (HCPCS), we believe it is imperative that States identify 
specific codes and modifiers, if needed, for each ILOS and provide that 
information to its managed care plans to ensure consistent use. For 
example, the use of a modifier is useful when a State needs to 
separately identify an ILOS from a State plan-covered service or 
setting that may utilize the same HCPCS code. We propose in Sec.  
438.16(d)(1)(vi), to require that States include a contractual 
requirement that managed care plans utilize the specific codes 
established by the State to identify each ILOS in enrollee encounter 
data. States could require the use of specific HCPCS or CPT codes and 
modifiers, if needed, that identify each ILOS. To the extent possible, 
we encourage States to work towards the development of standard 
CPT[supreg] and HCPCS codes for ILOSs, and States may wish to 
collaborate with appropriate interested groups. For separate CHIP, 
while the provisions at Sec.  438.66 are not applicable, we propose to 
adopt the new coding requirements at Sec.  438.16(d)(1)(vi) by amending 
Sec.  457.1201(c) to include the cross-reference.
    We considered allowing States to include this level of data outside 
of the managed care plan contract, such as in a provider manual or 
similar documents; however, those documents are frequently not readily 
available to interested parties and some are not made publicly 
available. We believe requiring specific codes to be in the managed 
care plan contracts would ensure that we can easily identify ILOSs in 
T-MSIS data, support program integrity activities, and ensure that the 
information is publicly available as required at Sec.  438.602(g)(1). 
For these reasons, we believe requiring the codes in the managed care 
plan contract would be the most appropriate and efficient option. We 
also believe this proposal would ensure that ILOSs are easily 
identifiable in the base data utilized for development of capitation 
rates in accordance with rate development standards described in Sec.  
438.5(c), and the associated development of the projected and final 
ILOS cost percentage which are built off of capitation rates and 
capitation payments as proposed in section I.B.4.b. of this proposed 
rule.
    States are required to submit an annual performance report to CMS 
for each Medicaid managed care program administered by the State in 
accordance with Sec.  438.66(e)(1), known as the MCPAR. In Sec.  
438.66(e)(2), we specify the content of the MCPAR, including Sec.  
438.66(b)(11) that specifies accessibility and availability of covered 
services in the managed care plan contract. As ILOSs are substitutes 
for State plan-covered services and settings, we believe States should 
already be reporting on ILOSs in MCPAR, but to improve clarity for 
States, we propose to add an explicit reference. Therefore, we propose 
a minor revision to Sec.  438.66(e)(2)(vi) to add the phrase 
``including any ILOS.'' To facilitate States' reporting of their 
monitoring activities and findings for ILOSs in MCPAR, we intend to 
update the MCPAR report template to enable States to easily and clearly 
include ILOS data throughout the report. We believe that it is 
important for States to monitor trends related to the availability and 
accessibility of ILOSs given the unique and innovative nature of some 
ILOSs, and we believe using MCPAR would be an efficient way for States 
to report their activities.
g. Retrospective Evaluation (Sec. Sec.  438.16(e) and 457.1201(e))
    As part of Federal monitoring and oversight of Medicaid and CHIP 
programs, we regularly require States to submit evaluations to CMS that 
analyze cost or cost savings, enrollee health outcomes or enrollee 
experiences for a specific Medicaid or CHIP benefit, demonstration, or 
managed care program. For example, as set forth in an SMDL \140\ 
published on December 22, 1998, States with a program authorized by a 
waiver of section 1915(b) of the Act

[[Page 28171]]

must conduct two independent assessments of the quality of care, cost 
effectiveness and impact on the State's Medicaid program, and access to 
care to ensure compliance with Sec.  431.55(b)(2)(i) through (iii). 
There are also quality requirements at Sec. Sec.  438.340 and 
457.1240(e) for States contracting with a managed care plan to develop 
and implement a written quality strategy for assessing and improving 
the quality of health care and services furnished by the plan. We also 
believe that States should evaluate and demonstrate that ILOSs are cost 
effective, medically appropriate, and an appropriate and efficient use 
of Medicaid and CHIP resources and that such a requirement would be 
consistent with those existing requirements and the proposals outlined 
in sections I.B.4. of this proposed rule. We rely on the authority in 
sections 1902(a)(4) and 2101(a) of the Act to establish methods for 
proper and effective operations in Medicaid and CHIP respectively, and 
sections 1902(a)(6) and 2107(b)(1) of the Act which requires that 
States provide reports, in such form and containing such information, 
as the Secretary may from time to time require. To reduce State and 
Federal administrative burden, where possible, we again propose a risk-
based approach to the State documentation requirement that would be 
proportional to a State's ILOS cost percentage. We propose, in Sec.  
438.16(e)(1) for Medicaid, and through a proposed cross-reference at 
Sec.  457.1201(e) for separate CHIP, to require States to submit a 
retrospective evaluation to CMS of ILOSs, if the final ILOS cost 
percentage exceeds 1.5 percent, though we do strongly encourage all 
States that include ILOSs in their managed care plan contracts to 
conduct a retrospective evaluation of all ILOSs. As a State could 
authorize multiple ILOSs in one managed care program, we believe that 
this evaluation should evaluate each ILOS in order to clearly assess 
the impact and effectiveness of each ILOS.
---------------------------------------------------------------------------

    \140\ https://www.medicaid.gov/federal-policy-guidance/downloads/smd122298.pdf.
---------------------------------------------------------------------------

    With Sec.  438.16(e)(1)(i) for Medicaid, and through a proposed 
cross-reference at Sec.  457.1201(e) for separate CHIP, we propose that 
an evaluation be completed separately for each managed care program 
that includes an ILOS. We considered allowing States to evaluate ILOSs 
across multiple managed care programs to reduce State administrative 
burden and alleviate potential concerns regarding sample size for the 
evaluation. We further considered permitting States to self-select the 
appropriate level at which to evaluate ILOSs including for each managed 
care program, across managed care programs, or by managed care plan 
contract. However, in our experience, a State with multiple managed 
care programs (for example, behavioral health, physical health, etc.) 
could have differing enrollee eligibility criteria, populations, 
covered benefits, managed care plan types, delivery models, geographic 
regions, or rating periods among the separate managed care programs. 
Including more than one managed care program in an evaluation would 
likely impact evaluation rigor and could dilute or even alter 
evaluation results due to the variability among managed care programs. 
As States would be required to provide the ILOS cost percentage for 
each managed care program, we believe that it is necessary for the 
evaluation to also be conducted at the individual program level as it 
is one measure to aid in evaluating the overall impact of the ILOSs. 
For these reasons, we believe it would be critical for States to 
provide separate evaluations for each managed care program that 
includes ILOSs. We seek public comment on whether the evaluation should 
be completed for each managed care program, across multiple managed 
care programs, each managed care plan contract, or at a level selected 
by the State.
    Since these proposed retrospective evaluations would utilize 
complete encounter data, we considered several options for the length 
of the evaluation period. Often, evaluation reports are required on an 
annual basis, such as MCPAR in Sec.  438.66(e) or the Network Adequacy 
and Access Assurances report in Sec.  438.207(d). We considered 
requiring an annual submission for the report required in Sec.  
438.16(e)(1), but believed that encounter data would be insufficient to 
result in meaningful analysis. We also considered a 3-year evaluation 
period, which may be sufficient for ILOSs that are immediate 
substitutes, but enrollees may need to receive longer term substitutes 
for a period of several years in order for a State to have robust data. 
We also considered a 10-year period, but we concluded that seemed to be 
an unreasonably long time to obtain information on the efficient and 
effective use of these unique services and settings. We concluded that 
a 5-year period would provide sufficient time to collect complete data. 
Therefore, we propose in Sec.  438.16(e)(1)(ii) for Medicaid, and 
through a proposed cross-reference at Sec.  457.1201(e) for separate 
CHIP, that a State's retrospective evaluation would have to use the 5 
most recent years of accurate and validated data for the ILOSs. We 
believe the 5-year period would allow managed care plans and enrollees 
to become comfortable with the available ILOSs and opt to provide or 
receive them, thus generating the necessary data for the evaluation. 
Even for ILOSs that are longer term substitutes, we believe a 5-year 
period would be sufficient to permit robust data collection for cost 
effectiveness and medical appropriateness. We request comment on the 
appropriate length of the evaluation period.
    By proposing that retrospective evaluations be completed using the 
five most recent years of accurate and validated data for the ILOS(s), 
we recognize that we need to also propose the scope of the evaluation. 
We considered permitting States to identify an appropriate 5-year 
evaluation period, but ultimately decided against this as it could 
create a perverse incentive to identify a favorable evaluation period 
for each ILOS in order to circumvent the termination process proposed 
in Sec.  438.16(e)(2)(iii) and described in section I.B.4.h. of this 
proposed rule. We also considered if the evaluation period should begin 
with the first year that a State exceeds the 1.5 percent final ILOS 
cost percentage threshold, but decided against this option as we 
believe it is necessary for evaluation rigor to establish an early or, 
ideally pre-intervention, baseline from which to evaluate the impact of 
a new ILOS over time. We concluded that States' evaluations should be 
retroactive to the first complete rating period following the effective 
date of this provision in which the ILOS was included in the managed 
care plan contracts and capitation rates; we propose this in Sec.  
438.16(e)(1)(iv) for Medicaid, and through a proposed cross-reference 
at Sec.  457.1201(e) for separate CHIP. We believe that our proposed 
approach is aligned with identified best practices for evaluation. We 
would encourage States to consider developing a preliminary evaluation 
plan for each ILOS as part of the implementation process for a new ILOS 
and any time States significantly modify an existing ILOS. We request 
comment on the appropriate timing of an ILOS evaluation period.
    To ensure some consistency and completeness in the retrospective 
evaluations, we believe there should be a minimum set of required 
topics to be included. First, in Sec.  438.16(e)(1)(ii) for Medicaid, 
and through a proposed cross-reference at Sec.  457.1201(e) for 
separate CHIP, we propose to require that States must utilize data to 
at least evaluate cost, utilization, access, grievances and appeals, 
and quality of care for each ILOS. Similar elements are

[[Page 28172]]

required in evaluations for programs authorized by waivers approved 
under sections 1915(b) and 1915(c) of the Act and demonstrations under 
section 1115(a) of the Act. We believe these five proposed elements 
would permit CMS and States to accurately measure the impact and 
programmatic integrity of the use of ILOSs. We expand upon these 
elements in Sec.  438.16(e)(1)(iii) wherein we propose the minimum 
elements that a State, if required to conduct an evaluation, would have 
to evaluate and include in an ILOS retrospective evaluation. We 
propose, in Sec.  438.16(e)(1)(iii)(A) for Medicaid, and through a 
proposed cross-reference at Sec.  457.1201(e) for separate CHIP, to 
require States to evaluate the impact each ILOS had on utilization of 
State plan-covered services and settings, including any associated 
savings. As an intended substitute for a State plan-covered service or 
setting, that is cost effective and medically appropriate as required 
in Sec.  438.3(e)(2)(i), we believe that it is important to understand 
the impact of each ILOS on these State plan-covered services and 
settings and any cost savings that result from reduced utilization of 
such specific services and settings. We believe that this evaluation 
element would also require the State to evaluate potentially adverse 
trends in State plan services and settings utilization, such as 
underutilization of adult preventive health care. Per Sec.  
438.3(e)(2)(i), the State must determine that an ILOS is a cost 
effective substitute; therefore, we believe that it would be 
appropriate for a State to evaluate any cost savings related to 
utilization of ILOSs in place of State plan-covered services and 
settings.
    Similarly, we propose in Sec.  438.16(e)(1)(iii)(B) for Medicaid, 
and through a proposed cross-reference at Sec.  457.1201(e) for 
separate CHIP, to require that States evaluate trends in managed care 
plan and enrollee use of each ILOS. We believe that it is necessary to 
understand actual utilization of each ILOS in order to evaluate 
enrollee access to ILOSs and related trends that occur over time. 
Trends in enrollee utilization of ILOSs could also be compared to data 
related to State plan services and settings utilization to determine if 
there is a correlation between utilization of certain ILOSs and 
decreased or increased utilization of certain State plan services and 
settings. Trends in utilization of ILOSs may also help identify when 
enrollees choose not to utilize an ILOS to help States and managed care 
plans assess future changes in authorized ILOSs. We believe this is a 
key evaluation element necessary to determine if the ILOS was cost 
effective.
    Critical to the authority for the allowable provision of ILOSs, is 
a State determination that an ILOS is a cost effective and medically 
appropriate substitute for a covered service or setting under the State 
plan as required in Sec.  438.3(e)(2)(i). Therefore, we believe States 
should evaluate whether, after 5 years, its determinations are still 
accurate given actual enrollee utilization and experience. To achieve 
this, we propose Sec.  438.16(e)(1)(iii)(C) for Medicaid, and through a 
proposed cross-reference at Sec.  457.1201(e) for separate CHIP, which 
would require that States use encounter data to evaluate if each ILOS 
is a cost effective and medically appropriate substitute for the 
identified covered service or setting under the State plan or a cost 
effective measure to reduce or prevent the future need to utilize the 
identified covered service or setting under the State plan. We have 
included the following example to identify how a State could use 
encounter data to evaluate the medical appropriateness of an ILOS. A 
State may initially determine that the provision of air filters as an 
ILOS is a medically appropriate substitute service for individuals with 
an asthma diagnosis for emergency department visits, inpatient and 
outpatient services, and HCBS for activities of daily living (ADLs). 
After analyzing the actual encounter data, the State may discover that 
the provision of air filters to the target population did not result in 
decreased utilization of a State plan service such as emergency 
department, inpatient and outpatient services, nor HCBS for ADLs. In 
this instance, the evaluation results would demonstrate that the ILOS 
as currently defined was not cost effective for the target population 
of individuals as currently defined.
    As ILOSs are services and settings provided to Medicaid and CHIP 
managed care enrollees in lieu of State plan-covered services and 
settings, we believe that it is important for States to evaluate the 
quality of care provided to enrollees who utilized ILOSs to ensure that 
the ILOS(s) are held to the same quality standards as the State plan 
services and settings enrollees would otherwise receive. Quality of 
care is also a standard domain within evaluations of Medicaid and CHIP 
services, Medicaid and CHIP managed care plans, and Medicaid and CHIP 
programs as demonstrated by the ubiquitous use of the National 
Committee for Quality Assurance (NCQA) Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey and Healthcare 
Effectiveness Data and Information Set (HEDIS) measure set which 
includes standardized and validated quality of care measures for use by 
States and managed care plans operating within Medicaid and CHIP 
managed care environments. Accordingly, in Sec.  438.16(e)(1)(iii)(D) 
for Medicaid, and through a proposed cross-reference at Sec.  
457.1201(e) for separate CHIP, we propose that States evaluate the 
impact of each ILOS on quality of care. We believe that States should 
use validated measure sets, when possible, to evaluate the quality of 
care of ILOSs, though we do not want to stifle State innovation in this 
area so we are not proposing to require it. We considered proposing to 
require that States procure an independent evaluator for ILOS 
evaluations. In consideration of the myriad of new proposed 
requirements within this proposed rule, we weighed the value of 
independent evaluation with increased State burden. We are concerned 
that it would be overly burdensome for States to procure independent 
evaluators for ILOS(s) due, in part, to the timing of the final ILOS 
cost percentage submission. In section I.B.4.b. of this proposed rule, 
we are proposing that the final ILOS cost percentage be submitted 2 
years following completion of the applicable rating period, and we 
propose here that if the final ILOS cost percentage exceeds the 1.5 
percent, States would be required to submit an evaluation. While States 
should conduct some evaluation planning efforts, it could be difficult 
and time consuming to procure an independent evaluator in a timely 
manner solely for the purpose of the ILOS evaluation since States would 
not know definitely whether an evaluation is required until 2 years 
following the rating period. We solicit comment on whether we should 
consider a requirement that States use an independent evaluator for 
ILOS evaluations.
    We believe that States should, to the extent possible, leverage 
existing quality improvement and evaluation processes for the 
retrospective ILOS evaluation. Through Sec. Sec.  438.364(a) and 
457.1250(a), we require States to partner with an EQRO to produce an 
annual technical report that summarizes findings related to each MCO's, 
PIHP's, PAHP's, or PCCM entity's performance relative to quality, 
timeliness, and access to health care services furnished to Medicaid 
and CHIP enrollees. Through these existing EQR activities at Sec.  
438.364(b), and, if finalized, the newly proposed optional activity at 
Sec.  438.64(c)(7), discussed in

[[Page 28173]]

more detail in section I.B.5.c.3. of this proposed rule, we believe 
States could leverage the CMS-developed protocol or their EQRO to 
assist with evaluating the impact of ILOSs on quality of care. We 
believe this new optional activity could reduce burden associated with 
these new evaluation requirements for ILOSs.
    The elements we have proposed in the evaluation should communicate 
a complete narrative about the State, managed care plans, and 
enrollees' experience with ILOSs. As key thresholds and limits on 
ILOSs, the projected and final ILOS cost percentages would be another 
element that CMS would consider as part of the overall mosaic to 
understand the impact that an ILOS might have on each managed care 
program. Although the final ILOS cost percentage is proposed to be 
submitted with the rate certification submission required in Sec.  
438.7(a) for the rating period beginning 2 years after each rating 
period that includes ILOS(s), we believe it is important to the 
completeness of the retrospective evaluation, that all final ILOS cost 
percentages available be included. Therefore, we propose in Sec.  
438.16(e)(1)(iii)(E) for Medicaid, and through a proposed cross-
reference at Sec.  457.1201(e) for separate CHIP, that States provide 
the final ILOS cost percentage for each year in their retrospective 
evaluation, consistent with the report proposed in Sec.  
438.16(c)(5)(ii), (described in section I.B.4.b. of this proposed rule) 
with a declaration of compliance with the allowable 5 percent threshold 
proposed in Sec.  438.16(c)(1)(i). We believe this necessary 
documentation of State compliance would be appropriate to be documented 
in the evaluation alongside the other data we have proposed to ensure a 
fulsome evaluation that accurately demonstrates whether the ILOS(s) are 
an appropriate and efficient use of Medicaid and CHIP resources.
    In section I.B.4.c. of this rule, we proposed to identify enrollee 
rights and protections for individuals who are offered or who receive 
an ILOS, and in section I.B.4.f. of this proposed rule we outlined 
requirements for States' monitoring of enrollee rights and protections. 
To determine if States have appropriately safeguarded and adequately 
monitored enrollee rights and protections, we propose in Sec.  
438.16(e)(1)(iii)(F) for Medicaid, and through a proposed cross-
reference at Sec.  457.1201(e) for separate CHIP, to require States to 
evaluate appeals, grievances, and State fair hearings data, reported 
separately for each ILOS, including volume, reason, resolution status, 
and trends. As ILOSs are substitutes for covered State plan services 
and settings, and are offered at the option of the managed care plan, 
we believe it would be important to evaluate appeals, grievances, and 
State fair hearing trends to ensure that enrollees' experience with 
ILOSs is not inconsistent or inequitable compared to the provision of 
State plan services and settings. We acknowledge that we already 
require for Medicaid, through Sec.  438.66(e)(2)(v), that States 
include an assessment of the grievances, appeals, and State fair 
hearings annually in MCPAR. But the information we propose that States 
submit with the ILOS retrospective evaluation is different as it would 
be specific to each ILOS compared to the summary level information 
required by MCPAR. We believe collecting these data by ILOS will help 
evaluate the quality of care and enrollee experience related to the 
provision of each ILOS.
    Finally, we believe an evaluation of the impact ILOSs have on 
health equity efforts is a critical component to measure enrollee 
experience, health outcomes, and whether ILOSs are an appropriate and 
efficient use of Medicaid and CHIP resources. As ILOSs can be an 
innovative option States may consider employing in Medicaid and CHIP 
managed care programs to address SDOHs and HRSNs, we also believe it is 
critical to measure their impact on improving population health and 
reducing health disparities. We propose in Sec.  438.16(e)(1)(iii)(G) 
for Medicaid, and through a proposed cross-reference at Sec.  
457.1201(e) for separate CHIP, to require States to evaluate the impact 
of each ILOS on health equity efforts undertaken by the State to 
mitigate health disparities. To do this, managed care plans should 
submit enrollee encounter data, to the extent possible, that includes 
comprehensive data on sex (including sexual orientation and gender 
identity), race, ethnicity, disability status, rurality and language 
spoken. We remind managed care plans of their obligations in Sec. Sec.  
438.242(c)(3) and 457.1233(d) to submit all enrollee encounter data 
that States are required to report to CMS under Sec.  438.818; 
currently, T-MSIS provides fields for sex, race, ethnicity, disability 
status, and language spoken.
    To allow adequate time for claims run-out and the evaluation to be 
conducted, we propose in Sec.  438.16(e)(1)(iv) for Medicaid, and 
through a proposed cross-reference at Sec.  457.1201(e) for separate 
CHIP, to require that States submit a retrospective evaluation to CMS 
no later than 2 years after the completion of the first 5 rating 
periods that included the ILOS following the effective date of this 
provision, if finalized. This 2-year timeframe is similar to the 
timeframe utilized for independent assessments to evaluate programs 
authorized by waivers approved under section 1915(b) of the Act.
    While we believe many ILOSs can be sufficiently validated as 
medically appropriate and cost effective substitutes within 5 years, we 
know that some may not. To fulfill our program monitoring obligations, 
we believe we must be able to require additional evaluations if the 
initial evaluation demonstrates deficiencies. We propose in Sec.  
438.16(e)(1)(v) for Medicaid, and through a proposed cross-reference at 
Sec.  457.1201(e) for separate CHIP, to explicitly assert our right to 
require States to provide additional 5-year retrospective evaluations. 
We believe that this could be a necessary flexibility when additional 
evaluation time might be needed, such as to demonstrate that an ILOS 
acting as a longer term substitute for a covered State plan service or 
setting is cost effective and medically appropriate. We also believe we 
may need to utilize this flexibility when a State substantially revises 
the ILOSs that are options within a managed care program.
    For CHIP, our typical mechanism for retrospective managed care cost 
evaluation is through the CHIP Annual Report Template System (CARTS). 
We recognize that CARTS is completed annually by States and that our 
proposed timeframe for the retrospective evaluation is for a period of 
5 years, but we considered whether it would be less burdensome to 
States to incorporate the CHIP ILOS retrospective evaluation into CARTS 
rather than as a stand-alone report. We seek public comment on whether 
or not the proposed retrospective evaluation should be incorporated 
into CARTS for CHIP ILOSs.
h. State and CMS Oversight (Sec. Sec.  438.16(e) and 457.1201(e))
    If a State determines that an ILOS is no longer a medically 
appropriate or cost effective substitute or the State identifies 
another area of noncompliance in the provision of ILOSs, we believe CMS 
must be promptly notified. We rely on the authority in sections 
1902(a)(4) and 2101(a) of the Act to establish methods for proper and 
effective operations in Medicaid and CHIP, and sections 1902(a)(6) and 
2107(b)(1) of the Act which require that States provide reports, in 
such form and containing such information, as the Secretary may from 
time to time require. We propose,

[[Page 28174]]

in Sec.  438.16(e)(3) for Medicaid, and through a proposed cross-
reference at Sec.  457.1201(e) for separate CHIP, to establish 
processes and timelines for State and CMS oversight of ILOSs. In Sec.  
438.16(e)(2)(i)(A) and (B) for Medicaid, and through a proposed cross-
reference at Sec.  457.1201(e) for separate CHIP, we propose to require 
that States notify CMS within 30 calendar days if the State determines 
that an ILOS is no longer a medically appropriate or cost effective 
substitute for a State plan-covered service or setting, or the State 
identifies another area of noncompliance in this proposed section. 
Issues of noncompliance that would require State notification to CMS 
include, but are not limited to, contravening statutory requirements 
(for example, the provision of room and board), failure to safeguard 
the enrollee rights and protections enumerated under part 438, or the 
absence of the proposed provider documentation necessary to establish 
that an ILOS is medically appropriate for a specific enrollee. We 
believe that 30 days is a reasonable period of time for a State to 
identify and confirm an area of noncompliance. We considered a 60-day 
notification period, but believe that States should notify CMS in a 
more expeditious manner so that CMS may assess and swiftly remediate 
issues of noncompliance that might cause harm to enrollees. We seek 
comment on the time period for State notification to CMS to ensure it 
is reasonable and appropriate.
    We believe a termination process for ILOSs is critical to properly 
safeguard the health and safety of Medicaid and CHIP enrollees. 
Therefore, we propose a Federal oversight process at Sec.  
438.16(e)(2)(ii) for Medicaid, and through a proposed cross-reference 
at Sec.  457.1201(e) for separate CHIP, which would permit CMS to 
terminate the use of an ILOS, if we determine noncompliance or receive 
State notification of noncompliance as proposed in Sec.  
438.16(e)(2)(i). In Sec.  438.16(e)(2)(iii) for Medicaid, and through a 
proposed cross-reference at Sec.  457.1201(e) for separate CHIP, we 
propose a process for termination of an ILOS that would apply when a 
State terminates an ILOS, a managed care plan elects to no longer offer 
an ILOS to its enrollees, or CMS notifies the State that it must 
terminate an ILOS. In any of these events, we propose that the State 
would be required to submit an ILOS transition plan to CMS for review 
and approval within 15 calendar days of the decision by the State to 
terminate an ILOS, a managed care plan notifying the State it will no 
longer offer an ILOS, or receipt of notice from CMS to terminate. In 
addition to 15 calendar days, we also considered 30, 60, and 90 
calendar days, but ultimately decided on the former option. We 
recognize that 15 calendar days is a rapid submission timeline, but we 
firmly believe that such a transition plan would need to be implemented 
immediately following an ILOS termination to safeguard enrollee health 
and safety, and to maintain the integrity and efficient operation of 
the Medicaid program in accordance with sections 1902(a)(4) and 2101(a) 
of the Act. Given the submission timeline and that ILOSs are provided 
at the option of the managed care plan, we believe States should 
prepare an ILOS transition plan as part of the implementation process 
for any new ILOSs. The process for termination proposed at Sec.  
438.16(e)(2)(iii) is the same, regardless of whether the State, managed 
care plan or CMS terminates the ILOS as the potential risks to 
enrollees are the same irrespective of which entity directs termination 
of the ILOS.
    In Sec.  438.16(e)(2)(iii)(A) through (D) for Medicaid, and through 
a proposed cross-reference at Sec.  457.1201(e) for separate CHIP, we 
propose the elements States should include in the transition plan for 
the ILOS. We believe that a transition plan is necessary to protect the 
health and well-being of Medicaid and CHIP enrollees for whom the 
sudden termination of an ILOS, without an adequate transition plan, 
could have a significant negative impact. We rely on the authority in 
sections 1902(a)(4) and 2101(a) of the Act to establish methods for 
proper and effective operations in Medicaid and CHIP, and sections 
1902(a)(6) and 2107(b)(1) of the Act which require that States provide 
reports, in such form and containing such information, as the Secretary 
may from time to time require. In Sec.  438.16(e)(2)(iii)(A) for 
Medicaid, and through a proposed cross-reference at Sec.  457.1201(e) 
for separate CHIP, we propose to require that States establish a 
process to notify enrollees that the ILOS they are currently receiving 
will be terminated as expeditously as the enrollee's health condition 
requires. We also propose, in Sec.  438.16(e)(2)(iii)(B) for Medicaid, 
and through a proposed cross-reference at Sec.  457.1201(e) for 
separate CHIP, to require that States create and make publicly 
available a transition of care policy, not to exceed 12 months, to 
arrange for State plan services and settings to be provided timely and 
with minimal disruption to the care for any enrollees receiving an ILOS 
at the time of termination. From the period of notification onward, we 
would expect that a State and its managed care plans cease provision of 
the ILOS to any new enrollees. Together, we believe that these two 
actions would ensure adequate beneficiary protections, including 
adequate beneficiary notice and access to medically appropriate State 
plan-covered services and settings in a timely fashion.
    In addition to enrollee focused activities, we propose that the 
transition plan also include administrative actions that States would 
take to remove a terminated ILOS from the applicable managed care plan 
contract(s) and capitation rates. ILOSs must be authorized and 
identified in the managed care plan contract consistent with Sec.  
438.3(e)(2)(iii) and Sec.  457.1201(e), and we believe it is equally 
important to ensure any terminated ILOS is removed from the managed 
care plan contract (and rate certification if necessary) to ensure 
clarity on contractual obligations and appropriate program integrity. 
We propose, in Sec.  438.16(e)(2)(iii)(C) for Medicaid, and through a 
proposed cross-reference at Sec.  457.1201(e) for separate CHIP, to 
direct States to remove the ILOS from the applicable managed care plan 
contracts and submit a modified contract to CMS for review and approval 
as required for Medicaid in Sec.  438.3(a). Similarly, we permit 
States, through Sec. Sec.  438.3(e)(2)(iv) and Sec.  457.1201(e), to 
account for the utilization and actual cost of ILOSs in developing the 
component of the capitation rates that represents the covered State 
plan services, unless a statute or regulation explicitly requires 
otherwise. As part of the transition plan, States would be required to 
provide an assurance that it would submit the necessary contract 
amendment, and outline a reasonable timeline for submitting the 
contract amendment to CMS for review and approval. In the event that an 
ILOS is terminated from the managed care plan contract, the State and 
its actuary, should evaluate if an adjustment(s) to the capitation 
rates is necessary to ensure Medicaid capitation rates continue to be 
actuarially sound, such as if the programmatic change would have a 
material impact to the rate development. As outlined in Sec.  438.4 for 
Medicaid, actuarially sound capitation rates must be appropriate for 
the populations to be covered and the services to be furnished under 
the managed care plan contract, and the State's actuary must ensure 
that the capitation rates continue to be actuarially sound given any 
change to

[[Page 28175]]

the contract. Therefore, we propose in Sec.  438.16(e)(2)(iii)(D) to 
direct States to adjust the actuarially sound capitation rate(s), as 
needed, to remove utilization and cost of the ILOS from Medicaid 
capitation rates as required in Sec. Sec.  438.4, 438.7(a) and 
438.7(c)(2). As part of the transition plan, States would be required 
to provide an assurance that it would submit an adjustment to the 
capitation rates, as needed, and outline a reasonable timeline for 
submitting the revised rate certification to CMS for review and 
approval.
    For separate CHIPs, States must develop capitation rates consistent 
with actuarially sound principles as required at Sec.  457.1203(a). We 
also believe that in the event a CHIP ILOS is terminated, a State 
should evaluate if an adjustment to the capitation rate is needed to 
account for the removal of ILOS utilization and cost from the managed 
care plan contract. For this reason, we propose to adopt Sec.  
438.16(e)(2)(iii)(D) for separate CHIP through a new cross-reference at 
Sec.  457.1201(e). However, we note that the requirements at Sec.  
438.7 are not applicable for 42 CFR part 457.
i. Applicability Dates (Sec. Sec.  438.3(e), 438.7(g), 438.16(f), 
457.1200(d))
    We propose that States and managed care plans would be required to 
comply with the provisions outlined in Sec. Sec.  438.2, 
438.3(c)(1)(ii) and (e)(2)(i) through (iv), 438.10(g)(2)(ix), 
438.66(e)(2)(vi) and applicable cross-references for separate CHIP at 
Sec. Sec.  457.10, 457.1201(c) and (e), and 457.1207 no later than the 
effective date of the final rule. We believe this is appropriate as 
these proposals are technical corrections or clarifications of existing 
requirements. Additionally, we propose that States and managed care 
plans would have to comply with Sec. Sec.  438.3(e)(2)(v), 438.16, 
438.7(b)(6) no later than the rating period for contracts with MCOs, 
PIHPs, and PAHPs beginning on or after 60 days following the effective 
date of the final rule as we believe this is a reasonable timeframe for 
compliance. We propose to revise Sec.  438.3(v) to add this proposed 
date, remove ``July 1, 2017,'' and update ``2015'' and referenced 
citations; and add 438.7(g)(1) and 438.16(f). We propose to adopt the 
applicability date at Sec.  438.16(f) for separate CHIP by adding Sec.  
457.1200(d).
5. Quality Assessment and Performance Improvement Program, State 
Quality Strategies and External Quality Review (Sec. Sec.  438.330, 
438.340, 438.350, 438.354, 438.358, 438.360, 438.364, 457.1201, 
457.1240, 457.1250)
a. Quality Assessment and Performance Improvement Program (Sec.  
438.330)
    Regulations at Sec.  438.330 establish the Quality Assessment and 
Performance Improvement (QAPI) programs that States must require of 
Medicaid managed care plans (that is, MCOs, PIHPs, and PAHPs). Section 
438.330(d) describes the performance improvement projects (PIPs) that 
States must require of Medicaid managed care plans as part of the QAPI 
program. Medicare Advantage (MA) plans are subject to similar (but not 
identical) requirements at Sec.  422.152. Section 422.152 outlines the 
quality improvement program requirements for MA organizations, 
including the development and implementation of a Chronic Care 
Improvement Program (CCIP). Previously, CMS required MA organizations 
to develop and implement Quality Improvement Project (QIPs), which were 
an organization's initiatives focusing on specified clinical and 
nonclinical areas and were expected to have a favorable effect on 
health outcomes and enrollee satisfaction. However, CMS found the 
implementation of the QIP and CCIP requirements had become burdensome 
and complex, and removed the requirements for the QIP. With the removal 
of the QIP requirement with the 2019 Final Rule (83 FR 16440), we are 
proposing to update our regulations at Sec.  438.330(d)(4) which still 
reference a QIP as a substitute for a PIP in managed care plans 
exclusively serving dually eligible individuals.
    Through previous rulemaking, in the 2016 final rule (81 FR 27682), 
we implemented a policy, at Sec.  438.330(d)(4), to allow States to 
permit Medicaid managed care plans exclusively serving dually eligible 
individuals to substitute an MA plan's quality improvement project 
(QIP) conducted under Sec.  422.152(d) in the place of a Medicaid PIP, 
to prevent unnecessary duplication and increase flexibility for plans 
and States. Subsequently, in the final rule ``Medicare Programs; 
Contract Year 2019 Policy and Technical Changes to the Medicare 
Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare 
Prescription Drug Benefit Programs and the PACE Program,'' we removed 
the QIP from the requirements for MA organizations at Sec.  422.152, 
because we determined that they did not add significant value and many 
were duplicative of existing activities, such as the Chronic Care 
Improvement Program (CCIP) (83 FR 16669). Due to an oversight at that 
time, we neglected to remove a reference to the QIP from Sec.  
438.330(d)(4) to conform with the changes at Sec.  422.152. We are now 
proposing to replace the outdated reference at Sec.  438.330(d)(4) to 
Sec.  422.152(d) (which previously described the now-removed QIP), with 
a reference to the CCIP requirements for MA organizations in Sec.  
422.152(c). This change would allow States to permit a Medicaid managed 
care plan exclusively serving dually eligible individuals to substitute 
an MA organization CCIP, conducted in accordance with the requirements 
at Sec.  422.152(c), for one or more of the PIPs required under Sec.  
438.330(d). We believe the CCIP meets the same intent of the current 
regulation as an appropriate substitute for a PIP based on the quality 
improvement standards in a CCIP, including the identification of 
intervention goals and objectives, the collection and analysis of valid 
and reliable data, the assessment of performance and outcomes using 
quality indicators and measures, systematic and ongoing follow-up for 
increasing or sustaining improvement, and the reporting of results to 
CMS. We believe that permitting such a substitution would also maintain 
the intent of the current regulation to prevent unnecessary duplication 
and increase flexibility for plans and States, while allowing Medicaid 
managed care plans to maintain robust health improvement initiatives 
for dually enrolled individuals. Since the change to remove QIPs has 
been in place since 2019, we expect some States to already have CCIPs 
in place in lieu of QIPs, and therefore, are proposing that States must 
comply with this update in Sec.  438.330(d)(4) no later than the rating 
period for contracts beginning after the effective date of the final 
rule in the applicability date provision at Sec.  438.310(d)(1). We 
note this proposed change does not apply to separate CHIP because we 
did not apply Sec.  438.330(d)(4) to separate CHIP in the 2016 final 
rule, and because Sec.  457.310(b)(2) does not allow for concurrent 
health coverage in separate CHIP.
b. Managed Care State Quality Strategies (Sec. Sec.  438.340, 457.1240)
    Current regulations at Sec.  438.340, which are included in 
separate CHIP regulations through an existing cross-reference at Sec.  
457.1240(e), set forth requirements for States to draft and

[[Page 28176]]

implement a written quality strategy for assessing and improving the 
quality of health care and services furnished by the MCO, PIHP, or 
PAHP. The requirement also applies to a PCCM entity whose contract with 
the State provides financial incentives for improved quality outcomes, 
as described in Sec.  438.310(c)(2). The quality strategy is intended 
to serve as a foundational tool for States to set goals and objectives 
related to quality of care and access for their managed care programs. 
Current regulations at Sec.  438.340(c) require States to make their 
quality strategy available for public comment when drafting or revising 
it, and require States to submit their initial quality strategy to CMS 
for feedback prior to adopting in final. These regulations also 
stipulate that States must review and update their quality strategy as 
needed, but no less than once every three years and submit the strategy 
to CMS whenever significant changes are made to the document or 
whenever significant changes occur within the State's Medicaid program. 
Building upon these requirements, we are proposing several changes to 
increase transparency and opportunity for meaningful ongoing public 
engagement around States' managed care quality strategies. We are 
proposing that States must comply with these updates in Sec.  438.340 
no later than 1 year from the effective date of the final rule, and are 
proposing to codify this applicability date at Sec.  438.310(d)(2) for 
Medicaid, and through a proposed amendment at Sec.  457.1200(d) to 
include a cross-reference to Sec.  438.310(d) for separate CHIP.
    First, we are proposing to increase the opportunity that interested 
parties have to provide input into States' managed care quality 
strategy. Current regulations at Sec.  438.340(c)(1) require that 
States make their quality strategy available for public comment when it 
is first adopted and when revisions are made. However, the current 
regulations do not require that the quality strategy be posted for 
public comment at the three-year renewal mark if significant changes 
have not been made. We are proposing to revise Sec.  438.340(c)(1) to 
require that States make their quality strategy available for public 
comment at the 3-year renewal, regardless of whether or not the State 
intends to make significant changes, as well as whenever significant 
changes are made. The proposed change would promote transparency and 
give interested parties an opportunity to provide input on changes they 
think should be made to the quality strategy, even if the State itself 
is not proposing significant changes. Consistent with current policy, 
States will retain discretion under the proposed rule to define the 
public comment process. This proposed change would apply equally to 
separate CHIP through the existing cross-reference at Sec.  
457.1240(e).
    Second, we are proposing to revise Sec.  438.340(c)(2)(ii) to 
clarify that the State Medicaid agency must post on its website the 
results of its 3-year review. The current regulations make clear at 
Sec.  438.340(c)(2) that the review must include an evaluation, 
conducted within the previous 3 years, of the effectiveness of the 
quality strategy and that the results of the review must be made 
available on the State's website, but do not specifically state that 
the full evaluation must be posted on the website. Proposed revisions 
at Sec.  438.340(c)(2)(ii) make clear that the evaluation, as part of 
the review, must be posted. We note that current Sec.  438.340(c) 
allows for States to post the evaluation on the website as a standalone 
document or to include the evaluation in the State's updated and 
finalized quality strategy, which is required to be posted under Sec.  
438.340(d). The proposed change at Sec.  438.340(c)(2)(ii) would apply 
equally to separate CHIP through the existing cross-reference at Sec.  
457.1240(e). For additional information on the components and purpose 
of the managed care quality strategy, see the Quality Strategy Toolkit, 
available at https://www.medicaid.gov/medicaid/downloads/managed-care-quality-strategy-toolkit.pdf.
    Third, we are proposing to clarify when States must submit a copy 
of their quality strategy to CMS. Current regulations at Sec.  
438.340(c)(3) require that States submit to CMS a copy of their initial 
quality strategy for feedback and a copy of the revised quality 
strategy whenever significant changes are made. The current regulations 
do not require States to submit to CMS subsequent versions of their 
quality strategy unless the State has made significant changes to the 
document or to their Medicaid program. We are proposing to modify Sec.  
438.340(c)(3)(ii) to require that States, prior to finalizing a revised 
or renewed quality strategy as final, submit a copy of the revised 
strategy to CMS at minimum every 3 years, following the review and 
evaluation of the strategy described at Sec.  438.340(c)(2), in 
addition to when significant changes are made. These proposed changes 
would allow CMS the opportunity to provide feedback periodically to 
help States strengthen their managed care quality strategies before 
they are finalized, whether or not significant changes are made to a 
State's strategy or to their Medicaid program. We propose to include 
this requirement into the provision at Sec.  438.340(c)(3)(ii) for 
Medicaid by adding Sec.  438.340(c)(3)(ii)(A) through (C), which would 
apply to separate CHIP through an existing cross-reference at Sec.  
457.1240(e). We are proposing at Sec.  438.310(d)(2) for Medicaid, and 
through a proposed amendment at Sec.  457.1200(d) to include a cross-
reference to Sec.  438.310(d) for separate CHIP, that States must 
comply with updates to Sec.  438.340 no later than 1 year from the 
effective date of the final rule, which we believe would give States 
time to update internal processes accordingly.
    Finally, we are proposing a technical correction to Sec.  
438.340(c)(3)(ii) to correct an internal citation related to State-
defined significant changes. Currently, Sec.  438.340(c)(3)(ii) 
references significant changes ``as defined in the State's quality 
strategy per paragraph (b)(11) of this section[.]'' However, Sec.  
438.340(b)(10) contains the information on a State's definition of a 
significant change. Therefore, we are proposing to replace ``paragraph 
(b)(11)'' with ``paragraph (b)(10)'' in Sec.  438.340(c)(3)(ii). This 
proposed change would apply equally to separate CHIP through the 
existing cross-reference at Sec.  457.1240(e).
c. External Quality Review (Sec. Sec.  438.350, 438.354, 438.358, 
438.360, 438.364, 457.1201, 457.1240, 457.1250)
    Current regulations at Sec. Sec.  438.350, 438.354, 438.358, 
438.360, 438.364, and 457.1250 provide requirements for the annual 
External Quality Review (EQR) on quality, timeliness, and access to the 
health care services furnished to Medicaid and CHIP beneficiaries 
enrolled in managed care. The regulations set forth the EQR-related 
activities that States or a qualified EQR organization (EQRO) must 
perform, and the information that must be produced from an EQR and 
included in an annual detailed EQR technical report. States must submit 
to CMS an annual EQR technical report, which must include, among other 
things, a description of data, including validated performance 
measurement data for certain mandatory EQR-related activities. The 
regulations also delineate the circumstances in which States may use 
the results from a Medicare or private accreditation review in lieu of 
conducting an EQR for a given managed care entity. The EQR requirements 
in 438 Subpart E apply to each MCO, PIHP, and PAHP that has a contract 
with a State Medicaid or CHIP agency as well as certain PCCM entities

[[Page 28177]]

whose contract with the State provides financial incentives for 
improved quality outcomes, as described in Sec.  438.310(c)(2). We are 
proposing several changes to the EQR regulations that seek to 
accomplish two overarching goals: (1) eliminate unnecessary burdensome 
requirements; and (2) make EQR more meaningful for driving quality 
improvement.
(1) Removal of PCCM Entities From Scope of Mandatory External Quality 
Review
    In the final 2016 final rule, we added a definition of ``primary 
care case management entity'' in Sec. Sec.  438.2 and 457.10 to 
recognize a new type of primary care case management system in Medicaid 
and CHIP. Previously, the regulations recognized, and continue to 
recognize, a primary care case manager (PCCM) as a physician or a 
physician group practice or, at State option, a physician assistant, 
nurse practitioner, or certified nurse-midwife that contracts with the 
State to furnish case management services to Medicaid beneficiaries. 
The 2016 final rule added the term ``PCCM entity,'' which is defined in 
Sec. Sec.  438.2 and 457.10 as an organization that provides one or 
more additional specified functions in addition to primary care case 
management services, for example, intensive case management, 
development of care plans, execution of contracts with and/or oversight 
responsibilities for other FFS providers, and review of provider 
claims, utilization and practice patterns, among others. We further 
recognized in the 2016 final rule that some PCCM entities have 
contracts with the State that provide financial incentives for improved 
quality outcomes. Per current Sec.  438.310(c)(2), such PCCM entities 
are subject to a number of the requirements in 42 CFR part 438, subpart 
E (relating to Quality Measurement and Improvement and External Quality 
Review) to which PCCMs are not similarly subject.
    Of particular relevance to this proposed rule, the regulations have 
long provided that States are not required to perform an annual EQR of 
the State's PCCMs. However, in the 2016 final rule, we provided at 
Sec. Sec.  438.350 and 457.1250(a) that States are required to conduct 
an annual EQR of PCCM entities operating under a risk-bearing contract 
described in Sec.  438.310(c)(2). We reasoned at the time that, while 
PCCMs traditionally are paid a per capita fee to provide case 
management services for Medicaid beneficiaries and otherwise are 
reimbursed for services rendered on a fee-for-service (FFS) basis, such 
PCCM entities function more like a managed care entity because their 
contracts include shared financial risk, and thus should be subject to 
the EQR requirements.
    The 2016 final rule also provided for CMS review of States' 
contracts with their PCCM entities under Sec.  438.3(r). Our reviews of 
these contracts have led us to reevaluate the policy to require an 
annual EQR of PCCM entities described in Sec.  438.310(c)(2), as these 
contracts exhibit wide variability in the size, structure, and scope of 
case management and other services provided by risk-bearing PCCM 
entities. This variation calls into question the appropriateness of EQR 
as an oversight tool for many of the PCCM entities. For example, the 
scope of services for some of these PCCM entities may yield little to 
no data for EQR. In addition, some PCCM entities are a single provider 
or a small provider group, and we believe the cost and burden imposed 
by the EQR process may disincentivize them from entering into risk-
bearing contracts with States aimed at improving quality and outcomes 
in the fee-for-service delivery system. We do not believe the EQR 
requirement should be a barrier for these types of PCCM entities to 
establish arrangements aimed at quality improvement when States have 
additional quality monitoring and oversight tools that may be 
sufficient (for example, QAPI program reviews described at Sec.  
438.330(e)).
    Therefore, we propose to remove PCCM entities described in Sec.  
438.310(c)(2) from the managed care entities subject to EQR under Sec.  
438.350. Other requirements in 42 CFR part 438, subpart E that 
currently apply to risk-bearing PCCM entities described at Sec.  
438.310(c)(2) are not impacted by this proposed rule.\141\ We note that 
States may perform additional oversight and monitoring activities that 
are similar to external quality reviews for PCCM providers (and other 
providers not subject to EQR such as non-emergency medical 
transportation providers) at their discretion, and may choose to use an 
entity that is also an EQRO for these activities, however these 
activities would not be subject to 438 Subpart E regulations for EQR. 
Further, we believe that the removal of all PCCM entities from the 
mandatory scope of EQR will alleviate burden on States and PCCM 
entities while retaining appropriate tools for quality monitoring and 
oversight.
---------------------------------------------------------------------------

    \141\ States are currently required to include their PCCM 
entities in CMS contract review under Sec.  438.3(r), and for PCCM 
entities described at Sec.  438.310(c)(2), States must include them 
in aspects of their quality assessment and performance improvement 
programs (QAPI) including an annual utilization and program reviews 
(Sec.  438.330(b)(2), (b)(3), (c), and (e)), and their quality 
strategy (Sec.  438.340), which includes a quality strategy 
effectiveness evaluation. States have the discretion under Sec.  
438.358(d) to use their EQRO to provide technical assistance to PCCM 
entities described at Sec.  438.310(c)(2).
---------------------------------------------------------------------------

    We propose conforming amendments to remove reference to PCCM 
entities described in Sec.  438.310(c)(2) in Sec. Sec.  438.310(b)(5), 
438.358(a)(1), 438.364(a)(3) through (6), and 438.364(c)(2)(ii), and to 
remove the reference to Sec.  438.350 from Sec.  438.310(c)(2). We also 
propose removing the current provision at Sec.  438.358(b)(2) that 
applies risk-bearing PCCM entities to the mandatory EQR activities, to 
conform with the proposed changes at Sec.  438.350, and reserve this 
provision for future use. We maintain that EQROs must be independent 
from any PCCM entities they review at the State's discretion, as 
currently required under Sec.  438.354(c), and propose a modification 
at Sec.  438.354(c)(2)(iii) to clarify this. We note that these 
changes, if finalized, would be effective as of the effective date of 
the final rule. For separate CHIP, we likewise propose to exclude all 
PCCM entities from EQR requirements by removing the cross-reference to 
Sec.  438.350 at Sec.  457.1201(n)(2), by removing the reference to 
PCCM entities entirely from Sec.  457.1250(a), and removing the cross-
reference to Sec.  457.1250(a) for quality requirements applicable to 
PCCM entities at Sec.  457.1240(f).
(2) EQR Review Period
    The current regulations provide that most EQR activities are 
performed using information derived from the preceding 12 months, but 
do not clearly indicate to which 12-month period the activity should 
pertain. Specifically, the current regulations at Sec.  438.358(b)(1) 
(which apply to separate CHIP through Sec.  457.1250(a)) require 
validation of information collected or calculated during ``the 
preceding 12 months'' for three of the mandatory EQR activities 
(validation of performance improvement projects, validation of 
performance measurement data, and validation of network adequacy 
activities). The optional EQR activities described in Sec.  438.358(c) 
also must be performed using information derived ``during the preceding 
12 months''. In addition, we do not currently specify in the 
regulations when the EQR activity must take place relative to the 
finalization and posting of the annual report. The result is a lack of 
uniformity in the review periods included in States' annual EQR 
technical reports each year. In some cases, for example, States have

[[Page 28178]]

reported on the results of EQR activities conducted three or more years 
ago, while other States have reported on the results of EQR activities 
conducted relatively close to the completion of the report. To support 
States' and CMS' ability to use the reports for quality improvement and 
oversight, we are proposing modifications to ensure consistency and 
align the data in the annual reports with the most recently available 
information used to conduct the EQR activities.
    We propose to add a new paragraph (a)(3) in Sec.  438.358 to define 
the 12-month review period for all but one the EQR-related activities 
described in Sec.  438.358(b)(1) and the optional activities described 
in Sec.  438.358(c). The one exception is the activity described in 
Sec.  438.350(b)(1)(iii), which requires a review within the previous 3 
years. Under proposed Sec.  438.358(a)(3), the 12-month review period 
for the applicable EQR activities begins on the first day of the most 
recently concluded contract year or calendar year, whichever is nearest 
to the date of the EQR-related activity.
    We understand that most performance measures run on a calendar 
year, while performance improvement projects and network adequacy 
assessments typically align with the contract year. Under the proposed 
rule, the 12-month review period for EQR activities does not have to be 
the same. For example, if an EQRO begins the performance measurement 
validation activity in July of 2022, and the State calculates 
performance measures on the calendar year, the review period for the 
performance measurement validation activity would be January 1 through 
December 31, 2021. Similarly, if the EQRO validates PIPs in November 
2021 and the most recent contract year ended in March 2021, the review 
period for the EQRO would be March 2020-March 2021.
    We are also proposing to require at Sec.  438.358(b)(1) and (c) 
that the EQR-related activities must be performed in the 12 months 
preceding the finalization and publication of the annual report. We 
believe these two proposed changes would result in more recent data 
being publicly posted in the annual EQR technical reports, and also 
would create more consistency among States regarding the time period 
represented by the data. Consistency in what data is reported could 
help make the EQR technical reports a more meaningful tool for 
monitoring quality between plans within and between States.
    As noted, the proposed clarification of the 12-month review period 
for the applicable EQR-related activities described in Sec.  
438.350(b)(1) and (c) would be effectuated at proposed Sec.  
438.358(a)(3). We propose conforming changes to Sec.  438.358(b)(1)(i), 
(ii) and (iv), and (c) to reference the EQR review period proposed at 
Sec.  438.358(a)(3). We propose to modify the language at Sec.  
438.350(b)(1) and (c) to indicate that the EQR-related activities must 
be performed in the 12 months preceding the finalization of the annual 
reports. These proposed changes would apply equally to separate CHIP 
EQR requirements for MCOs, PIHPs, and PAHPS through an existing cross-
reference to Medicaid's EQR-related activities in Sec.  438.358 at 
Sec.  457.1250(a). We are proposing that States must comply with these 
updates to Sec.  438.358 no later than December 31, 2025, and are 
proposing to codify this applicability date at Sec.  438.310(d)(3) for 
Medicaid, and through a proposed amendment at Sec.  457.1200(d) to 
include a cross-reference to Sec.  438.310(d) for separate CHIP. This 
applicability date aligns with the new annual due date for EQR 
technical reports as proposed at Sec.  438.364(c)(2)(i), which we 
believe provides States sufficient time to make any contractual or 
operational updates following the final rule.
(3) Using an Optional EQR Activity To Support Current and Proposed 
Managed Care Evaluation Requirements
    We are proposing to add a new optional EQR activity to support 
States in their evaluations to learn more about quality outcomes and 
timeliness of and access to care in managed care plans and programs. 
Specifically, we believe the existing or proposed evaluation 
requirements included in this proposed rule for quality strategies at 
Sec.  438.340(c)(2)(i), State Directed Payments (SDPs) at Sec.  
438.6(c)(2)(iv) and (v), and In Lieu of Services or Settings (ILOSs) at 
Sec.  438.16(e)(1) may be implemented using this new EQR activity. We 
currently require at Sec.  438.340(c)(2)(i) that States review their 
quality strategy at a minimum every 3 years, and that this review 
include an evaluation of the effectiveness of the quality strategy 
conducted within the previous 3 years. In this proposed rule, we are 
proposing new requirements related to the evaluation of SDPs at Sec.  
438.6(c)(2)(iv) and (v) and ILOSs at Sec.  438.16(e)(1), described in 
more detail in sections I.B.2.j. and I.B.4.g. We discuss at length the 
challenges States have demonstrated regarding the SDP evaluation plans 
and results in section I.B.2.j. of this proposed rule, which indicates 
to us that States would likely benefit from additional technical 
assistance and support in conducting evaluations under the newly 
proposed SDP and ILOS requirements. Additionally, CMS' reviews of State 
quality strategy evaluations have revealed many challenges for States 
and a similar need for greater technical assistance. For this reason, 
we propose to add a new optional EQR activity at Sec.  438.358(c)(7) to 
assist in evaluations of quality strategies, SDPs, and ILOSs, that 
pertain to outcomes, quality, or access to health care services. We are 
focusing the scope of the EQR optional activity to activities 
permissible under the statutory authority at Section 1932(c)(2) of the 
Act, which requires external review of the quality outcomes and 
timeliness of, and access to, the items and services for which the 
organization is responsible under the contract. We believe by adding 
this optional activity, States, their agent, or an EQRO could use the 
accompanying protocol that CMS would develop (in coordination with the 
National Governors Association in accordance with Sec.  438.352) to 
assist with evaluation activities related to quality strategies, SDPs, 
and ILOS, that are within the scope of EQR. We also believe EQROs may 
be well positioned to help with evaluations since their qualifications, 
as required under Sec.  438.354(b), include research design and 
methodology, including statistical analysis, and quality assessment and 
improvement methods. We believe this optional activity would provide 
States critical technical assistance via a CMS-developed protocol that 
would enable more robust evaluations, which could lead to greater 
transparency and quality improvement in States' implementation of their 
quality strategy, SDPs and ILOSs. It could also reduce burden by 
allowing States to receive an enhanced match for activities carried out 
by an EQRO under this optional activity in accordance with section 
1903(a)(3)(C)(ii) of the Act.
    For separate CHIP, we did not adopt the proposed evaluation of SDPs 
at Sec.  438.6(c)(2)(iv) and (v) (see sections I.B.2.a. and I.B.2.j. of 
this proposed rule). For this reason, we propose to amend separate CHIP 
EQR requirements at Sec.  457.1250(a) to exclude references to Sec.  
438.6. However, we proposed to adopt the new ILOS retrospective 
evaluation requirements at Sec.  438.16(e)(1) through our proposed 
cross-reference at Sec.  457.1201(e) (see section I.B.4.g. of this 
proposed rule). Since section 2103(f)(3) of the Act requires external 
review of CHIP managed care plans, we also believe that CHIP EQROs are 
well positioned to assist with the proposed ILOSs evaluations and agree 
it would be beneficial to States to have this optional

[[Page 28179]]

EQR activity. We propose to adopt the new EQR optional activity for 
separate CHIP through an existing cross-reference to Sec.  438.358 at 
Sec.  457.1250(a). If finalized, this optional activity would be 
available to States as of the effective date of the final rule.
(4) Non-Duplication of Mandatory EQR Activities With Medicare or 
Accreditation Review
    Current Sec.  438.360 provides an option for States to exempt MCOs, 
PIHPs, or PAHPs from EQR-related activities that would duplicate 
activities conducted as a part of either a Medicare review of a 
Medicare Advantage (MA) plan or a private accreditation review. Section 
438.360(a)(1) requires that, in order for a State to exercise this 
option with respect to private accreditation, the plan accreditation 
must be from a private accrediting organization recognized by CMS ``as 
applying standards at least as stringent as Medicare under the 
procedures in Sec.  422.158 of this chapter[.]'' Section 422.158 
describes the procedures for private, national accreditation 
organizations (PAOs) to apply for approval of accreditation as a basis 
for deeming compliance with Medicare requirements, also referred to as 
``deeming authority.'' Sections 422.156 and 422.157 discuss conditions 
and applications of the deeming authority, under which a PAO may 
accredit MA plans for the purposes of deeming compliance with one or 
more specific areas of the MA program. The implementation of this 
current requirement at Sec.  438.360(a)(1) has meant that PAOs must 
obtain deeming authority from CMS as a prerequisite for the States to 
use the PAO's plan accreditation review for the purposes of 
nonduplication of mandatory EQR activities. This means the PAO must 
obtain and periodically renew their MA deeming authority from CMS even 
if it is solely for the purpose of providing States the opportunity to 
use their reviews of a Medicaid managed care plans in lieu of 
conducting a similar EQR-related activity.
    We believe the current regulation creates an unnecessary 
administrative burden on both CMS and PAOs and may restrict the 
availability of the EQR nonduplication option for States. We also do 
not believe that the current requirement is compelled under the 
statute. The statutory basis for the nonduplication provision, found at 
section 1932(c)(2)(B) of the Act, states, a State may provide that, in 
the case of a Medicaid managed care organization that is accredited by 
a private independent entity (such as those described in section 
1852(e)(4)) or that has an external review conducted under section 
1852(e)(3) of the Act, the external review activities conducted under 
subparagraph (A) with respect to the organization shall not be 
duplicative of review activities conducted as part of the accreditation 
process or the external review conducted under such section (emphasis 
added). Section 1852(e)(4) of the Act is the statutory basis for PAOs 
to obtain MA deeming authority from CMS. We do not read this provision 
as requiring every private independent entity to be described under 
section 1852(e)(4) of the Act in order for a State to exercise the 
nonduplication provision. Rather, we read section 1932(c)(2)(B) of the 
Act as describing in general terms the types of organizations that 
would be eligible to participate in nonduplication, and providing 
organizations described in section 1852(e)(4) of the Act as an example.
    Therefore, we propose at Sec.  438.360(a)(1) to remove the 
requirement that PAOs must apply for MA deeming authority from CMS in 
order for States to rely on PAO accreditation reviews in lieu of EQR 
activities. We are proposing conforming changes to the title of Sec.  
438.362(b)(2) to remove language specific to Medicare Advantage 
deeming. Additionally, we are proposing to remove the requirements for 
PAOs related to MA deeming authority at Sec.  438.362(b)(2)(i). This 
proposal would remove paragraph (b)(2)(i)(B) and modify paragraph 
(b)(2)(i) to include current Sec.  438.362(b)(2)(i)(A). We believe this 
proposed change will reduce administrative burden among the private 
accreditation industry, as well as create more flexibility for States 
to leverage PAO reviews for nonduplication. We note that under Sec.  
438.360(a)(2) States will still be required to ensure the review 
standards used by any PAO are comparable to standards established 
through the EQR protocols under Sec.  438.352, and pursuant to Sec.  
438.360(c), will need to explain the rationale for the State's 
determination that the activity is comparable in their quality strategy 
at Sec.  438.340. If finalized, these changes would be effective as of 
the effective date of the final rule.
(5) External Quality Review Results (Sec.  438.364)
(a) Data Included in EQR Technical Reports
    The current regulations at Sec.  438.364, included in separate CHIP 
programs through an existing cross-reference at Sec.  457.1250(a), 
describe what information must be included in the annual EQR technical 
reports as well as the public availability of the reports. While the 
information currently provided in the EQR technical reports is useful 
to CMS in our work with States to improve beneficiary access to and 
quality of care provided through a managed care delivery system, we 
believe these reports could and should provide additional information 
useful to both CMS and the public.
    Current regulations at Sec.  438.364(a)(2) describe the information 
the State must include in the annual EQR technical report for each EQR-
related activity. Under Sec.  438.364(a)(2)(iii), the EQR technical 
reports must include a description of data obtained, including 
validated performance measurement data for each PIP validation and 
performance measurement validation activity at Sec.  438.358(b)(1)(i) 
and (ii), respectively. The current regulations, however, limit the 
data included in the reports to performance measurement data; the 
regulations do not require that other types of data that may be used to 
measure the outcomes associated with a PIP, such as percentages of 
enrollees that participated in the PIP or data on patient satisfaction 
based on services received from the plan, be included in the annual 
reports. The result is that reports often focus on whether the methods 
used to implement or evaluate the PIP were validated, but do not 
include the measurable data reflecting the outcomes of the PIP. 
Additionally, the regulations do not currently require the reports to 
include any data obtained from the mandatory network adequacy 
validation activity.
    We believe validation alone is insufficient to provide CMS and 
interested parties with insight into plan performance on PIPs or 
States' effectiveness in driving quality improvement through PIPs. We 
also believe data on network adequacy validation is critical to 
understanding plan performance regarding timeliness and access to care. 
Therefore, we are proposing to revise Sec.  438.364(a)(2)(iii) in two 
ways: (1) to require that the EQR technical reports include ``any 
outcomes data and results from quantitative assessments'' for the 
applicable EQR activities in addition to whether or not the data has 
been validated, and (2) to require this type of data from the mandatory 
network adequacy validation activity to also be included the EQR 
technical report. We believe this change will result in more meaningful 
EQR technical reports because they will include, in addition to 
validation information, the data demonstrating the outcome of PIPs and 
the results of quantitative assessments that determined plan compliance 
with

[[Page 28180]]

network adequacy standards. This, in turn, will make the EQR technical 
reports a more effective tool to drive quality improvement and 
oversight in managed care. The proposed revisions to Sec.  
438.364(a)(2)(iii) for Medicaid would apply to separate CHIP through an 
existing cross-reference at Sec.  457.1250(a). We propose at Sec.  
438.310(d)(4) for Medicaid, and through a proposed amendment at Sec.  
457.1200(d) to include a cross-reference to Sec.  438.310(d) for 
separate CHIP, that States must comply with these updates to the type 
of data in the EQR technical report no later 1 year from the issuance 
of the associated protocol, which we believe will provide the guidance 
and time for States and EQROs need to update their processes.
    In addition to the proposed regulations in this section, we are 
considering adding guidance in the EQR protocols, described under Sec.  
483.352, for States to stratify performance measures collected and 
reported in the EQR technical reports under the performance measure 
validation activity. We believe stratification of performance measure 
data in EQR technical reports would support States' efforts to monitor 
disparities and address equity gaps. Stratifying performance measure 
data also aligns with proposed requirements for the mandatory reporting 
of Medicaid and CHIP Core Sets and proposed requirements in the MAC QRS 
proposed under new 42 CFR part 438 subpart G. We seek comment on how 
CMS could best support States in these efforts using future guidance we 
develop in the EQR protocols.
(b) Revising the Date Annual EQR Technical Reports Must Be Finalized 
and Posted
    We currently require at Sec.  438.364(c) that EQR technical reports 
be completed and available on the State's website required under Sec.  
438.10(c)(3) no later than April 30th of each year. However, we 
understand that most States with managed care programs use Healthcare 
Effectiveness Data and Information Set (HEDIS) measures. HEDIS measures 
represent the majority of measures included in the performance measure 
validation EQR activity. Data on these measures from the previous 
calendar year are audited and finalized in June annually. We therefore 
are proposing to revise Sec.  438.364(c)(1) and (c)(2)(i) to change the 
April 30th date to December 31st. We believe this proposed change would 
align better with the HEDIS timeframes because the EQR performance 
measurement activity could then follow the HEDIS audit. We considered 
aligning the EQR technical report posting date with the end of the 
Federal fiscal year on September 30th. However, we believe States and 
EQROs need more time to complete the EQR activities after receiving 
audited HEDIS data. We also believe December 31st is most appropriate 
because performance measurement data is most often calculated on a 
calendar year, so the December 31st date would result in data being at 
most 1 year old at the time the reports are posted on the State's 
website. We believe this change, coupled with those discussed in 
section I.B.5.c.2. of this proposed rule regarding changes to the EQR 
review period, would improve the utility of the technical reports for 
States, CMS and interested parties by making the data reported in them 
more current. The proposed changes at Sec.  438.364(c)(1) and (c)(2)(i) 
for Medicaid would apply to separate CHIP through an existing cross-
reference at Sec.  457.1250(a).
    We seek comment on changing the posting date to December 31st 
annually. We also seek comment on whether additional time beyond 
December 31st is needed by States, and if so, how much time and why, or 
whether the posting date should remain at April 30th of each year, or a 
date between April 30th and December 31st and why. We are proposing at 
Sec.  438.310(d)(3) for Medicaid, and through a proposed amendment at 
Sec.  457.1200(d) to include a cross-reference to Sec.  438.310(d) for 
separate CHIP, that States come into compliance with this new due date 
by December 31, 2025, which we believe would provide enough time for 
contractual and operational updates.
(c) Notifying CMS When Annual EQR Technical Reports Are Posted
    Current regulations do not require States to notify CMS that their 
EQR technical report has been completed and posted on the State's 
website. We propose to revise Sec.  438.364(c)(2)(i) to require that 
States notify CMS within 14 calendar days of posting their EQR 
technical reports on their website, for example, by providing CMS with 
a link to the report. Section 401 of the Children's Health Insurance 
Reauthorization Act (CHIPRA) of 2009 (Pub. L. 111-3, enacted February 
4, 2009) and section 2701 of the ACA require that CMS review and 
aggregate data from these reports in an annual report to the Secretary 
by September 30th. This proposed change would facilitate our review and 
aggregation of the required data and ensure that all States' data are 
included in the annual report. We are proposing that the notice to CMS 
be provided ``in a form and manner determined by CMS.'' However, we 
seek comment on whether we should require that this notice be provided 
via email or some other mode of communication. The proposed revisions 
at Sec.  438.364(c)(2)(i) would apply to separate CHIP through an 
existing cross-reference at Sec.  457.1250(a). We note that this 
requirement be effective as of the effective date of the final rule, 
which we do not believe will impose a great burden on States since most 
States already notify CMS when their EQR technical reports are posted 
by email.
(d) Revising Website Requirements for Historical EQR Technical Reports
    Currently, States are encouraged, but not required, to retain EQR 
technical reports from previous years on their websites. We are 
proposing to require States maintain at least the previous 5 years of 
EQR technical reports on their website. Retaining at least 5 years of 
past EQR technical reports would provide administrative efficiencies 
and additional transparency by allowing CMS to use historical data and 
information within the annual EQR technical reports for the purposes of 
reviewing States' managed care program and plan performance during 
contract renewals and waiver renewals. In addition, having archived 
reports would provide other interested parties insight into historical 
plan performance. In addition, section 1915(b) waivers can be approved 
for up to 5 years, and section 1115 demonstrations are often approved 
for 5 years, providing additional support for 5 years being an 
appropriate timeframe for this requirement.
    We understand that almost half of States already retain at least 2 
years' worth of EQR technical reports based on a review of State 
websites in 2022, and we seek comment on whether archiving 5 years of 
reports would pose a significant burden on States. We propose to add 
this provision to the requirements at Sec.  438.364(c)(2) for Medicaid, 
which would apply to separate CHIP through an existing cross-reference 
at Sec.  457.1250(a).
    We are proposing that States must comply with this update to Sec.  
438.364(c)(2)(iii) no later than December 31, 2025, and are proposing 
to codify this applicability date at Sec.  438.310(d)(3) for Medicaid, 
and through a proposed amendment at Sec.  457.1200(d) to include a 
cross-reference to Sec.  438.310(d) for separate CHIP. This 
applicability date aligns with the new proposed due date for the EQR 
technical reports, which we believe would provide the time needed to 
update websites accordingly.

[[Page 28181]]

(6) Technical Changes
    We are proposing a technical change at Sec.  438.352 to eliminate 
the apostrophe from National Governors Association to align with the 
correct name of the organization.
6. Medicaid Managed Care Quality Rating System (Sec. Sec.  438.334 and 
457.1240)
a. Background
    In the 2016 final rule we established the authority to require 
States to operate a Medicaid managed care quality rating system (QRS) 
at Sec.  438.334 and adopted the requirement for this provision, 
excluding provisions regarding consultation with the Medical Care 
Advisory Committee, to apply to separate CHIP at Sec.  457.1240(d). We 
use the term ``Medicaid and CHIP Managed Care Quality Rating System'' 
(``MAC QRS'') for this proposed rule in line with the terminology used 
in the 2020 final managed care rule (85 FR 72754). The MAC QRS 
requirements currently include public posting of quality ratings on the 
State's website, which is intended to provide beneficiaries and their 
caregivers with a web-based interface to compare Medicaid and CHIP 
managed care plans based on assigned performance indicators and 
ratings. As described in previous rulemaking, the policy objectives of 
the MAC QRS are threefold: (1) to hold States and plans accountable for 
the care provided to Medicaid and CHIP beneficiaries; (2) to empower 
beneficiaries with useful information about the plans available to 
them; and (3) to provide a tool for States to drive improvements in 
plan performance and the quality of care provided by their programs. 
Managed care is the dominant delivery system in the Medicaid program; 
of the 80.8 million individuals covered by Medicaid as of July 1, 2020, 
67.8 million (84 percent) were enrolled in a type of managed care.\142\ 
Numerous States have implemented rating systems for Medicaid and CHIP 
managed care plans, but the MAC QRS represents the first time that 
States would be held to a minimum Federal standard for their rating 
systems and that Medicaid and CHIP beneficiaries in every State 
contracting with a managed care plan could access quality and other 
performance data at the plan level, supporting the ability of Medicaid 
and CHIP beneficiaries to select plans that meet their needs. The 
policies we are now proposing would establish the MAC QRS as a one-
stop-shop where beneficiaries could access information about Medicaid 
and CHIP eligibility and managed care; compare plans based on quality 
and other factors key to beneficiary decision making, such as the 
plan's drug formulary and provider network; and ultimately select a 
plan that meets their needs. Many of the policies proposed for States' 
MAC QRS websites build upon existing data and information that States 
are already required to report publicly and to us. Thus, we believe 
that under the proposals in this rulemaking, States would be able to 
leverage many existing reporting systems and their current quality 
infrastructure to build their MAC QRS websites and provide a user-
friendly experience for beneficiaries that informs their understanding 
of managed care plan performance and choice of plan.
---------------------------------------------------------------------------

    \142\ https://www.medicaid.gov/medicaid/managed-care/downloads/2020-medicaid-managed-care-enrollment-report.pdf.
---------------------------------------------------------------------------

    Current requirements at Sec.  438.334(b)(1) for Medicaid, which is 
adopted by cross-reference at Sec.  457.1240(d) for separate CHIP, 
provide that CMS, in consultation with States and other interested 
parties, including beneficiaries, managed care plans, external quality 
review organizations (EQROs), tribal organizations, and beneficiary 
advocates (hereafter referred to as ``interested parties''), will 
develop a MAC QRS framework that includes quality measures and a 
methodology for calculating quality ratings. The current regulations 
also provide States the option to either use the CMS-developed 
framework or establish an alternative QRS that produces substantially 
comparable information about plan performance, subject to our approval. 
Furthermore, the current regulations require that we develop a minimum 
set of mandatory quality measures that must be used, regardless of 
whether a State chooses to implement the CMS-developed QRS or an 
alternative QRS; this supports the goal of State-to-State comparisons 
of plan performance while reducing plan burden through standardization. 
The current regulations also require the MAC QRS framework to align, 
where appropriate, with other CMS managed care rating approaches (such 
as the Medicaid Scorecard initiative, the Medicare Advantage (MA) and 
Part D 5-star and the Qualified Health Plan (QHP) quality rating 
systems) as a way to reduce State and plan burden across quality 
reporting systems.
    Since these regulations were issued, we have used a variety of 
forums to engage in robust consultation with interested parties to 
develop the framework of the MAC QRS to fulfill our obligation under 
Sec.  438.334(b)(1) for Medicaid and under Sec.  457.1240(d) for 
separate CHIP. These forums included beneficiary interviews, workgroup 
meetings, listening sessions, user testing of a MAC QRS prototype, and 
in-depth interviews with participants from State Medicaid programs, 
managed care plans, and EQROs. Through these extensive consultations, 
which took place between 2018 and 2022 and are summarized below, we 
learned about current State quality measure collection and reporting 
efforts and beneficiary needs and preferences related to the selection 
of a health plan. What we learned informed the MAC QRS framework 
proposed in this rulemaking. We summarize our consultation activities 
here:
     2018 to 2022 Beneficiary and Caregiver Interviews: Between 
2018 and 2022, we conducted two rounds of individual interviews with a 
diverse selection of potential users of the MAC QRS. We conducted 96 
interviews with people of differing age, race, ethnicity, geographic 
location, and Medicaid experience. The first round of 48 individual 
interviews focused on discovering beneficiary values and understanding 
the measures of health plan quality that matter to beneficiaries. Using 
a Human Centered Design approach, a MAC QRS website prototype was 
developed following an initial round of engagement with States and 
other interested parties as well as beneficiary and caregiver 
interviews, and then tested by the second group of 48 potential users. 
This second group of individuals provided feedback on: website 
navigation and usability; the features that aided users' ability to 
identify health plans that align with their needs and preferences, such 
as being able to search for plans that cover specific providers and/or 
prescriptions; the ability to filter quality measures to show ratings 
stratified based on user-identified specifications such as age, race, 
and ethnicity; and information on health plan quality, including 
quality measures identified as desirable by participants. The two 
rounds of engagement culminated in a revised MAC QRS website prototype, 
linked to in section I.B.6.g. of this proposed rule, that incorporate 
content and features found most desirable by potential MAC QRS users.
     2019 Measure Workgroup: A workgroup consisting of 27 
members from key groups, including State Medicaid and CHIP agencies, 
Medicaid and CHIP managed care plans, EQROs, and national organizations 
representing health care providers and beneficiaries, met between July 
and December 2019 to identify potential measures for the

[[Page 28182]]

mandatory measure set and the feasibility of reporting certain 
measures.
     2019 Interested Parties Listening Sessions: Between August 
and November 2019, we held 15 listening sessions with 380 interested 
parties including Medicaid and CHIP Directors, Medicaid medical 
directors, managed care plan officials, and managed long-term services 
and supports (MLTSS) officials. Participants were requested to consider 
the presented measures and the feasibility of data collection and 
reporting. Website prototypes were presented to elicit feedback on 
feasibility, the comparison of measures by program and plan type, 
population stratification, and concerns related to measure 
presentation.
     2019 and 2020 State, Health Plan and EQRO Interviews: In 
2019 and 2020, we conducted 20 interviews with 39 representatives from 
State Medicaid programs, managed care plans, and EQROs to obtain 
feedback regarding appropriate measures for inclusion in the MAC QRS, 
implementation of an alternative QRS, concerns about implementation of 
a MAC QRS, and technical assistance needs. In addition, we obtained 
information on current approaches and methodologies used by States and 
plans to calculate quality measures.
     2021 and 2022 Listening Sessions: In 2021 and 2022, we 
held 11 listening sessions with over 280 participants, during which we 
shared a sample mandatory measure set containing over 25 measures. We 
requested feedback on feasibility of data collection and reporting; 
reliability of the measures; actionability for use in quality 
improvement by the managed care plan; gaps in representation of 
specific populations or conditions; and a feasible timeline for 
collecting, calculating, and displaying the sample mandatory measures.
    Based on this consultation, we are now proposing a MAC QRS 
framework that includes mandatory measures, a rating methodology 
(either the CMS-developed methodology or an alternate methodology 
approved by CMS), and a mandatory website display format; the website 
display would be an additional third component of the MAC QRS 
framework. We are proposing that States must include the mandatory 
measures under the MAC QRS framework but that States may also include 
additional measures without implementing an alternative QRS. This would 
change the current regulations that include both mandatory and non-
mandatory measures in the CMS-developed framework. We are also 
proposing the initial mandatory measure set that States must use 
regardless of whether they use the MAC QRS framework or a CMS-approved 
alternative QRS, as well as a subregulatory process under which CMS 
would engage regularly with interested parties in order to update the 
mandatory measure set over time.
    Additionally, after consulting with prospective MAC QRS users, we 
now believe displaying quality ratings alone would not be useful in 
selecting a health plan without additional context about Medicaid and 
CHIP as well as other information about health plans. We are therefore 
proposing website display requirements as a new component of the 
overall framework, and propose that the MAC QRS website include 
information that draws from existing State data and information to 
ensure a State's MAC QRS is a meaningful and usable tool for 
beneficiaries. Finally, in light of the diverse starting points from 
which States will begin to implement their MAC QRS, we are proposing to 
delay the deadline by which States must come into compliance with 
several of the requirements of the proposed MAC QRS framework to 
provide States with more time to implement the more complex 
requirements, including certain interactive display features. 
Importantly, States can use the optional EQR activity at Sec.  
438.358(c)(6) to assist with the quality rating of MCOs, PIHPs, and 
PAHPs. This could reduce burden by allowing States to receive an 
enhanced match for certain, limited activities carried out by an EQRO 
under this optional activity in accordance with section 
1903(a)(3)(C)(ii) of the Act.
    This proposal is made under our authority to implement and 
interpret in sections 1932(c)(1), 1932(a)(5)(C) and 2103(f)(3) of the 
Act, which provide that States that contract with MCOs for Medicaid 
managed care and CHIP, respectively, must develop and implement a 
quality assessment and improvement strategy that examines standards for 
access to care as well as other aspects of care and services directly 
related to the improvement of quality of care (including grievance 
procedures and information standards) and must provide comparative 
information on available plans related to health plan benefits and 
cost-sharing, service area, and available quality and performance 
indicators. As with most other requirements for managed care plans, we 
rely on section 1902(a)(4) of the Act to extend the same requirements 
to PIHPs and PAHPs that apply to MCOs in a Medicaid managed care 
program and on section 2103(f)(3) of the Act to extend the same 
requirements that apply to MCOs in CHIP to PIHPs and PAHPs. Throughout 
this section of the proposed rule, we note how the proposed Medicaid 
managed care regulations in part 438, subpart G (related to the MAC 
QRS) would apply equally to separate CHIP by a proposed cross-
referenced added to Sec.  457.1240(d).
    The proposed set of minimum quality measures are intended to 
evaluate performance on quality of care, access to services, and 
outcomes. By measuring performance annually on specific quality 
measures (that is, mandatory measures adopted by us and any additional 
measures elected by the State), States will have information and data 
to monitor and evaluate performance of their managed care plans.
    In exercising our authority under sections 1932(c)(1) and 
2103(f)(3) of the Act, CMS may not implement standards for the 
implementation of a quality assessment or improvement strategies unless 
the Secretary implements such standards in consultation with the 
States. To fulfill this requirement, we have engaged in robust 
consultation with States, as described in section I.B.6.a. of this 
proposed rule, on the design of the MAC QRS, including the mandatory 
measure set, methodology, and display requirements. Going forward, we 
are proposing to continue to engage in consultation prior to making 
updates to the three components of the MAC QRS framework. In section 
I.B.6.e.3. of this proposed rule, we discuss our proposal for a 
subregulatory process through which we will continue to consult with 
States and interested parties to update the mandatory measure set; in 
section I.B.6.f. of this proposed rule, we discuss our proposal to 
continue to consult with States and interested parties to update the 
MAC QRS methodology, and in section I.B.6.g. of this proposed rule, we 
discuss our proposal to consult with States and interested parties to 
update our proposed website display requirements.
b. Provisions of the Proposed Rule (Sec. Sec.  438.334, 438 Subpart G, 
and 457.1240(d))
    We are proposing to create a new subpart G in 42 CFR part 438 to 
implement the MAC QRS framework required under Sec.  438.334 of the 
current regulations and establish the standards which States must meet 
for CMS to approve adoption of an alternative QRS and related 
requirements. Existing regulations at Sec.  438.334 are redesignated to 
newly-created proposed sections in Subpart G with proposed revisions, 
discussed in detail below in this proposed rule. For separate CHIP, we 
propose to adopt the new provisions of

[[Page 28183]]

subpart G in part 438 by cross-reference through an amendment at Sec.  
457.1240(d).
c. Definitions (Sec. Sec.  438.334, 438.500, and 457.1240(d))
    There are some technical and other terms relevant to our proposed 
regulations. Therefore, we propose the following definitions at Sec.  
438.500(a) for Medicaid, and for separate CHIP by cross-reference 
through a proposed amendment at Sec.  457.1240(d). Some proposed 
definitions are discussed in more detail later in this proposed rule in 
connection with other proposed regulation text related to the 
definition.
     Measurement period means the period for which data are 
collected for a measure or the performance period that a measure 
covers.
     Measurement year means the first calendar year and each 
calendar year thereafter for which a full calendar year of claims and 
encounter data necessary to calculate a measure are available.
     Medicaid managed care quality rating system framework (QRS 
framework) means the mandatory measure set identified by CMS in the 
Medicaid and CHIP managed care quality rating system technical resource 
manual described in Sec.  438.530, the methodology for calculating 
quality ratings described in Sec.  438.515, and the website display 
described in Sec.  438.520 of this subpart.
     Medicare Advantage and Part D 5-Star Rating System (MA and 
Part D quality rating system) means the rating system described in 
subpart D of parts 422 and 423 of this chapter.
     Qualified health plan rating system (QHP quality rating 
system) means the health plan quality rating system developed in 
accordance with 45 CFR 156.1120.
     Quality rating means the numeric or other value of a 
quality measure or an assigned indicator that data for the measure is 
not available.
     Technical resource manual means the guidance described in 
Sec.  438.530.
     Validation means the review of information, data, and 
procedures to determine the extent to which they are accurate, 
reliable, free from bias, and in accord with standards for data 
collection and analysis.
d. General Rule and Applicability (Sec. Sec.  438.334(a), 438.505(a) 
and 457.1240(d))
    Currently, Sec.  438.334(a) lays out the general rule for the MAC 
QRS, including general requirements for States contracting with MCOs, 
PIHPs and/or PAHPs to furnish services to Medicaid beneficiaries. These 
requirements also apply to separate CHIP through a cross-reference to 
Sec.  438.334 at Sec.  457.1240(d). Specifically, Sec.  438.334(a) 
requires States to adopt a quality rating system using the CMS 
framework or an alternative quality rating system and to implement such 
quality rating system within 3 years of the date of the final rule 
published in the Federal Register. We are proposing at Sec.  
438.505(a)(2) for Medicaid, and for separate CHIP by cross-reference to 
Part 438, Subpart G at Sec.  457.1240(d), to require States to 
implement their MAC QRS (or alternative QRS) by the end of the fourth 
calendar year following the effective date of the final rule (meaning 
the fourth calendar year following issuance of the final rule). This 
proposed change from the current 3-year implementation date under Sec.  
438.344(a) would provide States more time to make the operational and 
contractual changes needed to meet the requirements in this proposed 
rule and also give States flexibility to determine what time of year to 
publish their quality ratings. To illustrate the proposed timeline 
change, we provide the following example: if the final rule is 
effective on April 1, 2024, States would be required to implement their 
MAC QRS no later than December 31, 2028, and the data displayed in 2028 
would be from the measurement year between January 1, 2026 and December 
31, 2026. The timeline for future measurement and display years is 
discussed in detail in section I.B.6.e.7. of this proposed rule. The 
proposal at Sec.  438.520(a)(6) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d), 
would require implementation of some website display requirements, 
discussed in section I.B.6.g. of this proposed rule, after the proposed 
implementation date. We also discuss in section I.B.6.g. of this 
proposed rule, how several of the proposed display requirements build 
upon existing information and data States either already have or are 
currently required to report publicly or to CMS. We seek comment on 
whether these proposed policies, all together, would give States 
sufficient time to implement their MAC QRS or alternative QRS on a 
timeline that meets their operational needs.
    We are also proposing for Medicaid, as a general rule, that States 
provide a support system for beneficiaries or users of a State's MAC 
QRS, leveraging existing State resources. In our user testing, 
described in greater detail in I.B.6.g. of this proposed rule, users 
responded positively to the availability of live consumer assistance 
through telephone or online chat, which 83 percent of participants 
found useful as it helped them navigate the MAC QRS website and get the 
information they were looking for right away. Per Sec.  438.71, States 
are currently required to develop and implement a beneficiary support 
system. The elements of the beneficiary support system are identified 
at Sec.  438.71(b)(1) as including choice counseling for all 
beneficiaries in Sec.  438.71(b)(1)(i), assistance for enrollees in 
understanding managed care in Sec.  438.71(b)(1)(ii), and assistance 
related to the receipt of long-term services and supports at Sec.  
438.71(b)(1)(iii). Currently, Sec.  438.2 provides that choice 
counseling means the provision of information and services designed to 
assist beneficiaries in making enrollment decisions and includes 
answering questions and identifying factors to consider when choosing 
among managed care plans and primary care providers. Choice counseling 
does not include making recommendations for or against enrollment into 
a specific MCO, PIHP, or PAHP. We believe that this existing support is 
an appropriate system for States to build upon to assist beneficiaries 
in using and understanding the information in the MAC QRS to select a 
managed care plan. In a new Sec.  438.505(a)(3), we are therefore 
proposing for Medicaid that States would be required to use the 
beneficiary support system implemented under current Sec.  438.71 to 
provide choice counseling to all beneficiaries, and assistance for 
enrollees on understanding how to use the managed care quality rating 
system to select a managed care plan, including the receipt of long-
term services and supports. With the support system already in place, 
we believe States could leverage existing resources by developing new 
scripts and training existing staff. We discuss the importance of 
providing this assistance in section I.B.6.g. of this proposed rule 
where we provide an overview of the input we received from 
beneficiaries. However, since a beneficiary support system is not 
required for separate CHIP, we do not propose to adopt this provision 
for subpart L of part 457.
    The current regulations at Sec.  438.334(b)(1) for Medicaid, and 
applied by cross-reference at Sec.  457.1240(d) for separate CHIP, 
require the MAC QRS framework to align, where appropriate, with the QHP 
quality rating system, the MA and Part D quality rating system and 
other related CMS quality rating approaches as a way to reduce State 
burden across Federal quality reporting systems. We believe this 
requirement should

[[Page 28184]]

continue to apply broadly to the MAC QRS framework and are therefore 
proposing to require this alignment, to the extent appropriate, as part 
of CMS' maintenance the MAC QRS framework. We propose to redesignate 
this requirement for alignment in Sec.  438.334(b)(1) to its own 
provision at Sec.  438.505(c) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d). The 
importance of alignment of the MAC QRS with the MA and Part D and QHP 
quality rating systems was shared by States, managed care plans and 
other interested parties, affirming the requirement in our current 
regulations that, to the extent possible, the MAC QRS be aligned with 
the MA and Part D and QHP quality ratings systems, the Medicaid and 
CHIP Child Core Set, the Medicaid Adult Core Set, and other similar CMS 
initiatives such as the Medicaid and CHIP Scorecard and the CMS 
Universal Foundation.\143\ We are also proposing, at Sec.  438.505(c), 
that in maintaining the MAC QRS mandatory measure set and rating 
methodology, CMS will align with these other similar CMS programs and 
approaches when appropriate.
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    \143\ https://www.nejm.org/doi/full/10.1056/NEJMp2215539.
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    Finally, current regulations at Sec.  438.334(a) for Medicaid 
managed care programs (applied to separate CHIP through a cross-
reference in Sec.  457.1240(d)) apply the requirements for the MAC QRS 
to each State contracting with an MCO, PIHP or PAHP to furnish services 
to Medicaid or CHIP beneficiaries. We are proposing to revise this to 
refer to ``an applicable managed care plan as described in paragraph 
(b) of this section'' in proposed Sec.  438.505(a), and add an 
applicability provision at new Sec.  438.505(b) stating that the 
provisions of newly-proposed subpart G apply to States contracting with 
MCOs, PIHPs, and PAHPs for the delivery of services covered under 
Medicaid. The proposed provisions at Sec.  438.505(a) and (b) are also 
proposed to apply to separate CHIP through a cross-reference at Sec.  
457.1240(d), but excluding all references to beneficiary support 
systems. We note that the current and proposed regulations in Subpart G 
do not apply to PCCM entities, consistent with current regulations at 
Sec. Sec.  438.10(c)(2) and 457.1207; non-emergency medical transport 
PAHPs are also not included in the MAC QRS, in accordance with 
Sec. Sec.  438.9 and 457.1206(b). In addition, our proposal for the MAC 
QRS framework excludes contracts between States and MA Dual Eligible 
Special Needs Plans (D-SNP) where the contract is only for the D-SNP to 
provide Medicaid coverage of Medicare cost sharing for the D-SNP 
enrollees; this is reflected in proposed Sec.  438.505(b).
e. Establishing and Modifying a Mandatory Measure Set for MAC QRS 
(Sec. Sec.  438.334(b), 438.510 and 457.1240(d))
    The current regulations at Sec.  438.334(b)(1) direct CMS, after 
consulting with States and other interested parties, to identify a 
mandatory set of QRS quality measures that align, where appropriate, 
with the MA and Part D and QHP quality rating systems and other related 
CMS quality rating approaches, and to provide an opportunity for public 
notice and comment on such mandatory measures. In this section we 
discuss the standards that guided CMS in identifying the initial 
mandatory measures and propose an initial mandatory measure set. We 
seek comment on our proposed initial mandatory measure set, which we 
will finalize in the preamble of the final rule. Under this proposal, 
we would not duplicate the list of the mandatory measures and 
specifications in regulation text in light of the regular updates and 
revisions contemplated by the rules we are proposing for ongoing 
maintenance of the MAC QRS. We also propose a subregulatory process to 
modify the mandatory measure set over time, including proposing to 
codify the standards that guided development of the proposed initial 
mandatory measure set.
(1) Standards for Including Measures in Mandatory Measure Set 
(Sec. Sec.  438.510(c), 457.1240(d))
    Three distinct considerations guided the process of selecting 
individual measures to establish a concise proposed initial mandatory 
measure set. We are proposing at Sec.  438.510(c)(1)-(3) to codify 
these three considerations as standards that we would apply in the 
future to determine when to add measures to the mandatory measure set, 
when to make substantive updates to an existing mandatory measure, and 
in some circumstances, when to remove a measure from the mandatory 
measure set. Specifically, a measure is only included in our proposed 
initial mandatory measure set and would only be added in the future if 
(1) it meets five of the six measure inclusion criteria proposed in 
this section; (2) it would contribute to balanced representation of 
beneficiary subpopulations, age groups, health conditions, services, 
and performance areas (for example, preventive health, long term 
services and supports, etc.) within a concise set of mandatory 
measures; and (3) the burdens associated with including the measure do 
not outweigh the benefits to the overall quality rating system 
framework of including the new measure based on the measure inclusion 
criteria we are proposing. Under our proposal, and as discussed in 
section I.B.6.e.4. of this proposed rule, a measure would be added to 
the mandatory set if it meets each of these three standards. To 
determine whether a measure meets these standards, CMS would rely on 
the input received throughout the subregulatory process proposed in 
Sec.  438.510(b) and discussed in section I.B.6.e.3. of this proposed 
rule and other relevant research and information. Similarly, a measure 
would be removed from the mandatory measure set if it no longer met 
these standards. This approach would ensure that each of the three 
proposed standards are met.
    Using the MAC QRS goals described in section I.B.6.a. of this 
proposed rule as a guidepost during our discussion with States and 
other interested parties, we identified and refined six measure 
inclusion criteria: (1) is the measure meaningful and useful for 
beneficiaries and their caregivers when choosing a managed care plan; 
(2) does the measure align with other CMS rating programs described in 
Sec.  438.505(c) of this chapter; (3) does the measure assess health 
plan performance in at least one of the following areas: customer 
experience, access to services, health outcomes, quality of care, 
health plan administration, and health equity; (4) does the measure 
provide an opportunity for managed care plans to influence their 
performance on the measure; (5) is the measure based on data that are 
readily available, or available without undue burden on States and 
plans, such that it is feasible to report by most States and managed 
care plans; and (6) does the measure demonstrate scientific 
acceptability, meaning that the measure, as specified, produces 
consistent and credible results.
    We used these six criteria to assess hundreds of measures suggested 
throughout our engagement with interested parties. We explain each 
proposed criterion here and describe how we assessed measures suggested 
during our engagement with interested parties against the criteria to 
select the proposed initial mandatory measure set of 18 measures, 
displayed in Table 1. In doing so, we also show how we would make 
future updates to the mandatory measure list using these criteria.

[[Page 28185]]

     Usefulness to beneficiaries: Whether the measure is 
meaningful and useful for beneficiaries or their caregivers when 
choosing a managed care plan. For the proposed mandatory set, we 
assessed whether a measure meets this criterion by seeking 
beneficiaries' feedback on which measures of health plan performance 
are most relevant to them. We then gave preference to measures that 
assess the quality of care or services most commonly identified by 
beneficiaries as relevant to selection of a health plan or their 
assessment of a health plan's quality. When adding, updating or 
removing measures, we intend to rely on the continued engagement with 
beneficiaries proposed in Sec.  438.520(c) (discussed in section 
I.B.6.g.4. of this proposed rule) to apply a similar preference for 
changes that are either most meaningful and useful or most commonly 
described as meaningful and useful. Input from beneficiaries or 
beneficiary advocates with experience assisting beneficiaries will be 
particularly important in evaluating this criterion, but input from 
other interested parties will also be considered.
     Alignment: Whether the measure or measure concept is 
consistent with the principles of, or is represented in, one or more 
existing Federal, State, and/or Medicaid and CHIP quality reporting 
programs. For the measures listed in Table 1, we assessed whether a 
measure meets this criterion by identifying the extent to which States 
and other Federal programs (such as the Medicaid and CHIP Scorecard, 
the MA and Part D quality rating system, and the QHP quality rating 
system) currently collect or report the measure. We considered feedback 
on measures commonly used to assess health plan performance as well as 
the challenges and concerns with these measures. We gave preference to 
measures commonly collected or reported with few reporting challenges. 
However, we also considered emerging measures that are not yet commonly 
collected or reported but align with a performance area or health 
outcomes measured by commonly used measures. As an example, an emerging 
measure such as the Person-Centered Contraception Counseling measure, 
which is not currently adopted at the plan level, could meet the 
alignment criterion if our workgroup identified that it overlaps with 
an existing, widely used measure in the area of contraception. We 
believe this approach more accurately reflects the continuing evolution 
of quality measurement and would allow the consideration of new, better 
measures, as they are developed. We note, however, that emerging 
measures would still be assessed based on the other criteria and 
standards described here and proposed at Sec.  438.510(c)(1), (2), and 
(3), and it may take time for emerging measures to meet the final 
regulatory standards. Within the proposed measure set, 15 of the 18 
measures are commonly reported by States,\144\ 16 of the 18 measures 
overlap with the 2023 and 2024 Core Set measures, 11 with the QHP 
quality ratings system, 13 with the 2021 Medicaid and CHIP Scorecard, 
and 5 with the MA and Part D quality rating system.
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    \144\ As reported by States for the 2020-2021 EQR reporting 
cycle.
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     Relevance: Whether the measure evaluates or 
measures the managed care plan's performance in at least one of the 
following areas: customer experience, access to services, health 
outcomes, quality of care, health plan administration, and health 
equity. For the proposed measure set, we determined which of the areas 
each measure evaluates or measures. Preference was given to measures 
that evaluate or measure more than one area.
     Actionability: Whether there are opportunities for managed 
care plans to influence their performance on the measure. For the 
proposed measure set, we assessed whether a measure met this criterion 
by considering input on what actions managed care plans may take to 
improve or maintain measure performance and the extent to which the 
plans control, or are capable of influencing, what is being measured. 
We also considered whether the measure is currently specified at the 
plan level, meaning that measure specifications are available to 
calculate the measure at the plan (as opposed to provider or State) 
level. We gave preference to measures that are currently specified at 
the plan level and are more easily controlled or influenced by health 
plans.
     Feasibility: Whether the data needed to 
calculate the measure are readily available or could be captured 
without undue burden and could be implemented by most States and health 
plans. For the proposed measure set, we assessed whether a measure 
meets this criterion by considering the accessibility of the data 
required to calculate the measures and the proportion of plans or 
States that currently collect data for the measure. We gave preference 
to measures that require data that are easily accessible to plans (such 
as claims data) or are commonly collected.
     Scientific Acceptability: Whether the measure 
produces consistent (reliable) and credible (valid) results. We 
assessed whether a measure meets this criterion by reviewing evidence 
that use of the measure can draw reasonable conclusions about care in a 
given domain.\145\
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    \145\ CMS Measures Blueprint: https://mmshub.cms.gov/measure-lifecycle/measure-testing/evaluation-criteria/overview.
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    Using feedback throughout our consultations related to the 
mandatory measure list, we assessed our list of suggested measures to 
identify the extent to which each measure met these inclusion criteria. 
During the same consultations, we received feedback (and our own 
evaluation showed) that while each of the six criteria were important 
to consider, it would be difficult for a measure to meet all six 
criteria. For instance, we found that requiring all six criteria could 
prevent the inclusion of either measures that are meaningful to 
beneficiaries but not commonly used by States, or measures aligned with 
State priorities for managed care quality and plan performance, but 
less useful to beneficiaries. We are therefore proposing in Sec.  
438.510(c)(1) that a measure must meet at least five of the six measure 
inclusion criteria to be considered against our other standards and 
included in the mandatory measure set in the future. We seek comment on 
the six criteria we are proposing to evaluate prospective measures for 
the mandatory measure set, and whether there are additional objective 
measure inclusion criteria that we should use to evaluate quality 
measures for inclusion as mandatory measures. Additionally, we seek 
comment on our proposal to require measures to meet five out of the six 
proposed criteria, and whether that threshold produces a sufficient 
number of measures to consider for the MAC QRS. Finally, we seek 
comment on the extent to which the measures in our proposed measure set 
meet the proposed measure inclusion criteria, including the reasons 
and/or supporting data for why the measure meets or does not meet the 
criteria. In our review of measures and development of the list of 
mandatory measures, we believe that each meets at least 5 if not all 6 
of the criteria proposed at Sec.  438.510(c)(1).
    Through our work to develop the proposed mandatory measure set, we 
found that many measures meet at least five of the six measure 
inclusion criteria, and without additional guardrails in place we 
believe the set would quickly expand and become burdensome to States 
and plans. States

[[Page 28186]]

and managed care plans generally recommended limiting the mandatory set 
to between 10 and 30 measures to ensure plans' ability to improve on 
selected measures and States' capacity to succeed in reporting, and to 
limit the impact of implementing a QRS on State and plan resources. 
Furthermore, our MAC QRS website prototype user testing showed that 
beneficiaries were evenly split between those with high informational 
needs who preferred detailed information from a lot of measures and 
those who valued clear, concise information on the big picture using 
fewer measures.
    To maintain a concise measure set, we are proposing to codify two 
additional measure inclusion standards in Sec.  438.510(c)(2) and (3). 
These two additional standards reflect the feedback we received on 
maintaining a ``concise'' mandatory measure list and provide a process 
by which to identify further distinctions among measures that meet our 
inclusion criteria and to consider the measure set as a whole as part 
of the selection process. First, in Sec.  438.510(c)(2), we propose 
that a measure must contribute to balanced representation of 
beneficiary subpopulations, age groups, health conditions, services, 
and performance areas that are assessed within a concise mandatory 
measure set. We have included as part of our standard proposed in Sec.  
438.510(c)(2) that the overall measure set should be ``concise,'' given 
the feedback we received on limiting the number of measures in the 
mandatory measure set. we established and intend to maintain a goal of 
no more than 20 measures for the initial mandatory measure set. 
However, the proposed rule would retain flexibility for the number of 
measures to increase as the mandatory set is updated over time. we 
would consider each suggested measure in relation to other suggested 
measures and the overall mandatory measure set to identify those that 
are very similar or duplicative, keeping in mind the need for a 
mandatory measure set that is both representative and concise.
    Second, we propose in Sec.  438.510(c)(3) that a measure would be 
added to the mandatory measure set when the burdens of adding the 
measure do not outweigh the benefits based on the 6 criteria proposed 
at Sec.  438.510(c)(1)(i) through (vi). we would compare similar 
measures, that is, those suggested for inclusion that measure 
performance within similar subpopulations of beneficiaries, health 
conditions, services, and performance areas as well as the extent to 
which a contemplated new measure meets the criteria listed in proposed 
paragraph (c)(1), to assess the benefits and burdens of including each 
measure in the mandatory measure set. Under our proposal, we would 
include a measure when all three of the standards proposed in Sec.  
438.510(c) are met. CMS would use the subregulatory process proposed in 
Sec.  438.510(b) and discussed in section 1.B.6.e.3. of this proposed 
rule to determine which measures meet the proposed standards.
    We seek comment on the standards proposed at Sec.  438.510(c)(2) 
and (3) and how measures should be assessed using these standards. In 
particular, we seek comment on the appropriate balance of 
representation (of populations and performance areas) in the mandatory 
measure set and any additional considerations that may be missing from 
our proposed paragraph (c)(2). Further, we seek comment on whether 
there are additional considerations for the weighing of burdens and 
benefits of a measure under proposed Sec.  438.510(c)(3).
(2) Mandatory Measure Set (Sec. Sec.  438.510(a), (b), and 457.1240(d))
    We propose in Sec.  438.510(a) for Medicaid, and for separate CHIP 
by cross-reference through a proposed amendment at Sec.  457.1240(d), 
that the quality rating system for managed care plans implemented by 
the State for Medicaid (and CHIP) managed care programs must include 
the measures in a mandatory measure set, which will be identified by 
CMS in the technical resource manual as proposed in Sec.  
438.530(a)(1). We note that in proposed Sec.  438.520(b), discussed in 
section I.B.6.g.5. of this proposed rule, States can include other, 
additional measures outside the mandatory measure set. We received 
input through our consultations with interested parties, detailed in 
section I.B.6.a. of this proposed rule, on how to construct a mandatory 
measure set for the MAC QRS, including the number of measures, measure 
inclusion criteria, and performance areas and populations represented 
by the measures. After considering the priorities and other information 
gleaned through the several years of consultations described in section 
I.B.6.a. of this proposed rule, and applying the standards discussed in 
section I.B.6.e.1. of this proposed rule, we are proposing for public 
comment an initial set of 18 mandatory measures that represents the 
collective input we received during those consultations. This proposed 
initial set of mandatory measures can be found in Table 1. These 
proposed mandatory measures reflect a wide range of preventive and 
chronic care measures representative of Medicaid and CHIP 
beneficiaries.

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    We considered including several other measures that are not 
included in the proposed initial mandatory set. These other measures 
were not included because they did not meet one or more of the 
standards described in section I.B.6.e.1. of this proposed rule. These 
other measures and the reason we did not include them in Table 1, are 
described here:
     Contraceptive measure: States and other interested parties 
stated a desire for the MAC QRS to include a quality measure involving 
contraceptive services that would be relevant for all women, but many 
noted that there is not yet a measure they would recommend that meets 
this description. Beneficiaries did not specifically speak to the 
importance of a contraceptive measure, but consistently noted the 
desire to be involved in their care decisions and for providers to 
respect their health goals and needs when providing counseling on 
health care options. We considered various contraceptive measures in 
addition to CCP, the measure currently included in the proposed 
mandatory set. They include Contraceptive Care--All Women Ages 15 to 44 
(CCW) and a new survey-based measure, Person-Centered Contraceptive 
Counseling (PCCC), that uses patient provided responses to assess the 
person-centeredness of contraceptive counseling. While we believe the 
PCCC measure aligns well with beneficiary preferences stated during 
beneficiary consultations, it failed to meet two of the six measure 
inclusion criteria. First, PCCC does not currently meet our requirement 
of feasibility as we did not find evidence that plans are currently 
collecting the data necessary to produce this measure and some 
interested parties stated concern about the perceived burden of 
reporting PCCC. Second, we believe the measure does not meet the 
scientific acceptability criterion as it is currently specified only at 
the provider level so it is unknown whether it produces consistent and 
credible results at the plan level. With respect to CCW and CCP, both 
measures meet at least five of the six inclusion criteria. Furthermore, 
both measures measure access to contraception that reduces unintended 
pregnancy in their respective populations and therefore each would 
contribute to balanced representation of beneficiaries by providing 
insight into the accessibility of contraceptive care among 
beneficiaries who may become pregnant. However, while both CCP and CCW 
would contribute to balanced representation within a concise mandatory 
measure set, we believe the benefits of including CCP are greater than 
those of CCW because CCP focuses on measuring access to effective 
contraceptive care during the postpartum period, which can improve 
birth spacing and timing and improve the health outcomes of women and 
children.
     Follow-up after Emergency Department Visit for Mental 
Illness (FUM) versus Follow-up After Hospitalization for Mental Illness 
(FUH): There was support from States and other interested parties to 
include both of these measures, and including both would give a fuller 
picture of the percentage of emergency department and inpatient 
hospital discharges for which beneficiaries received follow-up 
services. These measures met all of our measure inclusion criteria and 
had similar benefits and burdens, but the two measures assessed 
important, but very similar services. We concluded that including both 
would not contribute to balanced representation within an overall 
mandatory set. Upon balancing benefits and burdens associated with each 
measure, we selected FUH because it was more commonly collected or 
reported at both the State and Federal level and more frequently used 
by States to assess plan performance. We provide a detailed analysis of 
our review of the FUH and FUM measures in section I.B.6.e.4. of this 
proposed rule.
     Childhood Immunization Status (CIS): We considered 
including the childhood immunization status measure, however, we 
included the well-child visit measure instead. Both measures met at 
least five of the six inclusion criteria and each could contribute to 
balanced representation within the overall mandatory set. However, when 
reviewing the burdens and benefits to the overall MAC QRS, we concluded 
the CIS measure would have little added benefit because our beneficiary 
testing showed that parents cared a lot about whether their children 
can get appointments (reflected in the well-child visit measure), but 
no beneficiary commented specifically on childhood immunizations.
     Postpartum Depression Screening: We considered this 
measure based on recommendations from the 2019 Measure Workgroup. 
However, we did not include this measure because it did not meet two of 
our six inclusion criteria. First, the measure is not aligned with any 
other CMS programs. Second, the measure did not meet our feasibility 
criterion because the measure relies solely on a proprietary electronic 
clinical data systems (ECDS) reporting method. While this measure has 
been recommended for addition to the Core Set, CMS has deferred 
decisions related to the measure to assess how the proprietary nature 
of this information impacts the feasibility of reporting.
(3) Subregulatory Process To Update Mandatory Measure Set (Sec. Sec.  
438.510(b) and 457.1240(d))
    The current regulations at Sec.  438.334(b)(2) establish that we 
may, after consulting with States and other interested parties and 
providing public notice and opportunity to comment, periodically update 
the Medicaid managed care QRS framework developed under current Sec.  
438.334(b)(1). We remain dedicated to the policy currently reflected in 
Sec.  438.334(b)(1) and (b)(2) that requires engagement with interested 
parties for continuous improvement of the MAC QRS. In addition, 
continued engagement with States is consistent with our obligations 
under sections 1932(c)(1)(D) and 2103(f)(3) of the Act to consult with 
States in setting standards for measuring and monitoring managed care 
plan performance. However, we believe that requiring rulemaking to add 
new measures that may better meet beneficiaries' and States' needs or 
to remove measures whose utility has been surpassed by other measures 
would be overly restrictive and would undermine our ability to adapt 
the mandatory set to keep pace with changes in the quality field and 
user preferences. We also believe that a robust subregulatory process 
in which we interpret and apply substantive regulatory standards 
governing the measures to be included in the mandatory measure set can 
ensure that any changes reflect the extensive input from interested 
parties that is needed. We are therefore

[[Page 28192]]

proposing to revise Sec.  438.334(b)(2), redesignated at new proposed 
Sec.  438.510(b) for Medicaid, and for separate CHIP by cross-reference 
through a proposed amendment at Sec.  457.1240(d), that we undergo a 
subregulatory process to engage with States and other interested 
parties, to obtain expert and public input and recommendations prior to 
modifying the mandatory measure set. Once the mandatory measure set is 
finalized through this rulemaking, we believe periodic, subregulatory 
updates and maintenance to add, remove, or update measures would ensure 
that the mandatory measure set continues over time to adhere to our 
three proposed standards at Sec.  438.510(c). To achieve these goals, 
we are proposing these modifications occur at least every other year 
(biennially).
    With exceptions for removing measures for specific reasons proposed 
at Sec.  438.510(d) and non-substantive updates to existing measures as 
proposed at Sec.  438.510I(1), we are proposing in new Sec.  438.510(b) 
that we will engage in a two-step subregulatory process to obtain input 
and recommendations from States and other interested parties prior to 
finalizing certain types of changes to the mandatory measure set in the 
future. This proposed engagement with States is similar to the public 
notice and comment process currently required by Sec.  438.334(b) and 
consistent with our obligations under sections 1932(c)(1)(D) and 
2103(f)(3) of the Act to consult with States in setting standards for 
measuring and monitoring managed care plan performance. Proposed Sec.  
438.510(b) would apply to separate CHIP by cross-reference through a 
proposed revision to Sec.  457.1240(d).
    As the first step in the process, we propose at Sec.  438.510(b)(1) 
that CMS would engage with States and interested parties (such as State 
officials, measure experts, health plans, beneficiaries and beneficiary 
advocates or organizations, tribal organizations, health plan 
associations, health care providers, external quality review 
organizations and other organizations that assist States with MAC QRS 
ratings) to evaluate the current mandatory measure set and make 
recommendations to add, remove, or update existing measures. The 
purpose of this evaluation would be to ensure the mandatory measures 
continue to meet the standards proposed in Sec.  438.510(c). We 
envision that this engagement could take several forms. For example, a 
workgroup could be convened to hold public meetings where the workgroup 
attendees would make recommendations to CMS to add and remove measures. 
Alternatively, a smaller series of meetings with interested parties 
could be held, or a request for information could be published to 
solicit recommendations from experts. In either case, we intend that 
recommendations would be based on the standards proposed in Sec.  
438.510(c) and discussed in section I.B.6.e.1. of this proposed rule.
    At Sec.  438.510(b)(2) we propose that the second step in the 
process would be for CMS to provide public notice and opportunity to 
comment through a call letter (or similar subregulatory process using 
written guidance) that includes the mandatory measures identified for 
addition, removal or updating through the public engagement step. 
Following the public notice and opportunity for public comments, we 
propose at Sec.  438.510(f) that we will publish the modifications to 
the mandatory measure set in the technical resource manual proposed at 
Sec.  438.530 (this proposal is discussed in more detail in section 
I.B.6.e.7. of this proposed rule).
    This subregulatory process shares similarities with the QHP quality 
rating system, which uses a call letter process to gather feedback on 
measure updates. It also aligns with how the Core Sets are updated 
annually. As part of the Core Set annual review and selection process, 
a workgroup made up of Medicaid and CHIP interested parties and 
measurement experts convenes annually, in a public meeting, and 
develops a set of recommendations for changes to the Core Sets. These 
recommendations are posted in a draft report for public comment, and 
the final report that is submitted to CMS includes both the workgroup 
recommendations and public comments. The annual updates to the Core 
Sets are based on the workgroup recommendations and comments, and using 
input from States and Federal partners, CMS decides whether to accept 
them prior to the updated Core Sets being finalized. Details on this 
process are available at https://www.medicaid.gov/medicaid/quality-of-care/downloads/annual-core-set-review.pdf. While we generally are 
aligning the MAC QRS workgroup processes, as noted above, with the QHP 
quality rating and Core Set processes as appropriate, the MAC QRS is 
independent and will have its own processes.
    If the proposed rule is finalized in 2024, the implementation 
deadline for each State's MAC QRS per proposed Sec.  438.505(b) (which 
provides for such implementation to be no later than the fourth 
calendar year following publication of the final rule) would be 
December 31, 2028, and the first measurement year would be 2026. Since 
we are proposing to finalize our initial measure set in this 
rulemaking, any updates to the initial mandatory measure list made 
pursuant to the subregulatory process proposed at Sec.  438.510(b) 
would be effective no earlier than the year after the implementation of 
each State's MAC QRS. We believe it would be appropriate to initiate 
the proposed subregulatory process for the second display year (for 
example, 2029 if the rule is finalized in 2024) because the mandatory 
measure list would be 5 years old by then, and at least biennially 
thereafter (in line with proposed Sec.  438.510(b)(2)). However, we 
seek comment on whether we should instead initiate the subregulatory 
process to update the mandatory measure list for the third display year 
(for example, 2030 if the rule is finalized in 2024). We also seek 
comment on the types of engagement that would be important under this 
proposed subregulatory process (for example, workgroups, smaller 
meetings, requests for information), the types of experts that CMS 
should include in the engagement, and the use of a call letter or 
similar guidance to obtain public input.
(4) Adding Mandatory Measures (Sec. Sec.  438.510(b)(2), (d) and (e) 
and 457.1240(d))
    Our proposal at Sec.  438.510(c) states that CMS would add a 
measure to the mandatory measure set when all three standards proposed 
at Sec.  438.510(c)(1)-(3) are met, based on available information, 
including input from the subregulatory process. Under our proposal, at 
least biennially, we would use the subregulatory process proposed in 
Sec.  438.510(b) to gather input that would be used to determine if a 
measure meets the proposed standards to be added to the mandatory 
measure set. For example, CMS could request the workgroup's assessment 
of the list of measures suggested for addition (from the workgroup, 
CMS, or both), using our three proposed standards: the proposed 
criteria (per proposed Sec.  438.510(c)(1)), input on how best to 
curate a balanced representation of measures from the suggested 
measures (per proposed Sec.  438.510(c)(2)), and the benefits and 
burdens of adopting the measures (per proposed Sec.  438.510(c)(3)). 
Using this input, CMS could identify a subset of measures from that 
list that best represents these standards. This subset of measures 
would then be considered eligible to add to the mandatory measure set 
and described in a call letter or similar written guidance, which would 
explain how standards in

[[Page 28193]]

Sec.  438.510(c) were applied using input from prior engagement 
activities and CMS's research and preliminary evaluation. Through the 
call letter process, CMS would gather public comment including any 
additional evidence, explanations, and perspectives to determine 
whether the subset of measures meet the standards in proposed Sec.  
438.510(c). The measures that meet the proposed standards based on the 
totality of input and information compiled by CMS would be added to 
future iterations of the mandatory measure set. To further illustrate 
how we intend for the standards proposed in Sec.  438.510(c) to be 
applied using the subregulatory process, we provide more specific 
detail in this section of our assessment of two measures considered for 
inclusion in the proposed mandatory measure set. We intend for the 
subregulatory process for adding measures to follow this same approach.
    In previous discussions, States and other interested parties 
recommended both the Follow-Up After ED Visit for Mental Illness (FUM) 
and the Follow-Up After Hospitalization for Mental Illness (FUH) as 
potential measures to include in our preliminary measure set. As a 
first step, we used our own research and input from our consultations 
to assess the measures against the measure inclusion criteria, that we 
are now proposing as our first standard, and found that both measures 
meet each of our six proposed criteria (see Table 2).

             Table 2--Example Inclusion Criteria Assessment
------------------------------------------------------------------------
          Criteria                     FUM                   FUH
------------------------------------------------------------------------
Alignment...................   Identified    Identified
                               by 16 States as a     by 19 States as a
                               measure collected     measure collected
                               from managed care     from managed care
                               plans in the `20-     plans in the `20-
                               `21 EQR reporting     `21 EQR reporting
                               cycle.                cycle.
                               Reported      Reported
                               publicly as a         publicly as a
                               measure of plan       measure of plan
                               performance in 2      performance in 4
                               States.               States.
                               Core Set      Core Set
                               measure.              and QHP QRS
                                                     measure.
                             -------------------------------------------
Usefulness to Beneficiaries.   The importance of timely access
                               to mental health services were
                               consistently identified in our
                               conversations with Medicaid
                               beneficiaries.
                             -------------------------------------------
Relevance...................   Both measures address access to
                               services.
                             -------------------------------------------
Actionability...............   States and    States and
                               plans identified      plans identified
                               various ways in       various ways in
                               which plans can       which plans can
                               address follow-up.    address follow-up.
                               The 30-day measure    The 30-day measure
                               was generally         was generally
                               thought to be more    thought to be more
                               actionable than 7-    actionable than 7-
                               day due to supply     day due to supply
                               of mental health      of mental health
                               providers and the     providers and the
                               need for plan         need for plan
                               coordination in       coordination in
                               States that carve     States that carve
                               out behavioral        out behavioral
                               health.               health.
                                                     Used by 3
                                                     States to assess
                                                     plan performance as
                                                     part of the State's
                                                     quality strategy.
                             -------------------------------------------
Feasibility.................   Relies on administrative data
                               from claims that are owned or available
                               to plans, but would require coordination
                               between plans in States that offer
                               behavioral through a separate managed
                               care program.
                             -------------------------------------------
Scientific Acceptability....   Generally regarded as reliable
                               and valid measure in our listening
                               sessions.
                               Endorsed by the National Quality
                               Forum.
------------------------------------------------------------------------

    Second, we considered the two measures in light of our goals for 
balanced representation within a concise measure set. Given our goal to 
limit the initial mandatory measure set to fewer than 20 measures and 
the fact that both measures focus on assessing follow-up care for 
mental illness, we determined that including one of the two measures 
would best maintain balanced representation within the overall measure 
set and within the behavioral health performance area. We then weighed 
the benefits and burdens of including each measure using our assessment 
of the extent to which each measure met our inclusion criteria. As 
represented in Table 2, we found that both measures had similar 
benefits and burdens, but the FUH measure had more benefits as it was 
more commonly collected or reported at both the State and Federal level 
and more frequently used by States to assess plan performance. We 
therefore chose to include the FUH measure in the proposed mandatory 
set.
(5) Removing Existing Mandatory Measures (Sec. Sec.  438.510(b)(2), (d) 
and (e) and 457.1240(d))
    We are proposing at Sec.  438.510(d)(1) that we may remove existing 
mandatory measures from the mandatory measure set if, after following 
the subregulatory process proposed at Sec.  438.510(b), we determine 
that the measure no longer meets the standards for the mandatory 
measure set proposed at 438.510(c). We would use the same approach we 
described in section I.B.6.e.2. of this proposed rule and illustrated 
with our FUH/FUM example in section I.B.6.e.4. of this proposed rule to 
assess whether a measure continues to meet our measure inclusion 
criteria to remain in the mandatory measure set. We are also proposing 
at Sec.  438.510(d)(2) through (4) to provide CMS the authority to 
remove mandatory measures outside of the subregulatory process proposed 
in Sec.  438.510(b) in three circumstances: when the measure steward 
(other than CMS) retires or stops maintaining a measure (proposed at 
Sec.  438.510(d)(2)), if CMS determines that the clinical guidelines 
associated with the specifications of the measure change such that the 
specifications no longer align with positive health outcomes (proposed 
at Sec.  438.510(d)(3)), or if CMS determines that a measure shows low 
statistical reliability under the standard identified in Sec.  
422.164(e) of this chapter (proposed at Sec.  438.510(d)(4)).
    These proposed criteria for removing measures outside the 
subregulatory process align with the current regulations governing the 
MA and Part D quality rating system.\146\ When a

[[Page 28194]]

measure steward such as NCQA or PQA retires a measure, they go through 
a process that includes extensive review by experts and solicit public 
comments from a variety of interested parties, including health plans, 
purchasers, consumers and other interested parties. The proposal to 
allow CMS to remove a measure if an external measure steward retires or 
stops maintaining a mandatory measure would allow us flexibility to 
ensure that measures included in the QRS mandatory measure set are 
maintained by the measure steward and consistent with the measure 
steward's underlying standards of clinical meaningfulness, reliability, 
and appropriateness for measures. Additionally, when there is a change 
in clinical guidelines such that measure specifications no longer align 
with or promote positive health outcomes, we believe it would be 
appropriate to remove the measure. Finally, we are proposing that CMS 
would have the authority to remove measures that show low statistical 
reliability (that is, how much variation between measure values that is 
due to real differences in quality versus random variation). We are 
using the same standard for statistical reliability as applied for the 
MA and Part D quality rating system under Sec. Sec.  422.164(e) and 
423.184(e). Any measures removed under these three circumstances 
proposed at Sec.  438.510(d)(2) through (4) would be announced in the 
annual technical resource manual, proposed at Sec.  438.530. We believe 
these criteria will allow us to swiftly remove measures that are no 
longer appropriate quality indicators of health plan performance. We 
seek comments on whether there are additional circumstances in which we 
should be able to remove a mandatory measure without engaging in the 
subregulatory process proposed at Sec.  438.510(b).
---------------------------------------------------------------------------

    \146\ ``Medicare Program; Contract Year 2024 Policy and 
Technical Changes to the Medicare Advantage Program, Medicare 
Prescription Drug Benefit Program, Medicare Cost Plan Program, and 
Programs of All-Inclusive Care for the Elderly'' (CMS-4201-F). 
Published in the Federal Register on April 12, 2023 (88 FR 22120). 
Available online at https://www.federalregister.gov/documents/2022/12/27/2022-26956/medicare-program-contract-year-2024-policy-and-technical-changes-to-the-medicare-advantage-program.
---------------------------------------------------------------------------

(6) Updating Mandatory Measure Technical Specifications (Sec. Sec.  
438.510 and 457.1240(d))
    In addition to adding and removing measures, we are also proposing 
rules at Sec.  438.510(e) for Medicaid, and for separate CHIP by cross-
reference through a proposed amendment at Sec.  457.1240(d), governing 
how we would handle updates to mandatory measures in the MAC QRS that 
are a result of changes made by a measure steward other than CMS to an 
existing mandatory measure's technical specifications. These are 
updates that measure stewards routinely make to quality measures, and 
can be non-substantive (such as changes that clarify instructions to 
identify services or procedures) or substantive in nature (for example, 
major changes to how the measures are calculated). We are proposing 
different subregulatory processes by which these non-substantive and 
substantive updates to existing mandatory measures would be made. 
First, in proposed paragraph Sec.  438.510(e)(1) for Medicaid, and for 
separate CHIP by cross-reference through a proposed amendment at Sec.  
457.1240(d), we propose that we would update the technical resource 
manual to revise descriptions of the existing mandatory measures that 
undergo non-substantive measure technical specification changes. In 
alignment with current practices in the MA and Part D quality rating 
system and the Core Sets, we are not proposing to use the subregulatory 
process proposed in Sec.  438.510(b) for non-substantive changes 
because we believe they reflect routine measure maintenance by measures 
stewards that do not significantly affect the measure and would not 
need additional review by the workgroup and CMS. We are proposing in 
new paragraph Sec.  438.510(e)(1)(i)-(iv) for Medicaid, and for 
separate CHIP by cross-reference through a proposed amendment at Sec.  
457.1240(d), to codify examples of the types of updates that are non-
substantive under this proposal. This proposal is consistent with 
current practice and regulations for the MA and Part D quality rating 
system at Sec. Sec.  422.164(d)(1) and 423.184(d)(1). We identify and 
describe the proposed non-substantive updates in detail below and seek 
comment on whether this list is exhaustive, whether it is an adequate 
list of examples of non-substantive changes, or whether we should 
consider adding other examples of non-substantive changes to the list. 
Examples of the types of changes we believe would be non-substantive 
for purposes of proposed Sec.  438.510(e)(1) include, but are not 
limited to the following:
     If the change narrows the denominator or population 
covered by the measure with no other changes, the change would be non-
substantive. For example, if an additional exclusion--such as excluding 
nursing home residents from the denominator--is added, the change would 
be considered non-substantive and would be incorporated through 
announcement in the annual technical resource manual.
     If the change does not meaningfully impact the numerator 
or denominator of the measure, the change would be non-substantive. For 
example, if additional codes are added that increase the numerator for 
a measure during or before the measurement period, such a change would 
not be considered substantive. This type of change has no impact on the 
current clinical practices of the plan or its providers.
     If revisions are made to the clinical codes without change 
in the target population or the intent of the measure and the target 
population, the change would be non-substantive. The clinical codes for 
quality measures (such as HEDIS measures) are routinely revised as the 
code sets are updated. Examples of clinical codes, include, but are not 
limited to:
    + ICD-10-CM code sets, which are updated annually,
    + Current Procedural Terminology (CPT) codes, which are published 
and maintained by the American Medical Association (AMA) to describe 
tests, surgeries, evaluations, and any other medical procedure 
performed by a healthcare provider on a patient, and
    + National Drug Code (NDC) which is updated bi-annually.
     If the measure specification change provides additional 
clarifications for reporting, without changing the intent of the 
measure, the change would be non-substantive. Examples include:
    + Adding additional tests that would meet the numerator 
requirements.
    + Clarifying documentation requirements (for example, medical 
record documentation).
    + Adding additional instructions to identify services or procedures 
that meet (or do not meet) the specifications of the measure.
    + Adding alternative data sources or expanding of modes of data 
collection to calculate a measure.
    Second, we propose at Sec.  438.510(e)(2) for Medicaid, and for 
separate CHIP by cross-reference through a proposed amendment at Sec.  
457.1240(d), that we may update an existing mandatory measure that has 
undergone a substantive measure specification update (that is, an 
update not within the scope of non-substantive updates, which are 
illustrated in Sec.  438.510(e)(1)(i) through (iv), only after 
completing the subregulatory process proposed in Sec.  438.510(b). We 
believe that most substantive measure specification updates to existing 
measures could result in new or different measures, thereby 
necessitating consideration and

[[Page 28195]]

evaluation against the criteria and standards in proposed paragraph (c) 
using the process in proposed Sec.  438.510(b). We seek comment on our 
proposal to incorporate substantive measure specification updates to 
existing mandatory measures only after consultation with States, other 
interested parties, and the public, or whether we should consider a 
separate process for these types of updates.
(7) Finalization and Display of Mandatory Measures and Updates 
(Sec. Sec.  438.510(f) and 457.1240(d))
    In new paragraph Sec.  438.510(f) for Medicaid, and for separate 
CHIP by cross-reference through a proposed amendment at Sec.  
457.1240(d), we propose that CMS would communicate modifications to the 
mandatory measure set and the timeline States would be given to 
implement modifications to the mandatory measure set in the annual 
technical resource manual. We propose to use the technical resource 
manual described in proposed Sec.  438.530 to communicate the final 
updates. We are proposing that States would be given at least 2 
calendar years from the start of the measurement year immediately 
following the technical resource manual in which the mandatory measure 
addition or substantive update was finalized to display the measurement 
results and ratings using the new or updated measure(s). We believe 
giving States at least 2 years would allow for contract and systems 
updates when new measures are added or substantive updates are made to 
the mandatory measure set. For example, if the technical resource 
manual finalized updates in August 2026, and the next measurement year 
after August started in January 2027, States would have, at a minimum, 
until January 2029 before they would be required to display the ratings 
for the mandatory measure updates in their MAC QRS. A State may elect 
to display the ratings for a new mandatory measure sooner. As two years 
from the start of the measurement year would always be in January, we 
seek comment on whether there is a need for States to have the 
flexibility to update their quality ratings by the end of the second 
calendar year, which, based on the example above, would give States the 
flexibility to update the rating between January and December of 2029.
    We are proposing the same implementation timeline for substantive 
updates to existing mandatory measures, since we believe these should 
be treated in the same manner as new measures. We are proposing this 
timeline based on discussions with States and other interested parties 
about operational considerations for implementation of new and 
substantively updated measures and the posting of the associated 
ratings. We are not proposing a specific deadline for States to stop 
display of a measure that has been removed from the mandatory measure 
set because States have the option to continue to display measures 
removed from the mandatory set as additional measures as described in 
section I.B.6.g.5. of this proposed rule. We seek comment on this 
flexibility considering the criteria under which measures can be 
removed at proposed Sec.  438.510(d). We seek comment on whether our 
timeframes are appropriate for updates to the mandatory measure set or 
whether we should consider allowing for more or less time, and why.
    In conclusion, we seek comment on the proposed subregulatory 
process to add and remove measures, as described in sections I.B.6.e.3. 
of this proposed rule, specifically the types of engagement (workgroup, 
smaller meetings, requests for information) and the types of experts 
that would be included in the engagement, and the use of a call letter 
or similar guidance to obtain public input on the MAC QRS mandatory 
measure set before it is substantively updated. We note that we are 
proposing the subregulatory process to update the mandatory measure set 
take place at least biennially. However, CMS could engage in this 
process more frequently in certain circumstances, such as in the case 
of rapidly evolving public health concerns. We seek comment on whether 
we should consider implementing the process on an annual basis, or 
another frequency, and why. We note that we are proposing to release 
the technical resource manual annually regardless of whether we are 
making any modifications to the mandatory measure set, to address any 
non-substantive changes to measure specifications or any removals that 
occur outside of the subregulatory process, as described in section 
I.B.6.i. of this proposed rule.
f. MAC QRS Methodology (Sec. Sec.  438.334(d), 438.515, 457.1240(d))
    Fundamental to any QRS is the methodology used to calculate the 
quality ratings for States' managed care plans. Under current 
regulations at Sec.  438.334(b)(1) CMS must, after consulting with 
interested parties and providing public notice and opportunity to 
comment, develop a methodology that States must use in the MAC QRS 
adopted by the State to calculate its plans' quality ratings, unless we 
approve an alternative methodology as part of an alternative MAC QRS in 
accordance with proposed Sec.  438.525. During the extensive engagement 
with States and other interested parties described in section I.B.6.a. 
of this proposed rule, we identified two main themes to consider in the 
development of a MAC QRS methodology: (1) States are concerned about 
the burden associated with data collection and quality rating 
calculation, and (2) beneficiaries desire transparent, representative 
quality ratings. In developing the MAC QRS methodology that we are 
proposing here, we sought to balance these two, often competing 
preferences, while ensuring that quality ratings remained comparable 
within and among States. We also considered the Interoperability and 
Patient Access for Medicare Advantage Organization and Medicaid Managed 
Care Plans, State Medicaid Agencies, CHIP Agencies and CHIP Managed 
Care Entities, Issuers of Qualified Health Plans on the Federally-
Facilitated Exchanges, and Health Care Providers,\147\ (referred to as 
``CMS Interoperability and Patient Access final rule'') published in 
May 2020. That rule placed several requirements on State Medicaid FFS 
programs as well as on Medicaid managed care plans for the 
implementation of application programming interfaces to facilitate 
sharing information between payers, enrollees, and providers. Based on 
these considerations, at Sec.  438.515 we propose requirements for 
collecting and using data to calculate managed care quality ratings for 
mandatory measures (that is, the MAC QRS methodology which we propose 
that States must use), unless we have approved an alternative QRS. The 
same requirements are proposed for separate CHIP managed care plans 
through a proposed cross-reference at Sec.  457.1240(d).
---------------------------------------------------------------------------

    \147\ https://www.govinfo.gov/content/pkg/FR-2020-05-01/pdf/2020-05050.pdf Medicare and Medicaid Programs; Patient Protection 
and Affordable Care Act; Interoperability and Patient Access for 
Medicare Advantage Organization and Medicaid Managed Care Plans, 
State Medicaid Agencies, CHIP Agencies and CHIP Managed Care 
Entities, Issuers of Qualified Health Plans on the Federally-
Facilitated Exchanges, and Health Care Providers. CMS-9115-F. 
Published in the Federal Register on May 1, 2020 (85 FR 25510 
through 25640).
---------------------------------------------------------------------------

    Under current regulations at Sec.  438.334(d), each year States 
would be required to collect data from each managed care plan with 
which they contract and issue an annual quality rating for each managed 
care plan based on the data collected. We are proposing to replace that 
policy with more specific requirements in proposed new Sec.  438.515(a) 
for States to collect and validate data used by the State to calculate 
and issue quality ratings for

[[Page 28196]]

each mandatory measure on an annual basis. First, we propose, at 
proposed Sec.  438.515(a)(1) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d)), 
that States must collect the data necessary to calculate quality 
ratings for mandatory measures from their contracted managed care plans 
and, as applicable and available without undue burden, the State's 
Medicaid fee-for-service program and Medicare. Specifically, we propose 
that data be collected from managed care plans that meet a minimum 
enrollment threshold of 500 or more enrollees on July 1 of the 
measurement year. This enrollment threshold is the same as the 
enrollment threshold for the QHP quality rating system requirement at 
section 1311(c)(4) of the Patient Protection and Affordable Care Act.
    We believe that requiring States to calculate quality ratings for 
plans with fewer than 500 enrollees would be overly burdensome, as 
these plans may have limited resources for collecting and reporting 
data, and are more likely than plans with higher enrollment to have 
small denominator sizes that would make it inappropriate to issue and 
display quality ratings for some measures due to privacy or validity 
concerns. Further, through an analysis of 2019 Transformed Medicaid 
Statistical Information System (T-MSIS) Analytic Files (which are 
research-optimized files of T-MSIS data), we determined that neither 
the number of managed care plans nor the percentage of beneficiaries 
reported in the MAC QRS would be significantly reduced by excluding 
plans with enrollment below 500. Thus, we believe the proposed 
enrollment threshold maximizes inclusion of plans and enrollees, while 
also minimizing the burden of data collection and reporting on smaller 
plans. States would have the flexibility to include plans with fewer 
than 500 enrollees at their discretion, and we would encourage States 
to do so when appropriate and feasible.
    At Sec.  438.515(a)(1)(ii) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d), we 
propose that States would also be required to collect available data 
from the State's Medicaid fee-for-service (FFS) program, Medicare 
(including Medicare Advantage plans), or both if all necessary data 
cannot be provided by the managed care plans for the measures and 
collection of these data does not impose an undue burden on the State. 
For example, if a State delivers behavioral health services through a 
managed care program and all other services through its FFS program, 
the State would need to collect both managed care and FFS data to 
calculate quality ratings for the managed care plans participating in 
its behavioral health managed care program for many of our proposed 
behavioral health mandatory measures. Similarly, if a managed care plan 
provides services to enrollees who are dually eligible for Medicare and 
Medicaid services, it would be necessary for the State to collect data 
about services provided by Medicare to such enrollees to calculate 
quality ratings for some measures included on the proposed mandatory 
set. While we are proposing that States must collect data from these 
other sources as needed to calculate mandatory measures if the data are 
available for collection without undue burden, we are not proposing 
that States would calculate or assign quality ratings to Medicaid FFS 
or Medicare plans.
    We considered requiring States to collect data only from their 
contracted managed care plans and then only when a plan is able to 
provide all data necessary to calculate and issue a quality rating for 
a given performance measure, which is a common practice among measure 
stewards. However, we are concerned that there would be instances where 
there is no single plan from which a State could collect all data 
necessary to calculate one or more of the measures on our mandatory 
measure list. For example, of the 18 measures on our proposed mandatory 
measure set, four require data from more than one setting, including 
three of our proposed behavioral health mandatory measures. These four 
measures include Use of First-Line Psychosocial Care for Children and 
Adolescents on Antipsychotics (APP), Initiation and Engagement of 
Alcohol and Other Drug Abuse or Dependence Treatment (IET), Follow-Up 
After Hospitalization for Mental Illness) (FUH), and Asthma Medication 
Ratio (AMR). To calculate the three behavioral health measures, it is 
necessary to collect behavioral health or substance use service data as 
well as either pharmacy or physical health data. When these services 
are covered by separate plans or delivery systems, such as where a 
State has chosen to split Medicaid coverage of these services between 
separate managed care programs or use a combination of managed care and 
FFS delivery systems, these mandatory measures would be at risk of 
going unreported. Similar issues are raised for dually eligible 
individuals who receive coverage through Medicare and Medicaid. We note 
that Medicaid is the single largest payer of mental health services in 
the U.S., and behavioral health and substance use measures would be at 
particular risk of going unreported, as services provided in these 
settings are commonly provided through a separate managed care plan. We 
believe that our proposal for States to collect and use data from 
multiple sources will mitigate the risk of underreporting of mandatory 
measures, particularly those measures assessing behavioral health and 
substance use services.
    We believe our proposal is aligned with ongoing efforts to expand 
access to health plan data at both the State and Federal level. For 
example, State data collection required for measures in the Child Core 
Set and behavioral health measures in the Adult Core Set, which will 
become mandatory effective for calendar year 2024, requires States to 
report measures using data from both managed care and FFS programs as 
well as Medicare data for dually eligible beneficiaries. Many of these 
measures overlap with the mandatory measures proposed for the MAC QRS, 
which means States will already be obligated to collect Medicaid 
managed care and FFS data and to obtain Medicare data needed to 
calculate certain performance measures. Thus, we believe that the 
benefits of proposed Sec.  438.515(a)(1)(ii) outweigh the costs of any 
increased burden on States.
    Furthermore, there is an ongoing effort at the Federal and State 
levels to increase data availability and interoperability, including 
State access to managed care plan data. At the time of this proposed 
rule, data available for collection include encounter data received 
from a State's own Medicaid managed care plans under Sec.  438.242 and 
data from FFS providers through claims and other reporting. Given 
existing data availability, we believe that the collection of such data 
would rarely result in an undue State burden. States can also obtain 
Medicare Part A, B and D data free of charge through the CMS State Data 
Resource Center (SDRC). Although Part C data are not available publicly 
through the SDRC, States may use their contracts with MA Dual Eligible 
Special Needs Plans (D-SNPs), which are required under Sec.  422.107, 
to obtain Medicare data about the dually eligible individuals enrolled 
in those plans. As a significant number of States already obtain Part C 
data in this way, we believe such data would be available without undue 
burden in many cases, particularly where a State has already opted to 
obtain some Medicare Part C data in this way.
    We understand that making contractual or systems changes to allow a 
State to collect such data without

[[Page 28197]]

causing an undue burden, such as a substantial financial or resource 
investment, may mean that a State implements these changes over time, 
and that this timeline may extend past the implementation date proposed 
in Sec.  438.505(a)(2). We intend the proposed standard ``without undue 
burden'' to facilitate a gradual implementation of contract or system 
changes to collect the necessary data. We also would be available to 
provide technical assistance to help States acquire and use available 
data to calculate MAC QRS quality ratings. We seek comment on the 
proposed requirement that States collect available data from multiple 
sources on the mandatory measures. In addition, we request comment on 
the type of technical assistance that would be most helpful in 
assisting States in obtaining and using data from the sources specified 
in the proposed regulation.
    Once the necessary data are collected to calculate quality ratings 
for each mandatory measure, our proposal at Sec.  438.515(a)(2) would 
require States to ensure that all collected data are validated. This 
aligns with similar requirements in 45 CFR 156.1120(a)(2), which 
requires QHP issuers to validate data for the QHP QRS, and 42 CFR 
422.162(c)(2), which requires MA organizations to provide unbiased, 
accurate and complete quality data to CMS for the MA and Part D quality 
rating system. Currently, Sec.  438.320 defines validation for purposes 
of subpart E of part 438 as the review of information, data, and 
procedures to determine the extent to which they are accurate, 
reliable, free from bias, and in accord with standards for data 
collection and analysis. We are proposing the same definition for 
purposes of new subpart G at Sec.  438.500. States may use the current 
optional EQR activity at Sec.  438.358(c)(6) and 457.1250(a)--for which 
enhanced match may be available for Medicaid EQR-related activities 
performed for MCOs per Sec.  438.370(a)--to assist with the calculation 
and validation of data used to generate quality ratings for the MAC 
QRS. Use of this optional activity may help reduce burden on States.
    We are proposing in Sec.  438.515(a)(3) that States use the 
validated data to calculate performance rates for managed care plans. 
Under this proposal, States would calculate, for each mandatory 
measure, a measure performance rate for each managed care plan whose 
contract includes a service or action being assessed by the measure, as 
determined by the State. Under this proposal, the mandatory measures 
would be assigned to the plan(s) based on whether the plan's contract 
covers the service or action being assessed by the measure, as 
identified by the State. We believe this would be straightforward for 
measures assessing single services or actions, but, as we noted 
previously in this section of the proposed rule, some States choose to 
deliver Medicaid services through different managed care programs. In 
these States, data necessary to calculate a measure performance rate 
for a given measure may be collected from two managed care plans. 
However, a State may determine that only one of these services or 
actions for which data must be collected is being assessed by the 
measure. In such a case, the State must identify, among those plans 
from which the State collected data, the plans whose contract includes 
the service of action identified by the States as being assessed by the 
measure, and calculate and assign quality ratings accordingly.
    For example, the Follow-Up After Hospitalization (FUH) measure 
listed in Table 2 requires data on two services: hospitalization and 
mental health services. In a State that offers behavioral and physical 
health services through separate managed care programs, the State would 
need hospitalization data from plans participating in the physical 
health program and mental health service data from the plans 
participating in the behavioral health program to calculate FUH 
performance rates. Because data are collected from more than one plan, 
our proposal would require States to determine which service or action 
is being assessed by the measure. If a State determines that the 
service or action being assessed by the FUH measures is the provision 
of timely follow-up of mental health services to an enrollee following 
a hospitalization for mental illness, the State would then be required 
to identify all plans that are contracted to provide the follow-up 
mental health services assessed by the FUH measure and assign each of 
those plans a quality rating for the FUH measure.
    Lastly, our current regulation at Sec.  438.334(d) requires States 
to issue an annual quality rating (that is, a single rating) to each 
managed care plan using the Medicaid managed care quality rating system 
(emphasis added). However, based on feedback we received from 
beneficiaries, we are proposing to revise that current policy and to 
require States to issue to each managed care plan a quality rating for 
each mandatory measure for which the managed care plan is accountable. 
As proposed at Sec.  438.515(a)(4) for Medicaid, and for separate CHIP 
by cross-reference through a proposed amendment at Sec.  457.1240(d), 
States would be required to issue quality ratings as measure 
performance rates (that is, the individual percentage rates calculated 
under Sec.  438.515(a)(3)). For example, a managed care plan that 
furnishes behavioral health services would likely be issued a measure 
performance rate for each of the proposed behavioral health mandatory 
measures, depending on the availability of data. We also considered 
requiring States to calculate and display a performance rating that 
reflects a national baseline for each mandatory measure, which would 
align with the practice of States that currently publish managed care 
quality measures using an individual, percentage rating. However, we 
chose not to propose this requirement in this rulemaking. We seek 
comment on our proposal to issue individual performance rates and seek 
additional input on our decision not to require additional percentage 
ratings to reflect a national baseline for each mandatory measure.
    The proposal to require that States issue quality ratings for 
individual quality measures is supported by the user testing we 
conducted during our engagement with interested parties. Beneficiaries 
stated varying preferences for the level of information that they would 
like to have, with roughly half preferring more detailed information, 
40 percent preferring big picture information, and 10 percent falling 
in the middle. Many beneficiaries stated interest in quality ratings 
for specific measures that related to their individual health care 
needs, especially those that aligned with their understanding of 
important health indicators identified by trusted health care 
professionals, such as blood A1c levels for people with diabetes, 
demonstrating the value of including individual measure quality 
ratings.
    Our user testing suggests that displaying managed care plan quality 
ratings both at the individual measure and the domain level would be 
most desirable to beneficiaries. This approach would allow 
beneficiaries who prefer big picture information to concisely compare 
plans at the domain-level, while beneficiaries who desire more detailed 
information could drill down into the domains to understand a plan's 
performance on the individual quality measures from which the domain 
score is derived. These findings are discussed in additional detail in 
section I.B.6.g. of this proposed rule. However, we did not 
significantly test domain level quality ratings and believe that 
additional engagement with interested parties and beneficiary testing 
would be necessary before requiring States to calculate and issue 
domain-level ratings. Therefore,

[[Page 28198]]

we propose at Sec.  438.515(c) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d), that 
CMS will engage with States, beneficiaries, and other interested 
parties before proposing to implement domain-level quality ratings for 
managed care plans. Examples of potential care domains include 
behavioral health, chronic conditions, infant and children, and 
preventive care.
    We believe that including domain-level quality ratings in the MAC 
QRS, in addition to measure-level quality ratings, would align best 
with the informational preferences expressed by beneficiaries who 
participated in testing of a MAC QRS prototype. We intend to propose 
the care domains, methodology, and website display requirements in 
future rulemaking. In calculating domain-level quality ratings, we are 
considering requiring States to calculate and assign quality ratings 
for a managed care plan only in those domains that are relevant to the 
managed care plan. For instance, while most care domains are likely to 
be relevant to an MCO, a care domain that focuses on infants and 
children is unlikely to be relevant to a plan that provides long term 
services and supports to dually eligible individuals. We seek feedback 
on our proposal to include individual percent scores, intended approach 
to domain-level ratings, and potential MAC QRS care domains.
    To ensure that services provided to all Medicaid beneficiaries are 
reflected in each managed care plan's quality ratings, we propose at 
Sec.  438.515(b)(1) that States must ensure that the quality ratings 
issued under proposed Sec.  438.515(a)(4) include data for all 
beneficiaries who receive coverage from the managed care plan for a 
service or action for which data are required to calculate the quality 
rating. This includes beneficiaries who are dually eligible for 
Medicare and Medicaid and receive services through the Medicaid managed 
care plan, subject to the availability of data about the services 
received by dually eligible individuals. While we recognize that 
including dually eligible beneficiaries in quality ratings may require 
additional effort to obtain and analyze Medicare utilization data, 
especially where dually eligible beneficiaries are not in programs that 
integrate Medicare and Medicaid, we believe it is important to ensure 
that these beneficiaries can assess the quality of care furnished by 
available Medicaid plans for beneficiaries who also are enrolled in 
Medicare. Furthermore, including dually eligible individuals in MAC QRS 
quality ratings would align with the Adult and Child Core Sets, as some 
measures require both Medicaid and Medicare data (see Core Set NPRM, 87 
FR at 51317). Under proposed Sec.  438.515(b)(1), only dually eligible 
individuals who receive full Medicaid benefits would be included in the 
MAC QRS, because individuals whose Medicaid eligibility is limited to 
assistance with Medicare premiums and/or cost sharing receive covered 
services exclusively through Medicare. We intend to provide additional 
guidance on which beneficiaries must be included in the quality ratings 
for each MAC QRS mandatory measure in the technical resource manual 
alongside technical specifications from the mandatory measure's measure 
steward. For separate CHIP, Sec.  457.310(b)(2) does not allow for 
concurrent coverage with other health insurance, so our proposed 
amendment to Sec.  457.1240(d) excludes dually eligible individuals 
from the scope of the required CHIP managed care quality rating.
    In Sec.  438.515(b)(2) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d), we 
propose that States would be required to calculate quality ratings at 
the plan level by program. While some States have one managed care 
program through which they offer all Medicaid services, most States 
cover Medicaid services through multiple programs that are defined by 
the population served by the program and the set of benefits covered by 
the program. For example, a State may have one program that covers 
behavioral health services while a second program covers physical 
health services. Other States may choose to provide similar services 
through different managed care programs that serve different 
populations. In these States, different programs cover different 
services to meet the needs of different subpopulations of Medicaid 
beneficiaries, such as pregnant individuals, children in foster care, 
or those with disabilities, chronic conditions, or HIV/AIDS. In States 
with multiple managed care programs, managed care plans may choose 
which programs they will participate in by contracting with the State. 
Generally, beneficiaries would then select from the managed care plans 
participating in each program for which the beneficiary is determined 
eligible, subject to requirements on access to multiple managed care 
plans in Sec.  438.52.
    Under our proposals, States that offer multiple managed care 
programs would calculate plan level ratings for each managed care plan 
participating in a single managed care program using only the service 
data described in Sec.  438.515(b)(1) of beneficiaries enrolled in that 
managed care plan under that managed care program. A managed care plan 
that participates in multiple managed care programs would receive a 
distinct rating for each of these programs. These ratings would be 
produced using data only from those beneficiaries enrolled in the 
managed care plan under the specific managed care program. That is, 
ratings would be calculated at the plan level but with the plan 
dividing up its enrolled population based on the specific managed care 
program(s) that the State has contracted with the plan for coverage. As 
eligible beneficiaries select from available managed care plans within 
a program, we believe that plan level quality ratings for each program 
in which the plan participates will best align with what beneficiaries 
may expect to receive from each managed care plan participating in that 
program. This approach is distinguishable from single plan level 
ratings for all of the programs in which the plan participates, which 
would be calculated using all data from the plan regardless of the 
managed care program. We believe such ratings would not provide useful 
information to potential enrollees because such plan level ratings 
would reflect the quality of services provided to all beneficiaries 
covered by the plan, regardless of the program through which the 
beneficiary receives services from the plan, and may not reflect the 
performance that a beneficiary could expect based on the beneficiary's 
enrollment options. The proposed plan level ratings for each managed 
care program would produce quality ratings that are most representative 
of the care beneficiaries can expect to experience because each rating 
would be calculated only from data for beneficiaries enrolled in the 
same managed care plan under the same program. If a measure cannot be 
reported for a plan due to low denominator sizes, the plan would be 
issued an appropriate ``missing data'' message for that measure as the 
quality rating. We seek comment on how this proposed policy would 
interact with our proposed minimum enrollment threshold, such as an 
analysis that assesses the extent to which a State's smaller plans may 
report missing data messages.
    We considered the level at which ratings are assigned in the MA and 
Part D and QHP quality ratings systems as part of developing our 
proposal for the MAC QRS. In the MA and Part D quality rating system, 
quality ratings for most measures are assigned at the contract

[[Page 28199]]

level, which consolidates data from all plan benefit packages offered 
under the contract to calculate a quality rating. Under a contract-
level reporting unit, quality ratings would be calculated based on data 
from all enrollees served under a given contract between a State and a 
managed care plan. However, we do not believe that contract-level 
ratings would be as useful to Medicaid beneficiaries and would make it 
difficult for States to assess the quality of care provided to 
beneficiaries in separate programs that are often designed to improve 
the quality of care for a particular subpopulation of beneficiaries 
with unique care considerations. In the QHP quality rating system, 
quality ratings are assigned at the product level (for example, 
Exclusive Provider Organization Plan (EPO), Health Maintenance 
Organization (HMO), Point of Service (POS), and Preferred Provider 
Organization (PPO)). These products typically provide coverage of a 
similar set of comprehensive health care services, but vary in terms of 
how enrollees are able to access these services and at what cost. If an 
issuer of health care offered multiple products, each separate product 
would receive its own ratings. In Medicaid, product level ratings could 
correlate with ratings assigned at the PIHP, PAHP, or MCO level.
    Under our proposal at Sec.  438.515(b)(2), managed care plans that 
participate in multiple managed care programs would receive separate 
quality ratings under each program. These separate quality ratings 
would be calculated from data for only those beneficiaries enrolled in 
the managed care plan under a given program. We believe that this 
approach best balances the need for representative ratings with the 
level of effort States must employ to calculate quality ratings for the 
MAC QRS, while also accommodating the current way that States structure 
their overall Medicaid and CHIP program and the need for comparable 
quality ratings both within and among States. While our proposed 
reporting unit would require the calculation of more quality ratings 
than those used by the MA and Part D or QHP quality rating systems, we 
believe that this additional work will also help States monitor the 
quality of the managed care programs that they have developed to ensure 
provision of high-quality, cost-efficient care to their beneficiaries. 
We seek comment on our proposal to use a program-level reporting unit 
for the MAC QRS as well as other recommendations for reporting units 
that would result in quality ratings that are both representative and 
less burdensome on States.
    Finally, it is important to note that States could receive an 
enhanced match for assistance with quality ratings of MCOs performed by 
an EQRO, including the calculation and validation of MCO data, under 
the external quality review optional activity at Sec.  438.358(c)(6), 
in accordance with Sec.  438.370 and section 1903(a)(3)(C)(ii) of the 
Act.
g. MAC QRS Website Display (Sec. Sec.  438.334(e), 438.520, 
457.1240(d))
    Current regulations at Sec.  438.334(e), which would be 
redesignated at Sec.  438.520(a) of this proposed rule, require States 
to prominently display the quality rating issued for each MCO, PIHP, or 
PAHP on the website required under Sec.  438.10(c)(3) in a manner that 
complies with the standards in Sec.  438.10(d). Our policies proposed 
at Sec.  438.520 would establish new requirements for the website 
display, which were informed by extensive consultation with Medicaid 
beneficiaries and their caregivers and iterative testing of a MAC QRS 
website prototype. The consultation and testing revealed that the 
presentation of quality ratings greatly influences the usability and 
utility of the MAC QRS as a tool to assist beneficiaries in selecting a 
plan. Providing information to beneficiaries in a useable way is 
necessary for compliance with section 1932(a)(5) of the Act regarding 
provision of information, including comparative information on plan 
quality, to beneficiaries when a State mandates enrollment in an MCO. 
The same standards apply under section 2103(f)(3) of the Act to CHIP. 
To promote the efficient and economical operation of the Medicaid State 
Plan and CHIP, we apply the same requirements for all managed care 
programs through our regulations. Our proposed requirements for 
Medicaid managed care programs in Sec.  438.520 would also be 
applicable to separate CHIP under this proposal, through a cross-
reference in the CHIP regulation at Sec.  457.1240(d).
    In our initial round of testing, participants struggled to 
understand how to use the MAC QRS prototype, and often dismissed or 
skipped over the quality ratings, noting that they did not understand 
the ratings or how they translated to member care. Subsequent revisions 
of our MAC QRS prototype focused on identifying how best to present 
quality ratings to prospective users in a way that supported 
beneficiaries' ability to understand and incorporate quality ratings 
and use them to inform their selection of a health plan. Based on our 
testing, it was clear that to truly empower beneficiaries as informed 
health care consumers, quality ratings are best presented as one part 
of a comprehensive website that efficiently guides the user through the 
considerations for identifying a quality health plan. We also learned 
that to be more useful, the website should address factors commonly 
considered by individuals in selecting a health plan, which include 
information not traditionally factored into health plan quality 
ratings, such as what providers are in the network and drug coverage. 
Using this feedback, we designed, tested, and refined the MAC QRS 
display components proposed in this rulemaking to align with the stated 
preferences of our user-testing participants.
    The display components identified as most critical are included in 
proposed Sec.  438.520; these components fall into three categories: 
(1) information to help navigate and understand the content of the MAC 
QRS website; (2) information to allow users to identify available 
managed care plans and features to tailor display information; and (3) 
features that allow beneficiaries to compare managed care plans on 
standardized information, including plan performance, cost and coverage 
of services and pharmaceuticals, and provider network. Based on the 
feedback we received during prototype testing, we believe that these 
components are critically important to ensure quality rating 
information can be readily understood by beneficiaries and used in 
decision-making. We are therefore proposing at Sec.  438.520 that 
States display a MAC QRS website that includes: (1) clear information 
that is understandable and usable for navigating a MAC QRS website; (2) 
interactive features that allows users to tailor specific information, 
such as formulary, provider directory, and quality ratings based on 
their entered data; (3) standardized information so that users can 
compare managed care programs and plans, based on our identified 
information; (4) information that promotes beneficiary understanding of 
and trust in the displayed quality ratings, such as data collection 
timeframes and validation confirmation; and (5) access to Medicaid and 
CHIP enrollment and eligibility information, either directly on the 
website or through external resources.
    Importantly, we understand from our engagement with States and 
interested parties that some display requirements we believe align with 
the goals discussed in section I.B.6.a. of this proposed rule may 
require more

[[Page 28200]]

technology-intensive implementation, such as the interactive features 
that allow users to tailor displayed information. We are therefore 
proposing to implement the proposed website display requirements in two 
phases. The first phase would be implemented by the end of the fourth 
year following the release of the final rule, as proposed at Sec.  
438.505(a)(2). In this phase, States would develop the MAC QRS website, 
display quality ratings, and would ensure that users can access 
information on plan providers, drug coverage, and view quality ratings 
by sex, race, ethnicity and dual eligibility status from the MAC QRS 
website. For instance, in lieu of an interactive search tool, the State 
may simply hyperlink to each managed care plan's existing provider 
directory and formulary to meet our proposed requirements. This first 
phase would accomplish the goal of having a one-stop-shop for 
beneficiaries to access the information we believe is key to their 
decision-making, but would not require States to develop the 
interactive tools identified in our research as more beneficial and 
usable by prospective users. In the second phase, States would be 
required to modify the website to provide a more interactive user 
experience with more information readily available to users on the MAC 
QRS website. This would entail including or moving some of the 
information required in other parts of 42 CFR part 438 to the MAC QRS 
website. For example, users could tailor the display of information to 
their needs and search for plans that cover their providers and 
medications without leaving the MAC QRS website. We discuss our 
proposal for phasing-in more interactive features of the website 
display in more detail later in this section. We seek comment on which 
requirements should be phased in as well as how much time would be 
needed.
    Given the visual nature of the website display, we are providing 
two sample MAC QRS prototypes; a simple website (Prototype A) that 
represents the information we are considering to require by the 
proposed implementation date in Sec.  438.505(a)(2) and another MAC QRS 
prototype (Prototype B) that represents an interactive website that 
includes both the display features from the first implementation phase 
and the more technology-intensive features we are considering phasing 
in. These prototypes can be found at https://www.medicaid.gov/medicaid/quality-of-care/medicaid-managed-care-quality/quality-rating-system/ and are meant to show our overall vision for the progression 
of the website display. In addition to the two prototypes, we intend to 
release a MAC QRS design guide following the final rule, which will 
provide a comprehensive overview of the results of our user testing 
that States may reference in the design of their MAC QRS website 
display. These materials would also provide CMS's interpretation of the 
requirements of the final rule as well as guidance on potential best 
practices in complying with the rule. We intend the design guide to 
include several components, including but not limited to: desirable 
features and content that States can implement at their discretion, 
plain language descriptions of mandatory measures, and display 
templates that States would have the option to use in the design of 
their MAC QRS. In the following paragraphs we discuss the proposed 
website display requirements and the feedback that led to their 
inclusion in the proposed website display.
(1) Navigational and Orienting Information (Sec. Sec.  438.334(e), 
438.520(a)(1) and (5), 457.1240(d))
    Throughout our engagement, beneficiaries consistently stated the 
expectation that State Medicaid website and online plan selection 
processes would be difficult to navigate, and many users shared that 
they had previously felt confused and overwhelmed during the process of 
selecting a managed care plan. When reviewing the initial MAC QRS 
prototype, some beneficiaries reported struggling to understand the 
purpose of the prototype and how and when the information could be 
useful. In light of this feedback, we tested a number of features to 
support users in understanding and navigating potential websites and 
found that beneficiaries responded positively to live assistance 
services (such as chat and telephone), and pop-ups and other mechanisms 
of displaying information to explain content as participants navigated 
the prototype.
    We found that providing upfront clear information about what the 
MAC QRS is (a State-run, unbiased source of information on managed care 
plans and their performance) and is not (a sales funnel for a 
particular managed care plan) and what it can do (help compare 
available managed care plans and their quality and performance) and 
what it cannot do (determine eligibility for Medicaid and CHIP or 
enroll beneficiaries in a health plan) allowed participants to quickly 
determine the purpose of the MAC QRS and whether the information 
available would be a useful tool for them when selecting a managed care 
plan. We also found that some beneficiaries initially needed additional 
background on relevant programs such as Medicaid, CHIP, and Medicare to 
understand if they were eligible for, or enrolled in, a plan or program 
with ratings or information available through the MAC QRS. Once the 
purpose of the MAC QRS was established, beneficiaries positively 
responded to features that clearly conveyed how to use the information 
available in the MAC QRS to select a managed care plan in a simple, 
easy to understand manner, such as providing the steps to identifying, 
comparing, and selecting a managed care plan. In our testing prototype, 
users were wary about entering personal information to help identify 
and tailor the display of available managed care plans, such as zip 
code, age, sex, and health conditions--information that can be helpful 
in navigating a website designed to help individuals select a plan. 
However, when a clear explanation of how their information would be 
used, users became more comfortable providing personal information.
    Based on these findings from user testing, we are proposing certain 
navigational requirements for the MAC QRS website display requirements 
in proposed Sec.  438.520(a)(1). Specifically, we propose in Sec.  
438.520(a)(1)(i) that States must provide users with information 
necessary to understand and navigate the MAC QRS display, including a 
requirement to provide users with information on the MAC QRS purpose, 
relevant information on dual eligibility and enrollment through 
Medicare, Medicaid, and CHIP, and an overview of how the MAC QRS 
website can be used to select a managed care plan. We propose in Sec.  
438.520(a)(1)(ii) that States must provide information on how to access 
the beneficiary support system required under existing Sec.  438.71 to 
answer questions related to the MAC QRS (proposed at Sec.  
438.505(a)(3) and described in section I.B.6.d. of this proposed rule). 
Since beneficiary support systems are not required for separate CHIP, 
our proposed amendment to Sec.  457.1240(d) excludes references to this 
requirement. We seek comment on whether beneficiary supports similar to 
those proposed for Medicaid should be required for States for separate 
CHIP in connection with the MAC QRS information or on a broader basis 
through future rulemaking. Under proposed Sec.  438.520(a)(1)(iii) for 
Medicaid, and for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d), States would be required

[[Page 28201]]

to inform users of how any information they provide would be used. 
Finally, under proposed Sec.  438.520(a)(5), States would be required 
to provide users with information or hyperlinks that direct users to 
resources on how and where to apply for Medicaid and enroll in a 
Medicaid or CHIP plan. This requirement ensures that users can easily 
navigate to the next steps in the plan selection process after 
reviewing the MAC QRS website.
    We believe that States can implement these features by relying on 
existing public information or expanding current requirements. For 
instance, States are required to have the beneficiary support system at 
Sec.  438.71 in place and can train existing staff on the MAC QRS. 
Through an environmental scan of State Medicaid websites, we found that 
all States currently have information describing their Medicaid and 
CHIP programs as well as programs available to those dually eligible 
for Medicare and Medicaid. In both phases of the website display 
implementation, States may use these existing resources to comply with 
the requirements of proposed Sec.  438.520(a)(1)(i) and (ii) either by 
hyperlinking to these resources from the MAC QRS website or 
incorporating existing information into the MAC QRS website display. 
Finally, as part of the MAC QRS design guide, we intend to provide 
plain language descriptions to illustrate what we would interpret the 
final rule to require; States may use such examples on their websites 
to provide an overview of how to use the MAC QRS to select a quality 
managed care plan.
(2) Tailoring of MAC QRS Display Content (Sec. Sec.  438.334(e), 
438.520(a)(2) and (a)(6), and 457.1240(d))
    We also found that testing participants responded positively to 
features that allowed them to reduce the number of plans displayed to 
only those that met specific criteria, such as geographic location and 
eligibility requirements (for example, beneficiary age), so long as 
their privacy concerns were addressed by providing information on how 
and why such data would be used. Beneficiaries felt most comfortable 
providing their age and geographic location to identify health plans 
and we believe that these data points are likely sufficient to reduce 
the number of plans available to beneficiaries for comparison while 
also minimizing burden on States. Furthermore, dually eligible 
participants responded positively to the ability to easily identify 
those plans for which they were eligible. Therefore, we are proposing 
at Sec.  438.520(a)(2)(i) for Medicaid, and for separate CHIP by cross-
reference through a proposed amendment at Sec.  457.1240(d), that each 
State's website must allow users to view available plans for which the 
user may be eligible based on users' age, geographic location, and dual 
eligibility status, as well as other demographic data identified by us 
in display guidance. Under the proposed rule, States would retain the 
flexibility to allow users to use additional information or eligibility 
criteria to further narrow down available managed care plans, such as 
searching by health condition like pregnancy or diabetes. In both 
phases of the website display implementation, States may meet this 
requirement by linking to a PDF that clearly indicates plans available 
to a beneficiary based on the identified factors (see Prototype A at 
https://www.medicaid.gov/medicaid/quality-of-care/medicaid-managed-care-quality/quality-rating-system/). However, States may 
instead choose to implement an interactive display that allows the 
beneficiaries to input information upfront, and then tailors which 
managed care plans' information is displayed based on this information 
(see Prototype B at https://www.medicaid.gov/medicaid/quality-of-care/medicaid-managed-care-quality/quality-rating-system/). In our 
environmental scan of State Medicaid websites, we identified many 
States that provide such a feature to help beneficiaries identify plans 
available to them. We believe this requirement supports the MAC QRS 
website being a one-stop-shop where beneficiaries can select a plan 
based on their eligibility information. We have made the judgment that 
requiring the development and use of the MAC QRS website in this manner 
is necessary for the proper and efficient operation of State Medicaid 
plans, and accordingly are proposing this requirement under our 
authority in section 1902(a)(4) of the Act, because this would support 
the beneficiary enrollment (and disenrollment) protections established 
in section 1932(a)(4)(A) of the Act . Based on our testing, the 
additional context is necessary and appropriate for beneficiaries to 
effectively use the information on plan quality ratings when choosing a 
managed care plan. Further, providing this flexibility for 
beneficiaries to choose how certain comparative information is 
presented is consistent with the requirement in section 1932(a)(5)(C) 
of the Act (which we have extended to information about PIHPs and PAHPs 
as well as MCOs using our authority in section 1902(a)(4) of the Act) 
for States to provide comparative information to beneficiaries about 
Medicaid managed care plans.
    Participants in our user testing also prioritized confirming 
whether their current provider or prescriptions would be covered under 
a plan prior to navigating to other details about the plan. We 
therefore are proposing at Sec.  438.520(a)(2)(ii) and (iii) for 
Medicaid, and for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d), to require States to display provider 
directory and drug coverage information for each managed care plan in 
phase one of the website display requirements. This information is 
already required to be available from managed care plans under existing 
Sec.  438.10(h)(1) and (2) and Sec.  438.10(i), which set forth the 
general requirements for provider directory and formulary information 
that plans must make available to beneficiaries. In the first phase, 
States could satisfy the proposed requirements by providing hyperlinks 
to existing plan formularies and provider directories required under 
Sec.  438.10(h) and (i) (See Prototype A); this capability would be 
required by the general implementation date proposed under Sec.  
438.505(a)(2).
    As previously mentioned, user-testing participants preferred an 
integrated search feature that allowed them to identify available plans 
that offered coverage of specific prescription drugs and providers, 
rather than being directed via hyperlink to each managed care plan's 
website, which would require them to conduct multiple searches to 
identify the plans that cover their prescriptions and providers. When 
consulted, States generally were supportive of the display requirements 
we are proposing in Sec.  438.520(a)(2), but noted that a searchable 
formulary or directory would be difficult to design and implement by 
the implementation date proposed in Sec.  438.505(a)(2). Under Sec.  
431.60(a) of the May 2020 CMS Interoperability and Patient Access final 
rule,\148\ States must implement an application programming interface 
(API) that permits third-party retrieval of certain data specified by 
CMS, including information about covered outpatient drugs and preferred 
drug list information (Sec.  431.60(b)(4)) and

[[Page 28202]]

provider directory information (Sec.  431.70(b)). These requirements 
are applied in Medicaid managed care to MCOs, PIHP, and PAHPs under 
Sec.  438.242(b)(5) and (6). We therefore believe that burden on 
managed care plans and States to provide the interactive search tools 
proposed in Sec.  438.520(a)(2) would be minimized given that the data 
necessary to offer such tools is the same data that plans must make 
available through an API as specified in Sec.  438.242(b)(5) and (6) 
and States could compile and leverage this existing data to offer the 
search functionality we are proposing. However, we agree that States 
will need additional time to implement dynamic, interactive website 
display features. Therefore, we are proposing, at Sec.  
438.520(a)(6)(i) and (ii) for Medicaid, and for separate CHIP by cross-
reference through a proposed amendment at Sec.  457.1240(d), that 
States would be given at least two additional years after a State's 
initial implementation of their MAC QRS (that is, two additional years 
after the date proposed at Sec.  438.505(a)(2) for initial 
implementation) to display provider directory and drug coverage 
information for each managed care plan through an integrated, 
interactive search feature that allows users to identify plans that 
cover certain providers and prescriptions (see Prototype B). We seek 
comment on this phased-in approach and a reasonable timeline for the 
second phase. In addition, we seek comment on the display requirements 
and technical assistance needs.
---------------------------------------------------------------------------

    \148\ Medicare and Medicaid Programs; Patient Protection and 
Affordable Care Act; Interoperability and Patient Access for 
Medicare Advantage Organization and Medicaid Managed Care Plans, 
State Medicaid Agencies, CHIP Agencies and CHIP Managed Care 
Entities, Issuers of Qualified Health Plans on the Federally-
Facilitated Exchanges, and Health Care Providers. CMS-9115-F. (85 FR 
25510). Published in the Federal Register on May 1, 2020. (available 
online at https://www.govinfo.gov/content/pkg/FR-2020-05-01/pdf/2020-05050.pdf).
---------------------------------------------------------------------------

    In Sec.  438.520(a)(6)(iii) and (iv), we propose a second phase of 
implementation for the stratification of quality ratings, in which 
States would implement an interactive display that allows beneficiaries 
to view and filter quality ratings for specific mandatory measures 
identified by CMS by the factors which would already be required in 
phase one under proposed Sec.  438.520(a)(2)(v) plus additional factors 
identified by CMS including, but not limited to, age, rural/urban 
status, disability, and language spoken by the enrollees who have 
received services (see Prototype B). This proposal would address 
feedback we received in testing the MAC QRS prototype websites with 
beneficiaries. We tested dynamic filters that allowed participants to 
view quality ratings representing services provided only to plan 
beneficiaries that aligned with participant-selected factors such as 
race, sex, and age. This feature increased participant positivity and 
trust in the quality ratings displayed, especially among those who 
raised concerns about the uniformity of experience among beneficiaries. 
Similar to our proposal to phase-in interactive plan provider directory 
and formulary tools, we are proposing to phase in the interactive 
display of quality ratings stratified by various demographic factors. 
In Sec.  438.520(a)(2)(v) for Medicaid, and for separate CHIP by cross-
reference through a proposed amendment at Sec.  457.1240(d), we 
therefore are proposing a first phase of implementation for this 
information that would require States to display quality ratings for 
mandatory measures stratified by factors including dual eligibility 
status, race and ethnicity, and sex. To reduce burden on States, we 
would permit States to report, if finalized, the same measurement and 
stratification methodologies and classifications as those proposed in 
the Mandatory Medicaid and CHIP Core Set Reporting proposed rule and 
the Access proposed rule. Measuring and making available performance 
reports on a stratified basis will assist in identifying health 
disparities. Driving improvements in quality is a cornerstone of the 
CMS approach to advancing health equity and also align with the CMS 
Strategic Priorities. In the first phase of implementation, a State's 
website would need to provide access to quality ratings that reflect 
the quality of care furnished to all of a plan's enrollees, as well as 
quality ratings that reflect the quality of care furnished to these 
subpopulations of a plan's enrollees (see Prototype A). This 
requirement is consistent with current efforts among measure stewards 
and other Federal reporting programs, such as the Child and Adult Core 
Sets, to stratify data to ensure that disparities in health outcomes 
are identified and addressed, not hidden (See Core Set proposed rule, 
87 FR 51313). We are selecting these as our initial stratification 
factors as we believe this information is most likely to be collected 
as compared to our other proposed stratification factors. Furthermore, 
many testing participants shared their concern that health outcomes and 
customer experience may vary when stratified by race, ethnicity, or 
sex. We also believe that those who are dually eligible to receive 
Medicare and full Medicaid benefits would find it particularly useful 
to see quality ratings that focus specifically on the experience of 
such dually eligible beneficiaries. We believe that such ratings would 
allow beneficiaries who are dually eligible for Medicare and Medicaid 
to best identify a high-quality health plan, given the unique access 
considerations among this population. States would be required to 
display this information by the general MAC QRS implementation date 
proposed under Sec.  438.505(a)(2). We seek comment on the feasibility 
of the proposed factors for stratifying quality ratings by the initial 
implementation date, and also whether certain mandatory measures may be 
more feasible to stratify by these factors than others. We are 
proposing that this interactive tool would be available no earlier than 
two years after the general MAC QRS implementation date. We request 
comment on this proposal including the timeline for implementation, 
technical assistance that may be necessary for States to implement the 
proposed feature, and the proposed factors by which such quality 
ratings would be stratified.
(3) Plan Comparison Information (Sec. Sec.  438.334(e), 438.520(a)(3), 
and 457.1240(d))
    Our prototype testing showed us participants were often frustrated 
and confused by the need to navigate multiple websites to obtain health 
plan information, such as out of pocket expenses, plan coverage of 
benefits, providers, and pharmaceuticals; and health plan metrics such 
as average time spent waiting for care, weekend and evening hours, and 
appointment wait times. When compiled into a standardized display along 
with quality ratings in our website prototype, participants responded 
positively and found the ability to compare plans on out-of-pocket 
expenses and covered benefits to be particularly useful. After 
identifying available plans that aligned with their needs and 
preferences on these two variables, some participants reflected that 
they would use quality ratings as an additional way to narrow down and 
filter their options. When presented alongside quality ratings, this 
information allowed beneficiaries to better compare plans. Based on 
this testing, we are proposing in Sec.  438.520(a)(3) for Medicaid, and 
for separate CHIP by cross-reference through a proposed amendment at 
Sec.  457.1240(d), to require States to display, for each managed care 
plan, standardized information identified by CMS that allows users to 
compare available managed care plans and programs, including the name, 
website, and customer service telephone hot line of each managed care 
plan; premium and cost sharing information; a summary of covered 
benefits; certain metrics of managed care plan access and performance; 
and whether the managed care plan offers an integrated Medicare-
Medicaid plan. Under proposed Sec.  438.520(a)(3)(iii) and (iv), States

[[Page 28203]]

would be required to identify comparative information about plans, 
specifically differences in premiums, cost-sharing, and benefits among 
managed care plans, to help users quickly identify where managed care 
plans do and do not differ. We believe that this information should be 
readily available to States and providing comparative information of 
this type is consistent with the information disclosure requirements in 
section 1932(a)(5) of the Act. These requirements are illustrated in 
Prototype A and B.
    Under proposed Sec.  438.520(a)(3)(v), States would also be 
required to provide on the QRS website certain metrics of managed care 
plan performance that States must make available to the public under 
Part 438, subparts B and D regulations, including certain data most 
recently reported to CMS on each managed care program under Sec.  
438.66(e) (Medicaid only) and the results of secret shopper survey 
proposed at Sec.  438.68(f) in this proposed rule. Proposed paragraph 
(a)(3)(v) authorizes CMS to specify the metrics that are required to be 
displayed this way. States already report information related to 
grievances, appeals, availability and accessibility of covered services 
under Sec.  438.66(e) and we believe that displaying some of this 
information would be responsive to input we received from our testing 
participants and improve transparency for beneficiaries without 
imposing significant burden on States since the information is already 
reported to us. States could choose to integrate these metrics into the 
display of MAC QRS measures on the MAC QRS website or, as illustrated 
in Prototypes A and B, may choose to hyperlink to an existing page with 
the identified information from the MAC QRS web page. These proposed 
requirements also support our goal for the MAC QRS to be a one-stop-
shop where beneficiaries can access a wide variety of information on 
plan quality and performance in a user-friendly format to help inform 
their decision making. We seek comment on the inclusion of these 
metrics, and whether we should consider phasing in certain metrics 
first before others.
    Lastly, at Sec.  438.530(a)(3)(vi), we are proposing to require 
States to indicate when a managed care plan offers an integrated 
Medicare-Medicaid plan or a highly or fully integrated Medicare 
Advantage D-SNP and to provide a link to the integrated plan's rating 
under the MA and Part D quality rating system. The definitions of fully 
integrated dual eligible special needs plan and highly integrated dual 
eligible special needs plan are at Sec.  422.2. We believe this is the 
simplest and most efficient way to help dually eligible users 
understand how to use the two quality ratings together. Both Prototype 
A and B illustrate this requirement through a hyperlink to the 
integrated plan's MA and Part D quality rating. We seek comment on 
these requirements, including on our proposal to require States to 
provide standardized information that users may rely on to compare 
managed care plans and request feedback on the feasibility of providing 
this information by the date initial implementation date.
(4) Information on Quality Ratings (Sec. Sec.  438.334(e), 
438.520(a)(4) and (c), and 457.1240(d))
    Our user testing found that participants were initially skeptical 
of data provided in the MAC QRS, stating confusion regarding the source 
of the data used and mistrust in the ratings generated because they 
were uncertain how they were derived. Additionally, some participants 
stated that they did not trust information from the health plans. In an 
effort to improve user trust through data transparency, we tested 
providing clear and comprehensive information on displayed quality 
ratings and identified three types of information that together 
resulted in increased participant trust of the quality ratings. These 
include descriptions of the quality ratings in plain language, how 
recent the data displayed are, and how the data were confirmed to be 
accurate. Based on this user feedback, in Sec.  438.520(a)(4)(i) for 
Medicaid, and for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d), we propose that States would provide 
plain language descriptions of the importance and impact of each 
quality measure. We found that a simple explanation of what a quality 
measure is assessing, as well as how the measure relates to a 
beneficiary's health and well-being, were most helpful to users in 
understanding displayed quality ratings. A simple explanation would 
satisfy the proposed requirement. Both Prototype A and B include 
example explanations for our proposed mandatory measures, and we intend 
to include a sample explanation of the quality ratings for each final 
mandatory measure in the design guide discussed in section I.B.6.g. of 
this proposed rule, which States may choose to use.
    Users responded positively to information that showed when data 
were collected and whether data were validated. They appreciated 
knowing that an external, neutral organization calculated the measures, 
noting that they would not trust the measures if they were calculated 
solely by the managed care plan. In Sec.  438.520(a)(4)(ii) for 
Medicaid, and for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d), we propose that States be required to 
indicate the measurement period during which data were produced to 
calculate the displayed quality ratings. In Sec.  438.520(a)(4)(iii) 
for Medicaid, and for separate CHIP by cross-reference through a 
proposed amendment at Sec.  457.1240(d), we propose that States must 
provide on the MAC QRS website when, how, and by whom quality ratings 
have been validated. This information would be provided in plain 
language and convey the role of parties (other than the rated plans) in 
validating data used to calculate the quality ratings, which will 
promote transparency and trustworthiness in the data. We note that 
States may use the External Quality Review optional activity described 
at Sec.  438.358(c)(6) for EQRO assistance with quality ratings and 
link to the validated data included in the EQR technical reports. We 
seek comment on the display requirement proposed in Sec.  438.520(a)(4) 
and request feedback on the feasibility of implementing these 
requirements by the initial implementation date proposed atSec.  
438.505(a)(2).
    Finally, we believe that user preferences for how information 
should be displayed may change over time as the available data and the 
technology that enables website display of available data evolves. To 
ensure that the MAC QRS website continues to be a useful tool, we 
intend to periodically engage in additional consultations with MAC QRS 
users as part of a continuous improvement approach. We are proposing in 
Sec.  438.520(c) for Medicaid, and for separate CHIP by cross-reference 
through a proposed amendment at Sec.  457.1240(d), that CMS 
periodically consult with interested parties, including MAC QRS users 
such as Medicaid and CHIP beneficiaries and their caregivers, to 
maintain and update the website display requirements for the 
information required in proposed Sec.  438.520(a). These consultations 
may result in proposed changes through rulemaking that add to or refine 
existing requirements or remove existing requirements that 
beneficiaries no longer find useful.
(5) Display of additional Measures Not on the Mandatory Measure Set 
(Sec. Sec.  438.334(e), 438.520(b), and 457.1240(d))
    Under our proposal at Sec.  438.510(a), States would have the 
option to display

[[Page 28204]]

additional measures that are not included in the mandatory measure set 
if the two requirements set forth in proposed Sec.  438.520(b)(1) and 
(2) are met. The same standards would apply to separate CHIP as 
proposed in Sec.  457.1240(d) by cross-referencing part 438, subpart G.
    First, we are proposing, in Sec.  438.520(b)(1) to require States 
to obtain input from prospective MAC QRS users, including 
beneficiaries, their caregivers, and, if the State enrolls American 
Indians/Alaska Natives in managed care, consult with Tribes and Tribal 
Organizations in accordance with the State's Tribal consultation 
policy. In this proposed rule, we have extensively noted the importance 
of the prospective user testing we engaged in and the extent to which 
this feedback directed our design of the MAC QRS framework and 
selection of the preliminary mandatory measure set. Just as beneficiary 
participation was, and will continue to be, critical in our design of 
the MAC QRS, we believe beneficiary participation is critical in the 
identification of any additional measures included in a State's MAC 
QRS. States could meet this requirement by ensuring that beneficiary 
members of the MCAC are present when obtaining input from the State's 
MCAC, or may engage in direct beneficiary interviews, focus groups, or 
prototype testing.
    Second, we are also proposing at Sec.  438.520(b)(2) that States 
must document the input received from prospective MAC QRS users on such 
additional measures, the modifications made to the proposed additional 
measures in response to the input, and rationale for not accepting 
input. We are also proposing this documentation to be reported as part 
of the MAC QRS annual report proposed under Sec.  438.535(a)(3). For 
States that currently publish a QRS-like website, measures that are not 
in the mandatory measure set would be considered additional measures 
and would be subject to this process prior to display. If a State 
obtained user input for the additional measure prior to displaying the 
measure on its current website, the State may use this input to meet 
this requirement.
h. Alternative Quality Rating System (Sec. Sec.  438.334(c), 438.525, 
and 457.1240(d))
    Current regulations at Sec.  438.334(c) allow States, with CMS 
approval, to implement an alternative managed care quality system 
(alternative QRS) that uses different quality measures or applies a 
different methodology if the conditions set forth in Sec.  
438.334(c)(1)(i) through (iii) are met, including that the measure or 
methodology must be substantially comparable to the measures and 
methodology established by CMS under the MAC QRS framework. Based on 
feedback we received during our engagement with States and other 
interested parties, we are proposing to redesignate Sec.  438.334(c) at 
Sec.  438.525 for Medicaid, and for separate CHIP by cross-reference 
through a proposed amendment at Sec.  457.1240(d), and to modify the 
current policy by narrowing the changes (compared to the MAC QRS 
framework described in proposed Sec.  438.515) that would require our 
approval. We are also proposing to apply the same requirements for both 
Medicaid managed care programs and separate CHIP by revising Sec.  
457.1240(d) to require States to comply with Sec.  438.525.
    First, we are proposing to remove the language in current Sec.  
438.334(c)(1) that includes the use of ``different performance 
measures'' being subject to our review and approval as part of an 
alternative QRS. Current regulations at Sec.  438.334(c)(1) require 
States to submit for our review and approval an alternative QRS request 
to include measures different than those included in the mandatory 
measure set identified by CMS. We believe requiring States to obtain 
our approval to include measures not required by us creates unnecessary 
administrative burden for both States and CMS. Under the proposed 
regulation, instead of requiring approval of different measures, we are 
proposing that States would have the flexibility to add measures that 
are not mandatory measures without prior approval from CMS.
    We highlight here that the measure specifications established by 
measure stewards for mandatory measures are not considered part of the 
methodology described in proposed Sec.  438.515 and are therefore not 
subject to Sec.  438.525. Modifications to these specifications that 
are approved by the measure steward do not require a State to undergo 
any part of the alternative QRS process described in this section for 
the State to use those measure steward approved modifications to 
produce a rating for a mandatory measure. However, we would consider 
quality ratings for mandatory measures identified by CMS under Sec.  
438.510(a) that are calculated using specifications not approved by a 
measure steward to be a different measure. We believe that this policy 
provides flexibility to States while ensuring that the results on the 
mandatory measures remain comparable among States.
    Second, we are proposing to further define the criteria and process 
for determining if an alternative QRS system is substantially 
comparable to the MAC QRS methodology described in proposed Sec.  
438.515. The current regulations at Sec.  438.334(c)(4) provide that we 
will issue guidance on the criteria and process for determining if an 
alternative QRS meets the substantial comparability standard in current 
Sec.  438.334(c)(1)(ii), redesignated at Sec.  438.525(a)(2). We are 
proposing to eliminate Sec.  438.334(c)(4) and redesignate as proposed 
Sec.  438.525(c)(2)(i) through (iii) and specify in proposed Sec.  
438.525(c)(2)(iv) that States are responsible for submitting documents 
and evidence that demonstrates compliance with the substantial 
comparability standards. We believe that eliminating Sec.  
438.334(c)(4) is appropriate as this rulemaking provides an opportunity 
for States and other interested parties to submit comments on how CMS 
should evaluate alternative quality rating systems for substantial 
comparability.
    In the future, we intend to issue instructions on the procedures 
and the dates by which States must submit an alternative QRS request to 
meet the implementation date specified in proposed Sec.  438.505(a)(2). 
For requests or modifications made after implementation of the MAC QRS, 
we are considering accepting rolling requests instead of specifying 
certain dates or times of year when we will accept alternative QRS 
requests or modifications. We believe this may be necessary given that 
States may have different contract cycles with managed care plans. We 
solicit comment on these different approaches.
    Current Sec.  438.334(c)(2) describes the information that States 
would submit to CMS as part of their request to implement an 
alternative QRS. We are proposing to redesignate Sec.  438.334(c)(2), 
with revisions, at Sec.  438.525(c)(2)(iv) to allow States to provide 
additional supporting documents and evidence that they believe 
demonstrates that a proposed alternative QRS would yield information 
regarding managed care plan performance that is substantially 
comparable to that yielded by the MAC QRS methodology described in 
Sec.  438.515. Examples of such additional supporting documents could 
include a summary of the results of a quantitative or qualitative 
analysis of why the proposed alternative methodology is substantially 
comparable or calculations of mandatory measures with the alternative 
methodology and with the methodology required under Sec.  438.515.
    We seek comment on these proposals, in particular, the described 
process and documentation for assessing whether a

[[Page 28205]]

proposed alternative QRS framework is substantially comparable, by when 
States would need alternative QRS guidance, and by when States would 
need to receive approval of an alternative QRS request to implement the 
alternative by the implementation date specified in proposed Sec.  
438.505(a)(2).
    i. Annual Technical Resource Manual (Sec. Sec.  438.334, 438.530, 
and 457.1240(d))
    We propose at Sec.  438.530(a) for Medicaid, and for separate CHIP 
by cross-reference through a proposed amendment at Sec.  457.1240(d), 
that CMS will develop and update annually a Medicaid managed care 
quality rating system technical resource manual no later than August 1, 
2025, and update it annually thereafter. Providing clear and detailed 
information for reporting on MAC QRS measures not only supports States 
in implementing their MAC QRS but is also essential for consistent 
reporting and comparable quality ratings across States and managed care 
plans. This manual would include information needed by States and 
managed care plans to calculate and issue quality ratings for all 
mandatory measures that States would be required to report under this 
proposed rule. This includes the mandatory measure set, the measure 
steward technical specifications for those measures, and information on 
applying our proposed methodology requirements to the calculation of 
quality ratings for mandatory measures. Under our proposal, we would 
publish an initial technical resource manual following the final rule, 
and would update the manual annually thereafter to maintain its 
relevance. We considered releasing the technical resource manual less 
frequently than annually, but we do not believe this manual could be 
properly maintained unless it is updated annually due to the inclusion 
of updates to the technical specifications for the mandatory measures.
    Proposed Sec.  438.530(a) identifies the components of the 
technical resource manual to be issued by CMS. As described in Sec.  
438.530(a)(1), we propose to use the technical resource manual to 
identify the mandatory measures as well as any measures newly added or 
removed from the previous year's mandatory measure set. We intend for 
the first technical resource manual to include details on the initial 
MAC QRS mandatory measure set that will be finalized after 
consideration of the public comments received in response to this 
proposed rule.
    These content requirements for the technical resource manual 
proposed at new Sec.  438.530(a)(1) through (3) include the following:
     The mandatory measure set so States know what they are 
required to report.
     The specific MAC QRS measures newly added to or removed 
from the prior year's mandatory set as well as a summary of the 
engagement and public comments received during the engagement process 
in Sec.  438.510(b) used for the most recent modifications to the 
mandatory measure set. To provide a complete picture of any changes 
being made to the MAC QRS measures, we propose this summary to include 
a discussion of the feedback and recommendations received, the final 
modifications and timeline for implementation, and the rationale for 
recommendations or feedback not accepted.
     The subset of mandatory measures that must be stratified 
by race, ethnicity, sex, age, rural/urban status, disability, language, 
or such other factors as may be specified by CMS in the annual 
technical resource manual as required under Sec.  438.520(a)(2)(v) and 
(a)(6)(iii). We discuss the rationale for inclusion of stratifiers in 
section I.B.6.g.2. of this proposed rule.
     How to use the methodology described in Sec.  438.515 to 
calculate quality ratings for managed care plans. We seek comment on 
which topics States and health plans would like technical assistance or 
additional guidance to ensure successful implementation of the rating 
system.
     Technical specifications for mandatory measures produced 
by measures stewards as part of the proposed annual technical resource 
manual. We believe this information would assist States and health 
plans in the calculation of quality ratings for mandatory measures and 
aligns with the practices of the Adult and Child Core Set and the MA 
and Part D and QHP quality rating systems.
    Lastly, at Sec.  438.530(b) for Medicaid, and for separate CHIP by 
cross-reference through a proposed amendment at Sec.  457.1240(d), we 
are proposing the general rule that CMS take into account 
stratification guidance issued by the measure steward and other CMS 
reporting programs when identifying which measures, and by which 
factors, States must stratify mandatory measures. Under this proposal, 
we plan to implement a phased-in approach for specifying the mandatory 
measures for which data must be stratified and the factors by which 
such data must be stratified. We intend to align with the 
stratification schedule which is proposed in Sec.  437.10(d) of the 
Mandatory Medicaid and CHIP Core Set Reporting Proposed Rule (see 87 FR 
51327). We believe this alignment with the Core Set stratification 
would minimize State and health plan burden to report stratified 
measures. For any MAC QRS measures that are not Core Set measures, we 
would consider, and align where appropriate, with the stratification 
policies for the associated measure steward or other CMS reporting 
programs. Additional information regarding MAC QRS stratification 
requirements are proposed in section I.B.6.g.2. of this proposed rule.
    Based on feedback we received through listening sessions with 
interested parties, we are considering releasing an updated technical 
resource manual at least five months prior to the measurement period 
for which the technical resource manual will apply. This is in 
alignment with the proposed date for the first technical resource 
manual of August 1, 2025 for a 2026 measurement year, and would ensure 
that States have enough time to implement any necessary changes before 
the measurement period and, if necessary, submit and receive approval 
for an alternative QRS request. In our listening sessions, interested 
parties noted that this timeline would align with those used by other 
measure stewards (for example, NCQA for HEDIS measures) and would 
ensure that States and managed care plans are able to identify and make 
necessary contractual, systems, and data collection changes to 
facilitate additional data collection required for the upcoming 
measurement period. We seek comment on whether this timing is 
appropriate for States to implement any changes included in the 
reporting and technical guidance for the initial measurement year as 
well as subsequent measurement years.
    j. Reporting (Sec. Sec.  438.334, 438.535, and 457.1240(d))
    We are proposing requirements at Sec.  438.535 for States to submit 
to CMS, upon request, information on their MAC QRS to support our 
oversight of Medicaid and CHIP and compliance with MAC QRS 
requirements, to ensure beneficiaries can meaningfully compare ratings 
between plans, and to help us monitor trends in additional measures and 
use of permissible modifications to measure specifications used among 
States, which could inform future additions to the mandatory measures 
and modifications of our methodology. We are proposing any request for 
reporting by States would be no more frequently than annually. We are 
proposing the report would include the following components:

[[Page 28206]]

     A list of all measures included in the State's MAC QRS, 
including a list of the mandatory measures reported and any additional 
measures a State has chosen to display in their MAC QRS to inform 
updates to the measures list;
     An attestation that displayed quality ratings for all 
mandatory measures were calculated and issued in compliance with Sec.  
438.515, and a description of the methodology used to calculate any 
additional measures when it deviates from the methodology proposed in 
Sec.  438.515;
     If a State chooses to display additional quality measures, 
a description of and the required documentation for the process 
required under Sec.  438.520(b);
     The date on which the State publishes or updates their 
quality ratings for the State's managed care plans;
     The link to the State's MAC QRS website to enable CMS to 
ensure the MAC QRS ratings are current; and
     The use of any technical specification adjustments to MAC 
QRS mandatory measures, which are outside the measure steward's 
allowable adjustment for the mandatory measure, but that the measure 
steward has approved for use by the State. As discussed in section 
I.B.6.f. of this proposed rule, we do not consider measure steward 
technical specifications to be part of the MAC QRS rating methodology, 
but they are part of the measures. Therefore, we do not require States 
to submit such adjustments to us for approval as an alternative QRS and 
believe State reporting is more appropriate to better understand if 
such adjustments impact plan-to-plan comparability or comparability 
within and among States.
     A summary of each alternative QRS approved by CMS, 
including the effective dates (the time period during which the 
alternative QRS was, has been, or will be applied by the State) for 
each approved alternative QRS.
    We propose these reporting requirements at new Sec.  438.535(a)(1) 
through (7) for Medicaid, and for separate CHIP by cross-reference 
through a proposed amendment at Sec.  457.1240(d). We propose in Sec.  
438.535(a) the report will be ``in a form and manner determined by 
CMS'' because we intend to establish an online portal that States could 
access to easily submit this information to us. At Sec.  438.535(b) for 
Medicaid, and for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d) we propose that States would be given a 
minimum of 90 days' notice to provide such a report. We seek comment on 
whether States prefer one annual reporting date or a date that is 
relative to their MAC QRS updates.
k. Technical Changes (Sec. Sec.  438.334, 438 Subpart G, 438.358, and 
457.1240(d))
    We are proposing several technical changes to conform our 
regulations with other parts of our proposed rule, which include:
     Redesignating the regulations under current Sec.  
438.334(a) to 42 CFR part 438, subpart G, Sec.  438.505;
     In current Sec.  438.358(c)(6), changing the reference for 
this EQR optional activity from Sec.  438.334 to part 438, subpart G to 
align with the proposed redesignating of Sec.  438.334;
     In current Sec.  438.334(a)(1), redesignated to Sec.  
438.505(a)(1)(i), changing the ``Medicaid managed care quality rating 
system developed by CMS in accordance with paragraph (b) of this 
section'' to ``QRS framework'' to align with the proposed definition of 
QRS framework in new Sec.  438.500;
     In current Sec.  438.334(a)(2), redesignated to Sec.  
438.505(a)(2)(ii), changing ``in accordance with paragraph (c) of this 
section'' to ``in accordance with Sec.  438.525 of this subpart'' to 
align with the proposed alternative QRS requirements in new Sec.  
438.525;
     Modifying current Sec.  438.334(a)(3), redesignated to 
Sec.  438.505(a)(2), to use the term ``the final rule'' instead of ``a 
final notice'' to refer to the proposed rules herein, if finalized;
     Modifying current Sec.  438.334(c)(1), redesignated to 
Sec.  438.525(a), by replacing ``different methodology'' with 
``alternative methodology'' to better align with the proposed 
terminology used in the new proposed Sec.  438.525);
     In current Sec.  438.334(b)(1), redesignated to Sec.  
438.505(c), replacing ``related CMS quality rating approaches'' with 
``similar CMS quality measurement and rating initiatives'' to better 
describe how we are aligning the QRS framework;
     Redesignating current Sec.  438.334(c)(3)(i) to Sec.  
438.525(c)(2)(i) and modifying by removing ``alternative quality rating 
system framework, including the quality measures'' to align with our 
proposal under new Sec.  438.525;
    Unless otherwise noted, these technical changes are equally 
proposed for separate CHIP by cross-reference through a proposed 
amendment at Sec.  457.1240(d).

II. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), we are required to provide 60-day notice in the Federal Register 
and solicit public comment before a collection of information 
requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval. For the purpose of the PRA and this section of 
the preamble, ``collection of information'' is defined under 5 CFR 
1320.3 of the PRA's implementing regulations. To fairly evaluate 
whether a collection of information should be approved by OMB, section 
3506(c)(2)(A) of the PRA requires that we solicit comment on the 
following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements. Comments, if received, will be responded to within the 
subsequent final rule.

A. Wage Estimates

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' May 2021 National Occupational Employment and Wage 
Estimates for all salary estimates (https://www.bls.gov/oes/current/oes_nat.htm). Table 3 presents BLS' mean hourly wage, our estimated 
cost of fringe benefits and overhead (calculated at 100 percent of 
salary), and our adjusted hourly wage.

                          Table 3--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                    Occupation      Mean hourly    benefits and      Adjusted
                Occupation title                       code         wage ($/hr)    overhead ($/   hourly wage ($/
                                                                                        hr)             hr)
----------------------------------------------------------------------------------------------------------------
All Occupations.................................         00-0000           28.01             n/a             n/a

[[Page 28207]]

 
Accountant......................................         13-2011           40.37           40.37           80.74
Actuary.........................................         15-2011           60.24           60.24          120.48
Business Operations Specialist, All Other.......         13-1199           38.64           38.64           77.28
Computer Programmer.............................         15-1251           54.68           54.68          109.36
Customer Service Rep............................         43-4051           18.79           18.79           37.58
Database Administrator..........................         15-1242           49.25           49.25           98.50
General and Operations Manager..................         11-1021           55.41           55.41          110.82
Medical Records Specialist......................         29-2072           23.23           23.23           46.46
Office Clerk, General...........................         43-9061           18.98           18.98           37.96
Statistician....................................         15-2041           47.81           47.81           96.62
Registered Nurse................................         29-1141           39.78           39.78           79.56
Web Developer...................................         15-1245           39.09           39.09           78.18
----------------------------------------------------------------------------------------------------------------

    States and the Private Sector: As indicated, we are adjusting our 
employee hourly wage estimates by a factor of 100 percent. This is 
necessarily a rough adjustment, both because fringe benefits and 
overhead costs vary significantly from employer to employer, and 
because methods of estimating these costs vary widely from study to 
study. Nonetheless, we believe that doubling the hourly wage to 
estimate total cost is a reasonably accurate estimation method.
    Beneficiaries: To derive average costs for beneficiaries we believe 
that the burden will be addressed under All Occupations (BLS occupation 
code 00-0000) at $28.01/hr. Unlike our State and private sector wage 
adjustments, we are not adjusting beneficiary wages for fringe benefits 
and overhead since the individuals' activities would occur outside the 
scope of their employment.

B. Proposed Information Collection Requirements (ICRs)

    To estimate the burden for the requirements in part 438, we 
utilized State submitted data by States for enrollment in managed care 
plans for CY 2020. The enrollment data reflected 58,521,930 enrollees 
in MCOs, 37,692,501 enrollees in PIHPs or PAHPs, and 6,089,423 
enrollees in PCCMs, for a total of 67,836,622 Medicaid managed care 
enrollees. This includes duplicative counts when enrollees are enrolled 
in multiple managed care plans concurrently. These data also showed 43 
States that contract with 467 MCOs, 11 States that contract with 162 
PIHPs or PAHPs, 19 States that contract with 21 non-emergency 
transportation PAHPs, and 13 States with 26 PCCM or PCCM entities. The 
estimates below reflect deduplicated State counts as data permitted.
    To estimate the burden for these requirements in part 457, we 
utilized State submitted data for enrollment in managed care plans for 
CY 2017. The enrollment data reflected 4,580,786 Medicaid expansion 
CHIP and 2,593,827 separate CHIP managed care enrollees. These data 
also showed that 32 States use managed care entities for CHIP 
enrollment contracting with 199 MCOs, PIHPs, and PAHPs, as well as 17 
PCCMs.
1. ICRs Regarding Standard Contract Requirements (Sec.  438.3 and 
457.1203)
    The following proposed changes to Sec.  438.3 will be submitted to 
OMB for review under control number 0938-TBD (CMS-10856). At this time 
the OMB control number has not been determined, but it will be assigned 
by OMB upon their clearance of our proposed collection of information 
request. The control number's expiration date will be issued by OMB 
upon their approval of our final rule's collection of information 
request. The following proposed changes to Sec.  457.1203 will be 
submitted to OMB for review under control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.3(i) and 457.1203(f) 
would require that MCOs, PIHPs, and PAHPs report provider incentive 
payments based on standard metrics for provider performance. The 
proposed amendments to Sec.  438.8(e)(2) would define the provider 
incentive payments that could be included in the MLR calculation; 
however, the administrative burden for these changes is attributable to 
the managed care contracting process, so we are attributing these costs 
to the contracting requirements in Sec.  438.3(i). Approximately half 
(or 315 Medicaid contracts and 100 CHIP contracts) of all MCO, PIHP, 
and PAHP contracts would require modification to reflect these changes. 
For the contract modifications, we estimate it would take 2 hours at 
$77.28/hr for a business operations specialist and 1 hour at $110.82/hr 
for a general operations manager. In aggregate for Medicaid for Sec.  
438.3(i), we estimate a one-time State burden of 945 hours (315 
contracts x 3 hr) at a cost of $83,595 [315 contracts x ((2 hr x 
$77.28/hr) + (1 hr x $110.82/hr))]. As this would be a one-time 
requirement, we annualize our time and cost estimates to 315 hours and 
$9,288. The annualization divides our estimates by three (3) years to 
reflect OMB's likely approval period. We are annualizing the one-time 
burden estimates since we do not anticipate any additional burden after 
the 3-year approval period expires.
    In aggregate for CHIP for Sec.  457.1203(f) we estimate a one-time 
State burden of 300 hours (100 contracts x 3 hr) at a cost of $26,538 
[100 contracts x ((2 hr x $77.28/hr) + (1 hr x $110.82/hr))]. As this 
would be a one-time requirement, we annualize our time and cost 
estimates to 66 hours and $8,819. The annualization divides our 
estimates by three (3) years to reflect OMB's likely approval period. 
We are annualizing the one-time burden estimates since we do not 
anticipate any additional burden after the 3-year approval period 
expires.
    To report provider incentive payment based on standard metrics, 
MCOs, PIHP, and PAHPs would need to select standard metrics, develop 
appropriate payment arrangements, and then modify the affected 
providers' contracts. We estimate it would take 120 hours consisting 
of: 80 hours x $77.28/hr for a business operations specialist and 40 
hours x $110.82/hr for a general and operations manager. In aggregate 
for Medicaid for Sec.  438.3(i), we estimate a one-time private sector 
burden of 37,800 hours (315 contracts x 120 hr) at a cost of $3,343,788 
[315 contracts x ((80 hr x $77.28/hr) + (40 hr x $110.82/hr))]. As this 
would be a one-time requirement, we annualize our time and cost

[[Page 28208]]

estimates to 12,600 hours and $1,114,596. The annualization divides our 
estimates by three (3) years to reflect OMB's likely approval period. 
We are annualizing the one-time burden estimates since we do not 
anticipate any additional burden after the 3-year approval period 
expires.
    In aggregate for CHIP for Sec.  457.1203(f) we estimate a one-time 
private sector burden of 12,000 hours (100 contracts x 120 hr) at a 
cost of $1,061,520 [100 contracts x ((80 hr x $77.28/hr) + (40 hr x 
$110.82/hr))].
    To do the annual reconciliations needed to make the incentive 
payments and include the expenditures in their annual report required 
by 438.8(k), we estimate MCOs, PIHPs, and PAHPs would take 1 hour at 
$77.28/hr for a business operations specialist. In aggregate for 
Medicaid we estimate an annual private sector burden of 315 hours (315 
contracts x 1 hr) at a cost of $24,343 (315 contracts x 1 hr x $77.28/
hr).
    In aggregate for CHIP, we estimate an annual private sector burden 
of 100 hours (100 contracts x 1 hr) and $7,728 (100 contracts x 1 hr x 
$77.28/hr).
2. ICRs Regarding Special Contract Provisions Related to Payment (Sec.  
438.6)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-TBD (CMS-10856). At this time the OMB control 
number has not been determined, but it will be assigned by OMB upon 
their clearance of our proposed collection of information request. The 
control number's expiration date will be issued by OMB upon their 
approval of our final rule's collection of information request.
    The proposed amendments to Sec.  438.6(c)(2) would require all SDP 
expenditures under paragraphs (c)(1)(i) and (ii) and (c)(1)(iii)(C) 
through (E) (that is, the SDPs that require prior written approval 
under this proposed rule) must be submitted and have written approval 
by CMS prior to implementation.
    Initially, we estimate that 38 States would submit 50 new proposals 
for minimum/maximum fee schedules, value-based payment, or uniform fee 
increases. We estimate that it would take 2 hours at $120.48/hr for an 
actuary, 6 hours at $77.28/hr for a business operations specialist, and 
2 hours at $110.82/hr for a general and operations manager for 
development and submission. We estimate an annual State burden of 500 
hours (50 proposals x 10 hr) at a cost of $46,314 [50 proposals x ((2 
hr x $120.48/hr) + (6 hr x $77.28/hr) + (2 hr x $110.82/hr))].
    Thereafter, we estimate that 38 States would submit 150 renewal or 
amendment proposals per year. We estimate also it would take 1 hour at 
$77.28/hr for a business operations specialist, 1 hour at $120.48/hr 
for an actuary, and 1 hour at $110.82/hr for a general and operations 
manager for any proposal updates or renewals. In aggregate, we estimate 
an annual State burden of 450 hours (150 proposals x 3 hr) and $46,287 
[150 renewal/amendment proposals x ((1 hr x $77.28/hr) + (1 hr x 
$110.82/hr) + (1 hr x 120.48/hr))].
    The proposed amendments to Sec.  438.6(c)(2)(iii) would require 
that all SDPs subject to prior approval under paragraphs (c)(1)(i) 
through (iii) for inpatient hospital services, outpatient hospital 
services, nursing facility services, and qualified practitioner 
services at an academic medical center, include a written analysis, 
showing that the total payment for such services does not exceed the 
average commercial rate. We estimate that 38 States will develop and 
submit 60 of these SDPs that include a written analysis to CMS. We also 
estimate it would take 6 hours at $120.48/hr for an actuary, 3 hours at 
$110.82/hr for a general and operations manager, and 6 hours at 
$109.36/hr for a computer programmer for each analysis. In aggregate we 
estimate an annual State burden of 900 hours (60 SDPs x 15 hr) and at a 
cost of $102,690 [60 certifications x ((6 hr x $120.48/hr) + (3 hr x 
$110.82/hr) + (6 hr x $109.36/hr))].
    Section 438.6(c)(2)(iv) would require that SDPs under paragraphs 
(c)(1)(i) and (ii) and (c)(1)(iii)(C) through (E) must prepare and 
submit a written evaluation plan to CMS. The evaluation plan must 
include specific components under this proposal and is intended to 
measure the effectiveness of those State directed payments in advancing 
at least one of the goals and objectives in the quality strategy on an 
annual basis and whether specific performance targets are met. We 
estimate that 38 States would submit 50 written evaluation plans for 
new proposals. We also estimate it would take 5 hours at $109.36/hour 
for a computer programmer, 2.5 hours at $110.82/hr for a general and 
operations manager, and 2.5 hours at $77.28/hr for a business 
operations specialist for each new evaluation plan. In aggregate, we 
estimate an annual State burden of 500 hours (50 evaluation plans x 10 
hr) and at a cost of $50,853 [50 evaluation plans x ((5 hr x 109.36/hr) 
+ (2.5 hr x $110.82) + (2.5 hr x $77.28/hr))].
    Thereafter, we estimate that 38 States would prepare and submit 150 
written evaluation plans for amendment and renewal proposals. We also 
estimate it would take 2 hours at $109.36/hr for a computer programmer, 
2 hours at $110.82/hr for a general and operations manager and 2 hours 
at $77.28/hr for a business operations specialist for each evaluation 
plan amendment and renewal. In aggregate we estimate an annual State 
burden of 900 hours (150 evaluation plans x 6 hr) at a cost of $89,238 
[150 evaluation plans x ((2 hr x 109.36/hr) + (2 hr x $110.82) + (2 hr 
x $77.28/hr))].
    Section 438.6(c)(2)(v) would require for all SDPs under paragraphs 
(c)(1)(i) and (ii) and (c)(1)(iii)(C) through (E) that have an actual 
Medicaid managed care spending percentage greater than 1.5 must 
complete and submit an evaluation report using the approved evaluation 
plan to demonstrate whether the SDP results in achievement of the State 
goals and objectives in alignment with the State's evaluation plan.
    We estimate 38 States will submit 47 evaluation reports. We also 
estimate it would take 3 hours at $109.36/hr for a computer programmer, 
1 hour at $110.82/hour for a general and operations manager, and 2 
hours at $77.28/hr for a business operations specialist for each 
report. In aggregate we estimate an annual State burden of 282 hours 
(47 reports x 6 hr) at a cost of $27,893 [47 reports x ((3 hr x 
$109.36/hr) + (1hr x $110.82/hr) + (2 hr x $77.28/hr)].
    The proposal at Sec.  438.6(c)(7) would require States to submit a 
final SDP cost percentage as a separate actuarial report concurrently 
with the rate certification only if a State wishes to demonstrate that 
the final SDP cost percentage is below 1.5 percent. We anticipate that 
10 States would need: 5 hours at $120.48/hr for an actuary, 5 hours at 
$109.36/hr for a computer programmer, and 7 hours at $77.28/hr for a 
business operations specialist. In aggregate, we estimate an annual 
State burden of 170 hours (17 hr x 10 States) at a cost of $16,902 (10 
States x [(5 hr x $120.48/hr) + (5 hr x $109.36/hr) + (7 hr x $77.28/
hr)]).
3. ICRs Regarding Rate Certification Submission (Sec.  438.7)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-TBD (CMS-10856). At this time the OMB control 
number has not been determined, but it will be assigned by OMB upon 
their clearance of our proposed collection of information request. The 
control number's expiration date will be issued by OMB upon their 
approval of our final rule's collection of information request.
    The proposed amendments to Sec.  438.7 set out revisions to the 
submission and

[[Page 28209]]

documentation requirements for all managed care actuarial rate 
certifications. The certification would be reviewed and approved by CMS 
concurrently with the corresponding contract(s). Currently, Sec.  
438.7(b) details certain requirements for documentation in the rate 
certifications. We believe these requirements are consistent with 
actuarial standards of practice and previous Medicaid managed care 
rules.
    We estimate that 44 States would develop 225 certifications at 250 
hours for each certification. Of the 250 hours, we estimate that it 
would take 110 hours at $120.48/hr for an actuary, 15 hours at $110.82/
hr for a general and operations manager, 53 hours at $109.36/hr for a 
computer programmer, 52 hours at $77.28/hr for a business operations 
specialist, and 20 hours at $37.96/hr for an office and administrative 
support worker. In aggregate we estimate an annual State burden of 
56,250 hours (250 hr x 225 certifications) at a cost of $5,735,012 [225 
certifications x ((110 hr x $120.48/hr) + (15 hr x $110.82/hr) + (53 hr 
x $109.36/hr) + (52 hr x $77.28/hr) + (20 hr x $37.96/hr))].
4. ICRs Regarding Medical Loss Ratio Standards (Sec. Sec.  438.3, 
438.8, 438.74, and 457.1203)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-TBD (CMS-10856). At this time the OMB control 
number has not been determined, but it will be assigned by OMB upon 
their clearance of our proposed collection of information request. The 
control number's expiration date will be issued by OMB upon their 
approval of our final rule's collection of information request. The 
following proposed changes to Sec.  457.1203 will be submitted to OMB 
for review under control number 0938-1282 (CMS-10554).
    This rule's proposed amendments to Sec. Sec.  438.8 and 457.1203 
would require that MCOs, PIHPs, and PAHPs report to the State annually 
their total expenditures on all claims and non-claims related 
activities, premium revenue, the calculated MLR, and, if applicable, 
any remittance owed.
    We estimate the total number of MLR reports that MCOs, PIHPs, and 
PAHPs were required to submit to States amount to 629 Medicaid 
contracts and 199 CHIP contracts. All MCOs, PIHPs, and PAHPs need to 
report the information specified under Sec. Sec.  438.8 and 457.1203 
regardless of their credibility status.
    The proposed amendments to Sec.  438.8(k) would require that MCOs, 
PIHPs, and PAHPs include expenditures for State directed payments on a 
separate line in their annual report to the State. We anticipate that 
the one-time system change would take 4 hr at $77.28/hr for a business 
operations specialist and 2 hr at $109.36/hr for a computer programmer. 
In aggregate for Medicaid for Sec.  438.8(k), we estimate a one-time 
private sector burden of 3,774 hours (629 contracts x 6 hr) at a cost 
of $332,011 [629 contracts x ((4 hr x $77.28/hr) + (2 hr x $109.36/
hr))]. As this would be a one-time requirement, we annualize our time 
and cost estimates to 1,258 hours and $110,670. The annualization 
divides our estimate by three (3) years to reflect OMB's likely 
approval period. We are annualizing the one-time burden estimates since 
we do not anticipate any additional burden after the 3-year approval 
period expires.
    The proposed amendments to Sec. Sec.  438.8(k)(1)(vii) and 
457.1203(f) would require that MCOs, PIHPs, and PAHPs develop their 
annual MLR reports compliant with the proposed expense allocation 
methodology.\149\ To meet this requirement we anticipate it would take: 
1 hr at $80.74/hr for an accountant, 1 hr at $77.28/hr for a business 
operations specialist, and 1 hr at $110.82/hr for a general operations 
manager. In aggregate for Medicaid for Sec.  438.8(k)(1)(vii), we 
estimate an annual private sector burden of 1,887 hours (629 contracts 
x 3 hr) at a cost of $169,100 [629 contracts x ((1 hr x $80.74/hr) + (1 
hr x $77.28/hr) + (1 hr x $110.82/hr))]. In aggregate for CHIP for 
Sec.  457.1203(f), we estimate an annual private sector burden of 597 
hours (199 contracts x 3 hr) at a cost of $53,499 [199 contracts x ((1 
hr x $80.74/hr) + (1 hr x $77.28/hr) + (1 hr x $110.82/hr))].
---------------------------------------------------------------------------

    \149\ Methodology(ies) for allocation of expenditures as 
described at 45 CFR 158.170(b).
---------------------------------------------------------------------------

    The proposed amendments to Sec. Sec.  438.74 and 457.1203(e) would 
require States to comply with data aggregation requirements for their 
annual reports to CMS. We estimate that only 5 States would need to 
resubmit MLR reports to comply with the proposed data aggregation 
changes. We anticipate that it would take 5 hours x $77.28/hr for a 
business operations specialist. In aggregate, for Medicaid for Sec.  
438.74, we estimate a one-time State burden of 25 hours (5 States x 5 
hr) at a cost of $1,932 (5 States x 5 hr x $77.28/hr). As this would be 
a one-time requirement, we annualize our time and cost estimates to 8 
hours and $644. In aggregate for CHIP for Sec.  457.1203(e) we estimate 
a one-time State burden of 25 hours (5 States x 5 hr) at a cost of 
$1,932 (5 States x 5 hr x $77.28/hr). As this would be a one-time 
requirement, we annualize our time and cost estimates for CHIP to 8 
hours and $644. The annualization divides our estimates by three (3) 
years to reflect OMB's likely approval period. We are annualizing the 
one-time burden estimates since we do not anticipate any additional 
burden after the 3-year approval period expires.
    The proposed amendments to Sec.  438.74 would require States to 
submit a summary report of the State directed payment data submitted by 
their managed care plans under Sec.  438.8(k). The proposed changes to 
Sec.  438.74 would apply to 43 States. To accommodate the new data from 
plans resulting from proposed changes to Sec.  438.74, we anticipate it 
would take 4 hours at $77.28/hr for a business operations specialist to 
implement the proposed SDP reporting changes in their MLR summary 
reports. In aggregate, we estimate an annual State burden of 172 hours 
(43 States x 4 hr) at a cost of $13,292 (43 States x 4 hr x $77.28/hr).
5. ICRs Regarding Information Requirements (Sec. Sec.  438.10 and 
457.1207)
    The following proposed changes to Sec.  438.10 will be submitted to 
OMB for review under control number 0938-TBD (CMS-10856). At this time 
the OMB control number has not been determined, but it will be assigned 
by OMB upon their clearance of our proposed collection of information 
request. The control number's expiration date will be issued by OMB 
upon their approval of our final rule's collection of information 
request. The following proposed changes to Sec.  457.1207 will be 
submitted to OMB for review under control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.10(c)(3) and 457.1207 
would require States to operate a website that provides the information 
required in Sec.  438.10(f). We propose to require that States include 
required information on one page, use clear labeling, and verify 
correct functioning and accurate content at least quarterly. We 
anticipate it would take 20 hours at $109.36/hr once for a computer 
programmer to place all required information on one page and ensure the 
use of clear and easy to understand labels on documents and links.
    In aggregate for Medicaid for Sec.  438.10(c)(3), we estimate a 
one-time State burden of 900 hours (45 States x 20 hr) at a cost of 
$98,424 (900 hr x $109.36/hr). As this would be a one-time requirement, 
we annualize our time and cost estimates to 300 hours and $32,808. In 
aggregate for CHIP for Sec.  457.1207, we estimate a one-time State 
burden of 640 hours (32 States x 20 hr) at a cost of $69,990 (640 hr x 
$109.36/

[[Page 28210]]

hr). As this would be a one-time requirement, we annualize our time and 
cost estimates to 213 hours and $23,294. The annualization divides our 
estimates by three (3) years to reflect OMB's likely approval period. 
We are annualizing the one-time burden estimates since we do not 
anticipate any additional burden after the 3-year approval period 
expires.
    We also anticipate that it would take 40 hr at $109.36/hr for a 
computer programmer to periodically add and verify the function and 
content on the site at least quarterly (10 hours/quarter). In aggregate 
for Medicaid for we estimate an annual State burden of 1,800 hours (45 
States x 40 hr) at a cost of $196,848 (1,800 hr x $109.36/hr). Due to 
the additional proposal to post summary enrollee experience survey 
results by separate CHIP managed care plan on the State's website, we 
estimate an additional 1 hour at $109.36/hr for a computer programmer 
to post these comparative data annually for a total of 41 hours. For 
CHIP, we estimate an annual State burden of 1,312 hours (32 States x 41 
hr) at a cost of $143,480 (1,312 hr x $109.36/hr).
6. ICRs Regarding ILOS Contract and Supporting Documentation 
Requirements (Sec. Sec.  438.16 and 457.1201)
    The following proposed changes at Sec.  438.16 will be submitted to 
OMB for review under control number 0938-TBD (CMS-10856). At this time 
the OMB control number has not been determined, but it will be assigned 
by OMB upon their clearance of our proposed collection of information 
request. The control number's expiration date will be issued by OMB 
upon their approval of our final rule's collection of information 
request. The following proposed changes to Sec.  457.1201 will be 
submitted to OMB for review under control number 0938-1282 (CMS-10554).
    The proposals at Sec. Sec.  438.16 and 457.1201 would require 
States that provide ILOSs, with the exception of short term IMD stays, 
to comply with additional information collection requirements. 44 
States utilize MCOs, PIHPs and PAHPs in Medicaid managed care programs. 
We do not have current data readily available on the number of States 
that utilize ILOSs and the types of ILOSs in Medicaid managed care. We 
believe it is a reasonable estimate to consider that half of the States 
with MCOs, PIHPs and PAHPs (22 States) may choose to provide non-IMD 
ILOSs. Similarly, for CHIP, we estimate that half of the States with 
MCOs, PIHPs, and PAHPS (16 States) provide ILOSs and would be subject 
to the additional information collection requirements.
    The proposal at Sec.  438.16(c)(4)(i) would require States to 
submit a projected ILOS cost percentage to CMS as part of the rate 
certification. The burden for this proposal is accounted for in ICR #2 
(above) for Sec.  438.7 Rate Certifications.
    The proposal at Sec.  438.16(c)(5)(ii) would require States to 
submit a final ILOS cost percentage and summary of actual MCO, PIHP and 
PAHP ILOS costs as a separate actuarial report concurrently with the 
rate certification. We anticipate that 22 States would need: 5 hours at 
$120.48/hr for an actuary, 5 hours at $109.36/hr for a computer 
programmer, and 7 hours at $77.28/hr for a business operations 
specialist. In aggregate, we estimate an annual State burden of 374 
hours (17 hr x 22 States) at a cost of $37,184 (22 States x [(5 hr x 
$120.48/hr) + (5 hr x $109.36/hr) + (7 hr x $77.28/hr)]).
    Proposals at Sec. Sec.  438.16(d)(1) and 457.1201(e) would require 
States that elect to use ILOS to include additional documentation 
requirements in their managed care plan contracts. We anticipate that 
22 States for Medicaid and 16 States for CHIP would need 1 hour at 
$77.28/hr for a business operations specialist to amend 327 Medicaid 
MCO, PIHP, and PAHP contracts and 100 CHIP contracts annually. In 
aggregate for Medicaid for Sec.  438.16(d)(1), we estimate an annual 
State burden of 327 hours (327 contracts x 1 hr) at a cost of $25,271 
(327 hr x $77.28/hr). In aggregate for CHIP for Sec.  457.1201(e) we 
estimate an annual State burden of 100 hours (100 contracts x 1 hr) at 
a cost of $7,728 (100 hr x $77.28/hr).
    Proposals at Sec. Sec.  438.16(d)(2) and 457.1201(e) would require 
some States to provide to CMS additional documentation to describe the 
process and supporting data the State used to determine each ILOS to be 
a medically appropriate and cost-effective substitute. This additional 
documentation would be required for States with a projected ILOS cost 
percentage greater than 1.5 percent. We anticipate that approximately 5 
States may be required to submit this additional documentation. We 
estimate it would take 2 hours at $77.28/hr for a business operations 
specialist to provide this documentation. In aggregate for Medicaid for 
Sec.  438.16(d)(2), we estimate an annual State burden of 10 hours (5 
States x 2 hr) at a cost of $773 (10 hr x $77.28/hr). In aggregate for 
CHIP for Sec.  457.1201(e) we estimate the same annual State burden of 
10 hours (5 States x 2 hr) at a cost of $773 (10 hr x $77.28/hr).
    Proposals at Sec. Sec.  438.16(e)(1) and 457.1201(e) would require 
States with a final ILOS cost percentage greater than 1.5 percent to 
submit an evaluation for ILOSs to CMS. We anticipate that approximately 
5 States may be required to develop and submit an evaluation. We 
estimate it would take 25 hours at $77.28/hr for a business operations 
specialist. In aggregate for Medicaid for Sec.  438.16(e)(1), we 
estimate an annual State burden of 125 hours (5 States x 25 hr) at a 
cost of $9,660 (125 hr x $77.28/hr). In aggregate for CHIP for Sec.  
457.1201(e), we estimate the same annual State burden of 125 hours (5 
States x 25 hr) at a cost of $9,660 (125 hr x $77.28/hr).
    An ILOS may be terminated by either a State, a managed care plan, 
or by CMS. Proposals as Sec. Sec.  438.16(e)(2)(iii) and 457.1201(e) 
would require States to develop an ILOS transition of care policy. We 
believe all States with non-IMD ILOSs should proactively prepare a 
transition of care policy in case an ILOS is terminated. We estimate 
both a one-time burden and an annual burden for these proposals. We 
believe there is a higher one-time burden as all States that currently 
provide non-IMD ILOSs would need to comply with this proposed 
requirement by the applicability date, and an annual burden is 
estimated for States on an on-going basis. We estimate for a one-time 
burden, it would take: 2 hours at $109.36/hr for a computer programmer 
and 2 hours at $77.28/hr for a business and operations specialist for 
initial development of a transition of care policy. In aggregate for 
Medicaid for Sec.  438.16(e)(2)(iii), we estimate a one-time State 
burden 88 hours (22 States x 4 hr) at a cost of $8,212 (22 States x [(2 
hr x $109.36/hr) + (2 hr x $77.28/hr)]). As this would be a one-time 
requirement, we annualize our time and cost estimates to 30 hours and 
$2,799. In aggregate for CHIP for Sec.  457.1201(e), we estimate a one-
time State burden 64 hours (16 States x 4 hr) at a cost of $5,973 (16 
States x [(2 hr x $109.36/hr) + (2 hr x $77.28/hr)]). As this would be 
a one-time requirement, we annualize our time and cost estimates to 21 
hours and $1,991. The annualization divides our estimates by three (3) 
years to reflect OMB's likely approval period. We are annualizing the 
one-time burden estimates since we do not anticipate any additional 
burden after the 3-year approval period expires.
    For updates to reflect specific ILOSs, we also estimate that this 
proposed ILOS transition of care policy would have an annual burden of 
1 hour at $77.28/hr for a business operations specialist per State. In 
aggregate for

[[Page 28211]]

Medicaid for Sec.  438.16(e)(2)(iii), we estimate an annual State 
burden of 22 hours (22 States x 1 hr) at a cost of $1,700 (22 hr x 
$77.28/hr). In aggregate for CHIP for Sec.  457.1201(e), we estimate an 
annual State burden of 16 hours (16 States x 1 hr) at a cost of $1,237 
(16 hr x $77.28/hr).
    For MCOs, PIHPs, or PAHPs that would need to implement a transition 
policy when an ILOS is terminated, we estimate that on an annual basis, 
20 percent of managed care plans (65 plans for Medicaid and 40 plans 
for CHIP) may need to implement this policy. We estimate an annual 
managed care plan burden of 2 hours at $77.28/hr for a business 
operations specialist to implement the policy. In aggregate for 
Medicaid for Sec.  438.16(e)(2)(iii)(B) we estimate an annual burden of 
130 hours (65 plans x 2 hr) at a cost of $10,046 (130 hr x $77.28/hr). 
In aggregate for CHIP for Sec.  457.1201(e), we estimate an annual 
burden of 80 hours (40 plans x 2 hr) at a cost of $6,182 (80 hr x 
$77.28/hr).
7. ICRs Regarding State Monitoring Requirements (Sec.  438.66)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-TBD (CMS-10856). At this time the OMB control 
number has not been determined, but it will be assigned by OMB upon 
their clearance of our proposed collection of information request. The 
control number's expiration date will be issued by OMB upon their 
approval of our final rule's collection of information request.
    The proposed amendments to Sec.  438.66(c) would require States to 
conduct, or contract for, an enrollee experience survey annually. We 
believe most, if not all, States will use a contractor for this task 
and base our burden estimates on that assumption. In the first year, 
for procurement, contract implementation and management, and analysis 
of results, we estimate 85 hours at $77.28/hr for a business operations 
specialist and 25 hours at $110.82/hr for general operations manager. 
In aggregate for Sec.  438.66(c), we estimate a one-time State burden 
of 5,390 hours (49 States x 110 hr) at a cost of $457,626 (49 States x 
[(85 hr x $77.28/hr) + (25 hr x $110.20)]). As this would be a one-time 
requirement, we annualize our time and cost estimates to 1,796 hours 
and $152,542. The annualization divides our estimates by three (3) 
years to reflect OMB's likely approval period. We are annualizing the 
one-time burden estimates since we do not anticipate any additional 
burden after the 3-year approval period expires.
    In subsequent years, for contract management and analysis of 
experience survey results, we estimate 50 hours at $77.28/hr for a 
business operations specialist and 15 hours at $110.82/hr for general 
operations manager. In aggregate, we estimate an annual State burden of 
3,185 hr (49 States x 65 hr) at a cost of $270,789 (49 States x [(50 hr 
x $77.28/hr) + (15 hr x $110.20/hr)]).
    Amendments to Sec.  438.66(e)(1) and (2) would require that States 
submit an annual program assessment report to CMS covering the topics 
listed in Sec.  438.66(e)(2). The data collected for Sec.  438.66(b) 
and the utilization of the data in Sec.  438.66(c), including reporting 
as proposed in Sec.  438.16, would be used to complete the report. We 
anticipate it would take 80 hours at $77.28/hr for a business 
operations specialist to compile and submit this report to CMS. In 
aggregate, we estimate an annual State burden of 3,920 hours (49 States 
x 80 hr) at a cost of $302,938 (3,920 hr x $77.28/hr).
8. ICRs Regarding Network Adequacy Standards (Sec. Sec.  438.68 and 
457.1218)
    The following proposed changes to Sec.  438.66 will be submitted to 
OMB for review under control number 0938-TBD (CMS-10856). At this time 
the OMB control number has not been determined, but it will be assigned 
by OMB upon their clearance of our proposed collection of information 
request. The control number's expiration date will be issued by OMB 
upon their approval of our final rule's collection of information 
request. The following proposed changes to Sec.  457.1218 will be 
submitted to OMB for review under control number 0938-1282 (CMS-10554).
    Sections 438.68(e) and 457.1218 would require States with MCO, 
PIHP, and PAHPs to develop appointment wait time standards for four 
provider types. We anticipate it would take: 20 hours at $77.28/hr for 
a business operations specialist for development and 10 hours at 
$77.28/hr a business operations specialist for ongoing enforcement of 
all network adequacy standards. In aggregate for Medicaid for Sec.  
438.68(e), we estimate a one-time State burden of 880 hours (44 States 
x 20 hr) at a cost of $68,006 (880 hr x $77.28/hr) and an annual State 
burden of 440 hours (44 States x 10 hr) at a cost of $34,003 (440 hr x 
$77.28/hr).
    In aggregate for CHIP for Sec.  457.1218, we estimate a one-time 
State burden of 640 hours (32 States x 20 hr) at a cost of $49,459 (640 
hr x $77.28/hr) and an annual State burden of 320 hours (32 States x 10 
hr) at a cost of $24,730 (320 hr x $77.28/hr). As this would be a one-
time requirement, we annualize our time and cost estimates to 320 hours 
and $24,729. The annualization divides our estimates by three (3) years 
to reflect OMB's likely approval period. We are annualizing the one-
time burden estimates since we do not anticipate any additional burden 
after the 3-year approval period expires.
    Amendments to Sec. Sec.  438.68(f) and 457.1218 would require 
States with MCO, PIHPs, or PAHPs to contract with an independent vendor 
to perform secret shopper surveys of plan compliance with appointment 
wait times and accuracy of provider directories and send directory 
inaccuracies to the State within three days of discovery. In the first 
year, for procurement, contract implementation, and management, we 
anticipate it would take: 85 hours at $77.28/hr for a business 
operations specialist and 25 hours at $110.82/hr for general operations 
manager. In aggregate for Medicaid for Sec.  438.68(f), we estimate a 
one-time State burden of 4,840 hours (44 States x 110 hr) at a cost of 
$410,929 (44 States x [(85 hr x $77.28/hr) + (25 hr x $110.82/hr)]). As 
this would be a one-time requirement, we annualize our time and cost 
estimates to 1,614 hours and $136,976. In aggregate for CHIP for Sec.  
457.1218, we estimate a one-time State burden of 3,520 hours (32 States 
x 110 hr) at a cost of $298,858 (32 States x [(85 hr x $77.28/hr) + (25 
hr x $110.82/hr)]). As this would be a one-time requirement, we 
annualize our time and cost estimates to 1441 hours and $129,228. The 
annualization divides our estimates by three (3) years to reflect OMB's 
likely approval period. We are annualizing the one-time burden 
estimates since we do not anticipate any additional burden after the 3-
year approval period expires.
    In subsequent years, for contract management and analysis of 
results, we anticipate it would take 50 hours at $77.28/hr for a 
business operations specialist and 15 hours at $110.82/hr for general 
operations manager. In aggregate for Medicaid for Sec.  438.68(c), we 
estimate an annual State burden of 2,860 hours (44 States x 65 hr) at a 
cost of $243,157 (44 States x [(50 hr x $77.28/hr) + (15 hr x 
$110.82)]).
    In aggregate for CHIP for Sec.  457.1218 we estimate an annual 
State burden of 2,080 hours (32 States x 65 hr) at a cost of $176,842 
(32 States x [(50 hr x $77.28/hr) + (15 hr x $110.82/hr)]).
9. ICRs Regarding Assurance of Adequate Capacity and Services 
(Sec. Sec.  438.207 and 457.1230)
    The following proposed changes to Sec.  438.207 will be submitted 
to OMB for

[[Page 28212]]

review under control number 0938-TBD (CMS-10856). At this time the OMB 
control number has not been determined, but it will be assigned by OMB 
upon their clearance of our proposed collection of information request. 
The control number's expiration date will be issued by OMB upon their 
approval of our final rule's collection of information request. The 
following proposed changes to Sec.  457.1230 will be submitted to OMB 
for review under control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.207(b) and 457.1230(b) 
would require MCOs, PIHPs, and PAHPs to submit documentation to the 
State of their compliance with Sec.  438.207(a). As we propose in this 
rule to add a reimbursement analysis at Sec.  438.207(b)(3) (and at 
Sec.  457.1230(b) for separate CHIP), we estimate a one-time plan 
burden of: 50 hours at $77.28/hr for a business operations specialist, 
20 hours at $110.82/hr for a general operations manager, and 80 hours 
at $109.36/hr for a computer programmer. In aggregate for Medicaid for 
Sec.  438.207(b), we estimate a one-time private sector burden of 
94,350 hours (629 MCO, PIHPs, and PAHPs x 150 hr) at a cost of 
$9,327,567 (629 MCOs, PIHPs, and PAHPs x [(50 hr x $77.28/hr) + (20 hr 
x $110.20/hr) + (80 hr x $109.36/hr)]). As this would be a one-time 
requirement, we annualize our time and cost estimates to 31,450 hours 
and $3,460,800. The annualization divides our estimates by three (3) 
years to reflect OMB's likely approval period. We are annualizing the 
one-time burden estimates since we do not anticipate any additional 
burden after the 3-year approval period expires.
    In aggregate for CHIP for Sec.  457.1230(b), we estimate a one-time 
private sector burden of 29,850 hours (199 MCO, PIHPs, and PAHPs x 150 
hr) at a cost of $2,948,543 (199 MCOs, PIHPs, and PAHPs x [(50 hr x 
$77.28/hr) + (20 hr x $110.20/hr) + (80 hr x $109.36/hr)]). As this 
would be a one-time requirement, we annualize our time and cost 
estimates to 9,950 hours and $982,848. The annualization divides our 
estimates by three (3) years to reflect OMB's likely approval period. 
We are annualizing the one-time burden estimates since we do not 
anticipate any additional burden after the 3-year approval period 
expires.
    For ongoing analyses and submission of information that would be 
required by amendments to Sec.  438.207(b), we estimate it would take: 
20 hours at $77.28/hr for a business operations specialist, 5 hours at 
$110.82/hr for a general operations manager, and 20 hours at $109.36/hr 
for a computer programmer. In aggregate for Medicaid, we estimate a 
one-time private sector burden of 28,305 hours (629 MCO, PIHPs, and 
PAHPs x 45 hr) at a cost of $2,696,460 (629 MCO, PIHPs, and PAHPs x 
[(20 hr x $77.28/hr) + (5 hr x $110.20/hr) + (20 hr x $109.36/hr)]).
    In aggregate for CHIP, we estimate a one-time private sector burden 
of 8,955 hours (199 MCO, PIHPs, and PAHPs x 45 hr) at a cost of 
$852,476 (199 MCO, PIHPs, and PAHPs x [(20 hr x $77.28/hr) + (5 hr x 
$110.20/hr) + (20 hr x $109.36/hr)]).
    Amendments to Sec. Sec.  438.207(d) and 457.1230(b) would require 
States to submit an assurance of compliance to CMS that their MCOs, 
PIHPs, and PAHPs meet the State's requirements for availability of 
services. The submission to CMS must include documentation of an 
analysis by the State that supports the assurance of the adequacy of 
the network for each contracted MCO, PIHP or PAHP and the accessibility 
of covered services. Including the proposals in this rule at Sec.  
438.68(f) and Sec.  438.208(b)(3), we anticipate it would take 40 hours 
at $77.28/hr for a business operations specialist. Although States may 
need to submit a revision to this report at other times during a year 
(specified at Sec.  438.207(c)), we believe these submissions will be 
infrequent and require minimal updating to the template; therefore, the 
burden estimated here in inclusive of occasional revisions. In 
aggregate for Medicaid, we estimate an annual State burden of 1,760 
hours (44 States x 40 hr) at a cost of $136,013 (1,760 hr x $77.28/hr).
    Due to the additional proposal to include enrollee experience 
survey results in the State's separate CHIP analysis of network 
adequacy, we anticipate an additional 4 hours at $77.28/hr for a 
business operations specialist to analyze these data for a total of 44 
hours annually. In aggregate for CHIP, we estimate an annual State 
burden of 1,408 hours (32 States x 44 hr) at a cost of $108,810 (1,408 
hr x $77.28/hr).
10. ICRs Regarding External Quality Review Results (Sec. Sec.  438.364 
and 457.1250)
    The following proposed changes to Sec.  438.364 will be submitted 
to OMB under control number 0938-0786 (CMS-R-305), and the proposed 
changes to Sec.  457.1250 will be submitted to OMB for review under 
control number 0938-1282 (CMS-10554).
    Amendments to Sec.  438.360(a)(1) would remove the requirement that 
plan accreditation must be from a private accrediting organization 
recognized by CMS as applying standards at least as stringent as 
Medicare under the procedures in Sec.  422.158. Eliminating this 
requirement would simplify the plan accreditation process. We assume 
that States would apply the non-duplication provision to 10 percent of 
MCOs, PIHPs, and PAHPs, we anticipate that this provision would offset 
the burden associated with Sec.  438.358(b)(1)(i) through (iii) for 65 
MCOs, PIHPs, and PAHPs (since these activities will no longer be 
necessary for these 65 plans). Consistent with the estimates used in 
Sec.  438.358(b)(1)(i) through (iii), we estimate an aggregated offset 
of annual State burden of minus 26,606 hours [(-65 MCOs, PIHPs x 409.33 
hr)] and minus $2,056,146 (-26,606.45 hr x $77.28/hr).
    The proposed amendments to Sec.  438.364(a)(2)(iii) for Medicaid, 
and through an existing cross-reference at Sec.  457.1250(a) for 
separate CHIP, would (1) require that the EQR technical reports include 
``any outcomes data and results from quantitative assessments'' for the 
applicable EQR activities in addition to whether or not the data has 
been validated, and (2) add the mandatory network adequacy validation 
activity to the types of EQR activities to which the requirement to 
include data in the EQR technical report applies. For Medicaid Sec.  
438.364, we assume 44 States and 654 MCOs, PIHPs and PAHPs will be 
subject to the EQR provisions. For CHIP, we assume 32 States and 199 
MCOs, PIHPs and PAHPs will be subject to the proposed EQR provisions.
    We estimate it would take 1 hour at $77.28/hr for a business 
operations specialist to describe the data and results from 
quantitative assessments and 30 minutes at $37.96/hr for an office 
clerk to collect and organize data. In aggregate for Medicaid we 
estimate an annual State burden of 981 hours (654 MCOs, PIHPs, and 
PAHPs yearly reports x 1.5 hr) at a cost of $62,954 (654 reports x [(1 
hr x $77.28/hr) + (0.5 hr x $37.96/hr)]). In aggregate for CHIP for 
Sec.  457.1250(a), we estimate an annual State burden of 299 hours (199 
MCOs, PIHPs, and PAHPs yearly reports x 1.5 hr) at a cost of $19,156 
(199 reports x [(1 hr x $77.28/hr) + (0.5 hr x $37.96/hr)]).
    Amendments to Sec.  438.364(c)(1) for Medicaid, and through an 
existing cross-reference at Sec.  457.1250(a) for separate CHIP, shifts 
the date in which States must finalize their annual EQR technical 
report. Previously, EQR annual reports had to be posted by April 30th, 
but under this new provision, EQR technical reports must be posted on 
the website required under Sec. Sec.  438.10(c)(3)

[[Page 28213]]

and 457.1207 by December 31st of each year. We estimate it would take 1 
hour at $77.28/hr for a business operations specialist and 30 minutes 
at $110.82/hr a general operations manager to amend vendor contracts to 
reflect the new reporting date. In aggregate for Medicaid, we estimate 
an annual State burden of 981 hours (654 MCOs, PIHPs, and PAHPs yearly 
reports x 1.5 hr) at a cost of $86,779 (654 contracts [(1 hr x $77.28/
hr) + (0.5 hr x $110.82/hr)]). In aggregate for CHIP, we estimate an 
annual State burden of 299 hours (199 MCOs, PIHPs, and PAHPs yearly 
reports x 1.5 hr) and $26,405 (199 contracts [(1 hr x $77.28/hr) + (0.5 
hr x $110.82/hr)]). Amendments to Sec.  438.364(c)(2)(i) for Medicaid, 
and through an existing cross-reference at Sec.  457.1250(a) for 
separate CHIP, would require States to notify CMS within 14 calendar 
days of posting their EQR technical reports on their quality website 
and provide CMS with a link to the report. Previously States were not 
required to notify CMS when reports were posted. We estimate it would 
take 30 minutes at $77.28/hr for a business operations specialist to 
notify CMS of the posted reports. In aggregate for Medicaid we estimate 
an annual State burden of 22 hours (44 States x 0.5 hr) at a cost of 
$1,700 (22 hr x $77.28/hr). In aggregate for CHIP, we estimate an 
annual State burden of 16 hours (32 States x 0.5 hr) at a cost of 
$1,236 (16 hr x $77.28/hr).
    Amendments to Sec.  438.364(c)(2)(iii) for Medicaid, and through an 
existing cross-reference at Sec.  457.1250(a) for separate CHIP, would 
require States to maintain an archive of at least the previous 5 years 
of EQR technical reports on their websites. Currently, almost half of 
States maintain an archive of at least 2 years' worth of EQR reports. 
Initially, we assume 75 percent of reports completed within the 
previous 5 years need to be archived on State websites. We estimate it 
would take 5 minutes (0.0833 hr) at $77.28/hr for a business operations 
specialist to collect and post a single EQR technical report to a State 
website. In aggregate for Medicaid for Sec.  438.364(c)(2)(iii), we 
estimate a one-time burden of 204 hours (654 MCOs, PIHPs, and PAHPs 
yearly reports x 0.75 x 5 years x 0.0833 hr) at a cost of $15,765 (204 
hr x $77.28/hr). As this will be a one-time requirement, we annualize 
our time and cost estimates to 68 hours and $5,255. In aggregate for 
CHIP for Sec.  457.1250(a), we estimate a one-time burden of 62 hours 
[(199 MCOs, PIHPs, and PAHPs yearly reports x 0.75 x 5 years x 0.0833 
hr) at a cost of $4,791 (62 hr x $77.28/hr). As this would be a one-
time requirement, we annualize our time and cost estimates to 21 hours 
and $1,597. The annualization divides our estimates by three (3) years 
to reflect OMB's likely approval period. We are annualizing the one-
time burden estimates since we do not anticipate any additional burden 
after the 3-year approval period expires.
11. ICRs Regarding Requirements for PCCMs (Sec. Sec.  438.310(c)(2), 
438.350, and 457.1250)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-0786 (CMS-R-305). The following proposed 
changes to Sec.  457.1250 will be submitted to OMB for review under 
control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.310(c)(2), 438.350, and 
457.1250(a) would remove PCCMs from the managed care entities subject 
to EQR. We estimate the burden on States of completing EQR mandatory 
and optional activities which include:
    Mandatory EQR activities include the validation of performance 
measures and a compliance review. We assume States validate 3 
performance measures each year and conduct a compliance review once 
every 3 years. We expect it would take 53 hours at $77.28/hr for a 
business operations specialist to complete each performance measure 
validation and 361 hours at $77.28/hr for a business operations 
specialist to conduct a compliance review. Alleviating this burden 
would result in an annual State Medicaid savings of minus 2,793 hours 
(10 PCCM entities x [(53 hr/validation x 3 performance measure 
validations) + (361 hr/3 years compliance review)]) and minus $215,843 
(- 2,793 hr x $77.28/hr). For CHIP for Sec.  457.1250(a), we estimate 
an annual State savings of minus 4,749 hours (17 PCCM entities x [(53 
hr/validation x 3 performance measure validations) + (361 hr/3 years 
compliance review)]) and minus $367,003 (-4,749 hr x $77.28/hr).
    Optional EQR activities include: (1) validation of client level 
data (such as claims and encounters); (2) administration or validation 
of consumer or provider surveys; (3) calculation of performance 
measures; (4) conduct of PIPs; (5) conduct of focused studies; and (6) 
assist with the quality rating of MCOs, PIHPs, and PAHPs consistent 
with Sec. Sec.  438.334 and 457.1240(d). Based on our review of recent 
EQR technical report submissions we estimate and assume that each year 
10 percent of PCCM entities would be subject to each of the optional 
EQR-related activities. Regarding the administration or validation of 
consumer or provider surveys, we assume that half would administer 
surveys while half (29) would validate surveys. We also estimate that a 
mix of professionals would work on each optional EQR-related activity: 
20 percent by a general and operations manager at $110.82/hr; 25 
percent by a computer programmer at $92.92/hr; and 55 percent by a 
business operations specialist at $77.28/hr. Alleviating this burden 
would result in an annual State Medicaid savings of minus 999 hours (-
350+-75 hr + -25 hr + -159 hr + -195 hr + -195 hr) and minus $87,810 
[(-999 hr x 0.20 x $110.82/hr) + (-999 hr x 0.25 x $92.92/hr) + (-999 
hr x 0.55 x $77.28/hr)]. For CHIP, we estimate annual State savings of 
minus 649 hours (-75 hr + -25 hr + -159 hr + -195 hr + -195 hr) and 
minus $57,045.80 [(-649 hr x 0.20 x $110.82/hr) + (-649 hr x 0.25 x 
$92.92/hr) + (-649 hr x 0.55 x $77.28/hr)].
    Per Sec.  438.364(c)(2)(ii), each State agency would provide copies 
of technical reports, upon request, to interested parties such as 
participating health care providers, enrollees and potential enrollees 
of the MCO, PIHP, or PAHP, beneficiary advocacy groups, and members of 
the general public. This change would eliminate the burden on States to 
provide PCCM EQR reports. We estimate an annual State burden of 5 
minutes (on average) or 0.0833 hours at $37.96/hr for an office clerk 
to disclose the reports (per request), and that a State would receive 
five requests per PCCM entity. Alleviating this burden would result in 
an annual Medicaid State savings of minus 4 hours (10 PCCM entities x 5 
requests x 0.0833 hr) and minus $152 (-4 hr x $37.96/hr). For CHIP for 
Sec.  457.1250(a), we estimate an annual State savings of minus 0.833 
hours (50 minutes) (2 PCCM entities x 5 requests x 0.833 hr) and minus 
$32 (-0.833 hr x $37.96/hr).
    For the mandatory and optional EQR activities, in aggregate, we 
estimate an annual State savings of minus 3,796 hours (-2,793 hr + -999 
hr + -4 hr) and minus $303,805 ($215,843 + $87,810 + $152).
    Additionally, the burden associated with Sec.  438.358(b)(2) also 
includes the time for a PCCM entity (described in Sec.  438.310(c)(2)) 
to prepare the information necessary for the State to conduct the 
mandatory EQR-related activities. Given the estimate of 200 hr for an 
MCO, PIHP, or PAHP, and that there are only 2 mandatory EQR-related 
activities for PCCM entities (described in Sec.  438.310(c)(2)), we 
estimate it would take 100 hr to prepare the documentation for these 2 
activities, half (50 hr) at $77.28/hr by a business operations 
specialist and half (50 hr) at

[[Page 28214]]

$37.96/hr by an office clerk. In aggregate for Medicaid, we estimate an 
annual private sector savings of minus 1,000 hours (10 PCCM entities x 
100 hr) and minus $57,620 [(- 500 hr x $77.28/hr) + (- 500 hr x $37.96/
hr)]. In aggregate for CHIP for Sec.  457.1250(a), we estimate an 
annual private sector savings of minus 200 hours (2 PCCM entities x 100 
hr) and minus $11,524 [(- 100 hr x $77.28/hr) + (- 100 hr x $37.96/
hr)].
    Amendments to Sec. Sec.  438.364(c)(7) and 457.1250(a) add a new 
optional EQR activity to assist in evaluations for In Lieu of Services, 
quality strategies and State Directed Payments that pertain to 
outcomes, quality, or access to health care services. Based on our 
review of recent EQR technical report submissions we estimate and 
assume that each year 10 percent of MCOs, PIHPs and PAHPs will be 
subject to each of the optional EQR-related activities, though we note 
that the exact States and number vary from year to year. We also 
estimate that a mix of professionals will work on each optional EQR-
related activity: 20 percent by a general and operations manager at 
$110.82/hr; 25 percent by a computer programmer at $109.36/hr; and 55 
percent by a business operations specialist at $77.28/hr. To assist in 
evaluations, we estimate an annual State burden of 80 hours per MCO, 
PIHP and PAHP. In aggregate for Medicaid, the annual State burden to 
assist in evaluations is 4,640 hours (58 MCOs, PIHPs and PAHPs x 80 hr) 
at a cost of $426,917 [(4,640 hr x 0.20 x $110.82/hr) + (4,640 hr x 
0.25 x $103.36/hr) + (4,640 hr x 0.55 x $77.28/hr)]. In aggregate for 
CHIP for Sec.  457.1250(a), the annual State burden to assist in 
evaluations is 1,600 hours (20 MCOs, PIHPs and PAHPs x 80 hr) at a cost 
of $147,213 [(1,600 hr x 0.20 x $110.82/hr) + (1,600 hr x 0.25 x 
$109.36/hr) + (1,600 hr x 0.55 x $77.28/hr)].
12. ICRs Regarding Quality Rating System Measure Collection (Sec. Sec.  
438.515 and 457.1240)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-1281 (CMS-10553). The following proposed 
changes to Sec.  457.1240 will be submitted to OMB for review under 
control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.515(a)(1) and 457.1240(d) 
would revise the existing QRS requirements by mandating that the State 
collect specified data from each managed care plan with which it 
contracts that has 500 or more enrollees on July 1 of the measurement 
year. Based on the data collected, the State would calculate and issue 
an annual quality rating to each managed care plan. The State would 
also collect data from Medicare and the State's fee-for-service 
providers, if all data necessary to issue an annual quality rating 
cannot be provided by the managed care plans. Annual quality ratings 
will serve as a tool for States, plans and beneficiaries. The annual 
quality ratings will hold States and plans accountable for the care 
provided to Medicaid and CHIP beneficiaries, provide a tool for States 
to drive improvements in plan performance and the quality of care 
provided by their programs, and empower beneficiaries with useful 
information about the plans available to them. States would be required 
to collect data using the framework of a mandatory QRS Measure Set. We 
used the proposed mandatory measure set, found in Table 1, as the basis 
for the measure collection burden estimate. The proposed mandatory 
measure set consists of 18 measures, including CAHPS survey measures, 
and reflects a wide range of preventive and chronic care measures 
representative of Medicaid and CHIP beneficiaries. For Medicaid managed 
care, we assume 629 MCOs, PIHPs and PAHPs and 44 States to be subject 
to the proposed mandatory QRS measure set collection and reporting 
provision. For CHIP managed care, we assume 199 MCOs, PIHPs and PAHPs 
and 32 States to be subject to the proposed mandatory QRS measure set 
collection and reporting provision. We assume that plans with CHIP 
populations will report the subset of QRS measures which apply to 
beneficiaries under 19 years of age and to pregnant and postpartum 
adults, where applicable.
    For Medicaid, we expect reporting the QRS non-survey measures would 
take: 680 hours at $109.36/hr for a computer programmer to program and 
synthesize the data; 212 hours at $77.28/hr for a business operations 
specialist to manage the data collection process; 232 hours at $37.96/
hr for an office clerk to input the data; 300 hours at $79.56/hr for a 
registered nurse to review medical records for data collection; and 300 
hours at $46.46/hr for medical records and health information analyst 
to compile and process medical records. For Medicaid, for one managed 
care entity we estimate an annual private sector burden of 1,724 hours 
(680 hr + 212 hr + 232 hr + 300 hr + 300 hr) at cost of $137,361 ([680 
hr x $109.36/hr] + [252 hr x $77.28/hr] + [328 hr x $37.96/hr] + [300 
hr x $79.56/hr] + [300 hr x $46.46/hr]).
    For Medicaid, we also estimate that conducting the QRS survey 
measures comprised of the CAHPS survey would take: 20 hours at $77.28/
hr for a business operations specialist to manage the data collection 
process; 40 hours at $37.96/hr for an office clerk to input the data; 
and 32 hours at $95.62/hr for a statistician to conduct data sampling. 
For one Medicaid managed care entity we estimate an annual private 
sector burden of 92 hours (20 hr + 40 hr + 32 hr) at cost of $6,124 
([20 hr x $77.28/hr] + [40 hr x $37.96/hr] + [32 hr x $95.62]).
    For one Medicaid managed care entity, for mandatory QRS non-survey 
and survey measures we estimate an annual private sector burden of 
1,816 hours (1,724 hr +92 hr) at a cost of $143,485 ($137,361 + 
$6,124). In aggregate, for Medicaid, we estimate an annual private 
sector burden of 1,142,264 hours (629 Medicaid MCOs, PIHPs and PAHPs x 
1,816 hours) and $90,252,065 (629 Medicaid MCOs, PIHPs and PAHPs x 
$143,485).
    For CHIP for Sec.  457.1240(d), we expect reporting non-survey QRS 
measures would take: 400 hours at $109.36/hr for a computer programmer 
to program and synthesize the data; 148 hours at $77.28/hr for a 
business operations specialist to manage the data collection process; 
152 hours at $37.96/hr for an office clerk to input the data; 60 hours 
at $79.56/hr for a registered nurse to review medical records for data 
collection; and 60 hours at $46.46/hr for medical records specialist to 
compile and process medical records. For one CHIP managed care entity 
we estimate an annual private sector burden of 820 hours (400 hr + 148 
hr + 152 hr + 60 hr +60 hr) at cost of $68,513 ([400 hr x $109.36/hr] + 
[148 hr x $77.28/hr] + [152 hr x $37.96/hr] + [60 hr x $79.56/hr] + [60 
hr x $46.46/hr])
    For CHIP for Sec.  457.1240(d), we also estimate that conducting 
the survey measures (comprised of the CAHPS survey and secret shopper) 
would take: 20 hours at $77.28/hr for a business operations specialist 
to manage the data collection process; 56 hours at $37.96/hr for an 
office clerk to input the data; and 32 hours at $95.62/hr for a 
statistician to conduct data sampling. For one CHIP managed care entity 
we estimate an annual private sector burden of 108 hours (20 hr + 56 hr 
+ 32 hr) at cost of $6,731 ([20 hr x $77.28/hr] + [56 hr x $37.96/hr] + 
[32 hr x $95.62]).
    For one CHIP managed care entity, for mandatory QRS non-survey and 
survey measures, we estimate an annual private sector burden of 928 
hours (820 hr +108 hr) at a cost of $75,244 ($68,513 + $6,731). In 
aggregate, for CHIP for Sec.  457.1240(d), we estimate an annual 
private sector burden of 184,672 hours (199 CHIP MCOs, PIHPs and PAHPs 
x 928 hours) and $14,973,556 (199 CHIP MCOs, PIHPs and PAHPs x 
$75,244).

[[Page 28215]]

    The CAHPS survey measures also include a new burden on Medicaid 
beneficiaries. Beneficiaries complete the survey via telephone or mail. 
Response rates vary slightly by survey population. The adult CAHPS 
survey aims for 411 respondents out of a 1,350-person sampling and the 
Child CAHPS survey aims for 411 respondents out of a 1,650-person 
sampling. For Medicaid, the survey would be conducted twice, once for 
children and once for adults. For CHIP, the survey would be conducted 
once for children and once for pregnant or postpartum adults, as 
applicable. We estimate it would take 20 minutes (0.33 hr) at $28.01/hr 
for a Medicaid or CHIP beneficiary to complete the CAHPS Health Plan 
Survey. For Medicaid, in aggregate, we estimate a new beneficiary 
burden of 172,346 hours (629 MCOs, PIHPs and PAHPs x 0.33 hr per survey 
response x 822 beneficiary responses) at a cost of $4,827,411 (172,346 
hr x $28.01/hr). For CHIP for Sec.  457.1240(d), in aggregate, we 
estimate a new beneficiary burden of 27,263 hours (199 MCOs, PIHPs, and 
PAHPs x 0.33 hr per survey response x 411 beneficiary responses) at a 
cost of $763,637 (27,263 hr x $28.01/hr).
    Additionally, amendments to Sec.  438.515(a)(1)(i), reporting QRS 
measures would require States to update existing managed care 
contracts. We estimate it would take 1 hour at $77.28/hr for a business 
operations specialist and 30 minutes at $110.82/hr a general operations 
manager to amend vendor contracts to reflect the new reporting 
requirements. In aggregate for Medicaid, we estimate a one-time State 
burden of 944 hours (629 MCOs, PIHPs, and PAHPs x 1.5 hours) at a cost 
of $83,462 (629 contracts x [(1 hr x $77.28/hr) + (0.5 hr x $110.82/
hr)]). As this would be a one-time requirement, we annualize our time 
and cost estimates to 315 hours and $27,821. The annualization divides 
our estimates by three (3) years to reflect OMB's likely approval 
period. We are annualizing the one-time burden estimates since we do 
not anticipate any additional burden after the 3-year approval period 
expires. In aggregate for CHIP for Sec.  457.1240(d), we estimate a 
one-time State burden of 299 hours (199 MCOs, PIHPs, and PAHPs x 1.5 
hours) at a cost of $26,405 (199 contracts x [(1 hr x $77.28/hr) + (0.5 
hr x $110.82/hr)]). As this would be a one-time requirement, we 
annualize our time and cost estimates to 99 hours and $8,820. The 
annualization divides our estimates by three (3) years to reflect OMB's 
likely approval period. We are annualizing the one-time burden 
estimates since we do not anticipate any additional burden after the 3-
year approval period expires.
    Amendments to Sec.  438.515(a)(1)(ii) require States to collect 
data from Medicare and the State's fee-for-service providers, if all 
data necessary to issue an annual quality rating cannot be provided by 
the managed care plans and the data are available for collection by the 
State without undue burden. We expect a that subset of States would 
need to collect Medicare data or State Medicaid fee-for-service data to 
report the mandatory quality measures. We assume that plans have access 
to Medicare data for their members and have included this burden in the 
cost of data collection described above. However, we assume Medicaid 
fee-for-service data would need to be provided and that this 
requirement would impact 5 States. For a State to collect the fee-for-
service data needed for QRS reporting, we expect it would take: 120 
hours at $109.36/hr for a computer programmer to program and synthesize 
the data and 20 hours at $77.28/hr for a business operations specialist 
to manage the data collection process. In aggregate for Medicaid, we 
estimate an annual State burden of 700 hours (5 States x [120 hr + 20 
hr]) at a cost of $73,344 ([120 hr x $109.36/hr] + [20 hr x $77.28/
hr]).
    Amendments to Sec. Sec.  438.515(a)(2) and 457.1240(d) require the 
QRS measure data to be validated. We estimate it would take 16 hours at 
$77.28/hr for a business operations specialist to review, analyze and 
validate measure data. In aggregate for Medicaid, we estimate an annual 
private sector burden of 10,064 hours (629 MCOs, PIHPs, PAHPs and PCCMs 
x 16 hr) at a cost of $777,746 (10,064 hr x $77.28/hr). In aggregate 
for CHIP for Sec.  457.1240(d), we estimate an annual private sector 
burden of 3,184 hours (199 MCOs, PIHPs and PAHPs x 16 hr) at a cost of 
$246,060 (3,184 hr x $77.28/hr).
13. ICRs Regarding Requirements for QRS Website Display (Sec. Sec.  
438.520(a) and 457.1240)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-1281 (CMS-10553). The following proposed 
changes to Sec.  457.1240 will be submitted to OMB for review under 
control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.520(a) and 457.1240(d) 
would require the State to prominently post an up-to-date display on 
its website that provides information on available MCOs, PIHPs and 
PAHPs. The display must: allow users to view tailored information, 
compare managed care plans, provide information on quality ratings and 
directs users to resources on how to enroll in a Medicaid or CHIP plan. 
Additionally, the display must offer consumer live assistance services. 
After the display is established, the State would need to maintain the 
display by populating the display with data collected from the 
mandatory QRS measure set established as proposed in this proposed 
rule. The proposed rule outlines a phase-in approach to the QRS website 
display requirements; however, the burden estimate reflects the full 
implementation of the website. We recognize this may results is an 
overestimate during the initial phase of the website display but 
believe the estimate is representative of the longer-term burden 
associated with the QRS website display requirements.
    To develop the initial display, we estimate it would take: 600 
hours at $109.36/hr for a computer programmer to create and test code; 
600 hours at $78.18/hr for a web developer to create the user 
interface; 80 hours at $77.28/hr for a business operations specialist 
to manage the display technical development process; and 450 hours at 
$98.50/hr for a database administer to establish the data structure and 
organization. We estimate that 44 States for Medicaid and 32 States for 
CHIP will develop QRS website displays. For one State, we estimate a 
burden of 1,730 hours (600 hr + 600 hr + 80 hr + 450 hr) at a cost of 
$163,031 ([600 hr x $109.36/hr] + [600 hr x $78.18/hr] + [80 hr x 
$77.28/hr] + [450 hr x $98.50/hr]). In aggregate for Medicaid, we 
estimate a one-time State burden of 76,120 hours (44 States x 1,730 hr) 
at a cost of $7,173,364 (44 States x $163,031). In aggregate for CHIP 
for Sec.  457.1240(d), we estimate a one-time State burden of 55,360 
hours (32 States x 1,730 hr) and $5,216,992 (32 States x $163,031). As 
this would be a one-time requirement, we annualize our time and cost 
estimates for CHIP to 18,453 hours and $48,330,202. The annualization 
divides our estimates by three (3) years to reflect OMB's likely 
approval period. We are annualizing the one-time burden estimates since 
we do not anticipate any additional burden after the 3-year approval 
period expires.
    To maintain the QRS display annually, we estimate it would take: 
384 hours at $109.36/hr for a computer programmer to modify and test 
code; 256 hours at $78.18/hr to update and maintain the user interface; 
120 hours at $77.28/hr for a business operations specialist to manage 
the daily operations of the display; and 384 hours at $98.50/hr for a 
database administer to organize data. We estimate that 44

[[Page 28216]]

States for Medicaid and 32 States for CHIP will maintain QRS displays 
annually. For one State, we estimate a burden of 1,144 hours (384 hr + 
256 hr + 120 hr + 384 hr) at a cost of $109,106 ([384 hr x $92.92/hr] + 
[256 hr x $78.18/hr] + [120 hr x $77.28/hr] + [384 hr x $98.50/hr]). In 
aggregate for Medicaid, we estimate an annual State burden of 50,336 
hours (1,144 hours x 44 States) at a cost of $4,800,664 ($109,106 x 44 
States). In aggregate for CHIP for Sec.  457.1240(d), we estimate an 
annual State burden of 103,168 hours (1,144 hr x 32 States) at a cost 
of $3,491,392 ($109,106 x 32 States).
    The amendments to Sec. Sec.  438.520(a)(2)(iv) and 457.1240(d) 
would require the display to include quality ratings for mandatory 
measures which may be stratified by factors determined by CMS. We 
estimate it would take 24 hours at $109.36/hr for a computer programmer 
to develop code to stratify plan data. In aggregate for Medicaid (Sec.  
438.520(a)(2)(iv)), we estimate an annual private sector burden of 
15,096 hours (629 MCOs, PIHPs and PAHPs x 24 hr) at a cost of 
$1,650,899 (15,096 hr x $109.36/hr). In aggregate for CHIP for Sec.  
457.1240(d), we estimate an annual private sector burden of 4,776 hours 
(199 MCOs, PIHPs and PAHPs x 24 hr) at a cost of $522,303 (4,776 hr x 
$109.36/hr).
    The amendments to Sec.  438.520(a)(3)(v) would require the QRS 
website display to include certain managed care plan performance 
metrics, as specified by CMS including the results of the secret 
shopper survey specified in Sec.  438.68(f). The secret shopper survey 
is currently accounted for by OMB under control number 0938-TBD (CMS-
10856). Plans would complete the secret shopper independent of the QRS 
requirements. To meet QRS requirements, States would enter data 
collected from the secret shopper survey and display the results of the 
survey on the QRS. Since the burden for the secret shopper survey is 
accounted for under a separate control number, for the purposes of MAC 
QRS, we account for the incremental burden associated with meeting the 
QRS requirements. We estimate it would take 16 hours at $37.96/hr for 
an office clerk to enter the results from the secret shopper survey 
into the QRS. In aggregate for Medicaid Sec.  438.520(a)(3)(v), we 
estimate an annual private sector burden of 10,064 hours (629 MCOs, 
PIHPs and PAHPs x 16 hr) at a cost of $382,029 (10,064 hr x $37.96/hr). 
In aggregate for CHIP for Sec.  457.1240(d), we estimate an annual 
private sector burden of 3,184 hours (199 MCOs, PIHPs and PAHPs x 16 
hr) at a cost of $120,865 (3,184 hr x $37.96/hr).
14. ICRs Regarding QRS Annual Reporting Requirements (Part 438 Subpart 
G and Sec. Sec.  438.520(a) and 457.1240)
    The following proposed changes will be submitted to OMB for review 
under control number 0938-1281 (CMS-10553). The following proposed 
changes to Sec.  457.1240 will be submitted to OMB for review under 
control number 0938-1282 (CMS-10554).
    The proposed amendments to Sec. Sec.  438.535(a) and 457.1240(b) 
would mandate that on an annual basis, the State submit a Medicaid 
managed care quality rating system report in a form and manner 
determined by CMS. We estimate that 44 States for Medicaid and 32 
States for CHIP will submit annual MAC QRS reports. We estimate it 
would take 24 hours at $77.28/hr for a business operations specialist 
to compile the required documentation to complete this report and 
attestation that the State is in compliance with QRS standards. In 
aggregate for Medicaid for Sec.  438.535(a), we estimate an annual 
State burden of 1,056 hours (44 States x 24 hr) at a cost of $81,608 
(1,056 hr x $77.28/hr). In aggregate for CHIP for Sec.  457.1240(b), we 
estimate an annual State burden of 768 hours (32 States x 24 hr) at a 
cost of $59,351 (768 hr x $77.28/hr).
    The addition of 438 subpart G for Medicaid, and through a proposed 
amendment at Sec.  457.1240(d) for separate CHIP, would revise the 
quality rating system requirements and associated burden previously 
promulgated under Sec.  438.334. Given the QRS requirements have 
substantively changed, our currently approved burden estimates for 
making changes to an approved alternative Medicaid managed care QRS are 
no longer applicable.
    Therefore, alleviating this burden would result in an annual 
Medicaid State reduction of minus 116.7 hours [(10 States x 35 hr)/3 
years] and minus $8,361 (10 States x [(5 hr x $37.96/hr) + (30 x 
$77.28/hr)]/3 years). Similarly, we estimate an annual CHIP State 
savings of minus 116.7 hours [(10 States x 35 hr)/3 years] and minus 
$8,361 [(10 States x ((5 hr x $37.96/hr) + (30 x $77.28/hr))/3 years)].
    To implement an alternative Medicaid managed care QRS, we estimate 
it would take: 5 hours at $37.96/hr for an office and administrative 
support worker, 25 hours at $77.28/hr for a business operations 
specialist to complete the public comment process, and 5 additional 
hours at $77.28/hr for a business operations specialist to seek and 
receive approval from CMS for the change. We assume that a subset of 
States will opt for an alternative QRS and that the subset will revise 
their QRS once every three years.
15. ICRs Regarding Program Integrity Requirements Under the Contract 
(Sec. Sec.  438.608 and 457.1285)
    The following proposed changes to Sec.  438.608 will be submitted 
to OMB for review under control number 0938-TBD (CMS-10856). At this 
time the OMB control number has not been determined, but it will be 
assigned by OMB upon their clearance of our proposed collection of 
information request. The control number's expiration date will be 
issued by OMB upon their approval of our final rule's collection of 
information request. The following proposed changes to Sec.  457.1285 
will be submitted to OMB for review under control number 0938-1282 
(CMS-10554).
    The proposed amendments to Sec. Sec.  438.608 and 457.1285 would 
require States to update all MCO, PIHP, and PAHP contracts to require 
managed care plans to report overpayments to the State within 10 
business days of identifying or recovering an overpayment. We estimate 
that the proposed changes to the timing of overpayment reporting (from 
timeframes that varied by State to 10 business days for all States) 
would apply to all MCO, PIHP, and PAHP contracts, including contracts 
for NEMT, that is, a total of 654 contracts for Medicaid, and 199 
contracts for CHIP. We estimate it would take: 2 hours at $77.28/hr for 
a business operations specialist and 1 hour at $110.82/hr for a general 
and operations manager to modify State contracts with plans. In 
aggregate for Medicaid for Sec.  438.608, we estimate a one-time State 
burden of 1,962 hours (654 contracts x 3 hr) at a cost of $173,559 [654 
contracts x ((2 hr x $77.28/hr) + (1 hr x $110.82/hr))]. As this would 
be a one-time requirement, we annualize our time and cost estimates to 
654 hours and $57,853.
    In aggregate for CHIP for Sec.  457.1285, we estimate a one-time 
State burden of 597 hours (199 contracts x 3 hr) at a cost of $52,811 
[199 contracts x ((2 hr x $77.28/hr) + (1 hr x $110.82/hr))]. As this 
would be a one-time requirement, we annualize our time and cost 
estimates to 199 hours and $17,604. The annualization divides our 
estimates by three (3) years to reflect OMB's likely approval period. 
We are annualizing the one-time burden estimate since we do not 
anticipate any additional burden after the 3-year approval period 
expires.
    We also estimate that it would take MCOs, PIHPs, and PAHPs 1 hour 
at

[[Page 28217]]

$109.36/hr for a computer programmer to update systems and processes 
already used to meet the previous requirement for ``prompt'' reporting. 
In aggregate for Medicaid for Sec.  438.608, we estimate a one-time 
private sector burden of 654 hours (654 contracts x 1 hr) at a cost of 
$71,521 (654 hr x $109.36/hr). As this would be a one-time requirement, 
we annualize our time and cost estimates to 218 hours and $23,840. In 
aggregate for CHIP for Sec.  457.1285, we estimate a one-time private 
sector burden of 199 hours (199 contracts x 1 hr) at a cost of $21,763 
(199 contracts x $109.36/hr). As this would be a one-time requirement, 
we annualize our time and cost estimates to 218 hours and $7,947. The 
annualization divides our estimates by three (3) years to reflect OMB's 
likely approval period. We are annualizing the one-time burden estimate 
since we do not anticipate any additional burden after the 3-year 
approval period expires.

C. Summary of Collection of Information Requirements and Associated 
Burden Estimates

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D. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection requirements. The 
requirements are not effective until they have been approved by OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections discussed above, please visit the CMS 
website at www.cms.hhs.gov/PaperworkReductionActof1995, or call the 
Reports Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the DATES and ADDRESSES section of this 
proposed rule and identify the rule (CMS-2439-P), the ICR's CFR 
citation, and OMB control number.

III. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

IV. Regulatory Impact Analysis

A. Statement of Need

    This proposed rule would advance CMS' efforts to improve access to 
care, quality and health outcomes, and better address health equity 
issues for Medicaid and CHIP managed care enrollees. The proposed rule 
would specifically address standards for timely access to care and 
States' monitoring and enforcement efforts, reduce burden for State 
directed payments and certain quality reporting requirements, add new 
standards that would apply when States use in lieu of services and 
settings (ILOSs) to promote effective utilization and identify the 
scope and nature of ILOS, specify medical loss ratio (MLR) 
requirements, and establish a quality rating system (QRS) for Medicaid 
and CHIP managed care plans.

B. Overall Impact

    We have examined the impacts of this 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, as amended by Executive Order 14094, 
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 $200 
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; (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 legal or policy issues for which 
centralized review would meaningfully further the President's 
priorities or the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major 
rules. Based on our estimates, OMB's Office of Information and 
Regulatory Affairs has determined this rulemaking is ``significant'' 
under Section 3(f)(1) as measured by the $200 million threshold, and 
hence also a major rule under Subtitle E of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (also known as the 
Congressional Review Act). Accordingly, we have prepared a Regulatory 
Impact Analysis that to the best of our ability presents the costs and 
benefits of the rulemaking. Therefore, OMB has reviewed these proposed 
regulations, and the Departments have provided the following assessment 
of their impact.

C. Detailed Economic Analysis

    We have examined the proposed provisions in this rule and 
determined that most of the proposed revisions to part 438 and part 457 
outlined in this proposed rule are expected to minimally or moderately 
increase administrative burden and associated costs as we note in the 
COI (see section II. of this proposed rule). Aside from our analysis on 
burden in the COI, we believe that certain provisions in this proposed 
rule should specifically be analyzed in this regulatory impact analysis 
as potentially having a significant economic impact. Those proposed 
provisions include State directed payments, MLR reporting standards, 
and ILOS due to the impact these proposed provisions could have on the 
associated and corresponding managed care payments.
1. State Directed Payments (SDPs) (Sec. Sec.  438.6, 438.7)
    Neither the May 6, 2016 final rule (81 FR 27830) nor the November 
13, 2020 final rule (85 FR 72754) included a regulatory impact analysis 
that discussed the financial and economic effects of SDPs. At the time 
the 2016 final rule was published and adopted regulations explicitly 
governing State directed payments, we believed that States would use 
the SDPs in three broad ways to: (1) transition previous pass-through 
payments into formal arrangements as SDPs; (2) add or expand provider 
payment requirements to promote access to care; and (3) implement 
quality or value payment models that include Medicaid managed care 
plans. However, since Sec.  438.6(c) was issued in the 2016 final rule, 
States have requested approval for an increasing number of SDPs. The 
scope, size, and complexity of the SDPs being submitted by States for 
approval has also grown steadily. In calendar year 2017, CMS received 
36 preprints for our review and approval from 15 States; in calendar 
year 2021, CMS received 223 preprints from 39 States. For calendar year 
2022, CMS received 309 preprints from States. As of March 2023, CMS has 
reviewed more than 1,100 SDP proposals and approved more than 1,000 
proposals since the 2016 final rule was issued. To accommodate these 
requests from States, CMS applied discretion in interpreting and 
applying Sec.  438.6(c) in reviewing and approving SDPs. The 2016 final 
rule required criteria to determine if provider payment rates are 
``reasonable, appropriate, and attainable'' and that SDPs must relate 
to utilization, quality, or other goals described in Sec.  438.6(c). 
CMS has interpreted these sections of the regulation broadly, and 
therefore, the amount of SDP payments has grown significantly over 
time.
    SDPs also represent a substantial amount of State and Federal 
spending. The Medicaid and CHIP Payment and Access Commission (MACPAC) 
reported that CMS approved SDPs in 37

[[Page 28227]]

States, with spending exceeding more than $25 billion.\150\ The U.S. 
Government Accountability Office (GAO) also reported that at least $20 
billion has been approved by CMS for preprints with payments to be made 
on or after July 1, 2021, across 79 proposals.\151\
---------------------------------------------------------------------------

    \150\ Medicaid and CHIP Payment and Access Commission, ``Report 
to Congress on Medicaid and CHIP,'' June 2022, available at https://www.macpac.gov/wp-content/uploads/2022/06/MACPAC_June2022-WEB-Full-Booklet_FINAL-508-1.pdf.
    \151\ U.S. Government Accountability Office, ``Medicaid: State 
Directed Payments in Managed Care,'' June 28, 2022, available at 
https://www.gao.gov/assets/gao-22-105731.pdf.
---------------------------------------------------------------------------

    We have tracked SDP spending trends as well. Using the total 
spending captured for each SDP through the end of fiscal year 2022, we 
calculate that SDP payments in 2022 were at least $52.2 billion. there 
may be some SDPs for which CMS does not have projected or actual 
spending data. In addition, our data reporting and collection is not 
standardized, and in some cases may be incomplete, so spending data for 
some SDP approvals may be less accurate. CMS began collecting total 
dollar estimates for SDPs incorporated through adjustments to base 
rates as well as those incorporated through separate payment terms with 
the revised preprint form published in January 2021; States were 
required to use the revised preprint form for rating periods beginning 
on or after July 1, 2021. We estimate that SDP spending comprises 
approximately 11.3 percent of total managed care payments in 2022 
($461.6 billion) and 6.6 percent of total Medicaid benefit expenditures 
($794.5 billion). SDP spending varies widely across States. Thirty-nine 
(39) States reported the use of one or more SDPs in 2022. In these 
States, the percentage of Medicaid managed care spending paid through 
SDPs ranged from 1 percent to 58 percent, with a median of 8 percent; 
as a share of total Medicaid spending, SDPs ranged from 0 percent to 33 
percent, with a median of 3 percent.
    From 2016 through 2022, SDPs were a significant factor in Medicaid 
expenditure growth. Total benefit spending increased at an average 
annual rate of 6.3 percent per year from 2016 through 2022; excluding 
SDPs, benefit spending grew at an average rate of 5.1 percent. Managed 
care payments grew 9.2 percent on average over 2016 to 2022, but 
excluding SDPs, the average growth rate was 7.0 percent. While some SDP 
spending may have been included in managed care payments prior to 2016 
(either as a pass-through payment or some other form of payment), by 
2022 we expect that much of this is new spending.
    In 2022, we estimate that about 75 percent of SDP spending went to 
hospitals for inpatient and outpatient services, and another 5 percent 
went to academic medical centers. The remaining 20 percent of SDP 
spending went to nursing facilities, primary care physicians, specialty 
physicians, HCBS and personal care service providers, behavioral health 
service providers, and dentists.
    The data available do not allow us to determine how much of this 
baseline SDP spending was incorporated into managed care expenditures 
prior to the 2016 final rule, or reflected historical transfers from 
prior payment arrangements. For example, States transitioned pass-
through payments to SDPs or transferred spending from fee-for-service 
payments (for example, supplemental payments) to SDPs. Some States 
indicate that the SDP has had no net impact on rate development while 
other States have reported all estimated spending for the services and 
provider class affected by the SDP. Based on our experience working 
with States, we believe much of the earlier SDP spending was largely 
existing Medicaid spending that was transitioned to managed care SDPs. 
However, in more recent years, we believe that most SDP spending 
reflects new expenditures. For context, States reported $6.7 billion in 
pass-through payments after the 2016 final rule.\152\ States also have 
reported only a small decrease in fee-for-service supplemental payments 
since 2016 (from $28.7 billion in 2016 to $27.5 billion in 2022).\153\ 
SDP spending in 2022 significantly exceeds the originally reported 
pass-through payments and the changes in fee-for-service supplemental 
payments.
---------------------------------------------------------------------------

    \152\ Our data reflects documentation provided from 15 States 
with pass-through payments in rating periods beginning from July 1, 
2017 through June 30, 2018.
    \153\ CMS-64. https://www.medicaid.gov/medicaid/financial-management/state-expenditure-reporting-for-medicaid-chip/expenditure-reports-mbescbes/.
---------------------------------------------------------------------------

    The proposals in this rule are intended to ensure the following 
policy goals: (1) Medicaid managed care enrollees receive access to 
high-quality care under SDPs; (2) SDPs are appropriately linked to 
Medicaid quality goals and objectives for the providers participating 
in the SDPs; and (3) CMS has the appropriate fiscal and program 
integrity guardrails in place to strengthen the accountability and 
feasibility of SDPs.
    The proposal expected to have the most significant economic impact 
is setting a payment ceiling at 100 percent of the ACR for SDPs for 
inpatient hospital services, outpatient hospital services, nursing 
facility services, and qualified practitioner services at academic 
medical centers. As discussed in section I.B.2.f. of this proposed 
rule, we have used the ACR as a benchmark for total payment levels for 
all SDP reviews since 2018 and have not knowingly approved an SDP that 
includes payment rates that are projected to exceed the ACR. Based on 
the available data, we estimate that $11.6 billion of SDPs in 2022 
reflect payments at or near the ACR. It is difficult to determine the 
amounts of these payments due to data quality and inconsistent 
reporting of these details. For example, if payment data are aggregated 
across multiple providers or provider types, it can be difficult to 
determine if providers are being paid at different levels. 
Additionally, many SDPs report payment rates relative to Medicare 
instead of ACR; for some SDPs, the payment rates relative to Medicare 
suggest effective payment rates would be near the ACR. These would 
include SDPs with effective payment rates of 150 percent or more of the 
Medicare rate (with several over 200 percent and as high as 450 
percent).
    Under current policy, we project that SDP spending would increase 
from $52 billion in 2022 (or 11.3 percent of managed care spending) to 
about $91 billion by 2028 (or 15 percent of managed care spending).

                         Table 6--Projected Medicaid Managed Care and State Directed Spending Under Current Policy, FY 2022-2028
                                                                [In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               2022            2023            2024            2025            2026            2027            2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Managed care spending...................          $461.6          $502.2          $479.4          $502.9          $536.6          $571.1          $607.7

[[Page 28228]]

 
SDP spending............................           $52.2           $66.1           $67.5           $73.1           $79.2           $85.7           $91.2
SDP as share of managed care............           11.3%           13.2%           14.1%           14.5%           14.8%           15.0%           15.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimating the impact of the proposed SDP provisions is challenging 
for several reasons. First, as noted previously, the projected and 
actual spending data that we collect from States is not standardized, 
and in some cases aggregated across providers. It is also often 
difficult to determine how payment rates compare, especially when 
States use different benchmarks for payment (for example, comparing 
SDPs using Medicare payment rates to those using ACR payment rates). In 
addition, there is frequently limited information on ACR payment rates. 
It is difficult to determine how the ACR may be calculated and how the 
calculation may vary across different States and providers. 
Furthermore, it may be difficult to determine how many more providers 
are not paid under SDPs and how much they could be paid if SDPs were 
expanded to them.
    Second, it is difficult to determine how much providers are paid in 
managed care programs without SDPs. These data appear to be less 
frequently reported, and we have virtually no information about 
provider payments when the State does not use an SDP. This information 
is important when estimating the impact of changes in SDPs, because the 
initial payment rate matters as much as the final rate. In some cases, 
the initial payment rates for existing SDPs are significantly low (for 
example, there are several SDPs where the reported initial payment 
rates are 10 to 20 percent of ACR or commercial rates, 25 to 30 percent 
of Medicare rates, or 10 to 35 percent of Medicaid State plan rates). 
In other cases, the initial payment rates are relatively higher. Thus, 
it may be difficult to determine how large new SDPs would be.
    Third, there is significant variation in the use of SDPs across 
States. States have significant discretion in developing SDPs 
(including which providers receive SDPs and the amounts of the 
payments), and it is challenging to predict how States would respond to 
changes in policy. Some States may add more SDPs or expand spending in 
existing SDPs. Moreover, as many SDPs are funded through sources other 
than State general revenues (such as intergovernmental transfers or 
provider taxes), decisions about SDPs may be dependent on the 
availability of these funding sources.
    For these reasons, we believe it is prudent to provide a range of 
estimated impacts for this section of the proposed rule. The following 
estimates reflect a reasonable expectation of the impacts of this 
proposed rule on Medicaid expenditures, but do not include all possible 
outcomes.
    We estimate that the low end of the range for the proposed changes 
would have zero impact on Medicaid expenditures. That is, we assume 
that the new policies in the rule would have no bearing on States' 
future decisions on SDPs. Future growth in Medicaid spending on SDPs 
would be the same as currently projected. This estimate also assumes 
that there would be no reduction in expenditures from limiting 
effective payment rates to ACR rates.
    We believe this is a reasonable estimate of the low end of this 
range. SDPs are already growing rapidly and several States already have 
SDPs with effective payment rates at or near the ACR. In addition, SDP 
spending is projected to continue to grow as a share of Medicaid 
managed care spending over the next several years, which suggests that 
other States may add SDPs or increase the payment rates within the 
SDPs. Thus, one possible outcome is that States would use SDPs the same 
way under current policy and under the proposed rule.
    The estimate of the upper end of the range is based on the 
expectation that the provisions of the proposed rule would prompt 
States to increase SDP spending. We believe that by setting the payment 
limit at the ACR rates for certain services, States may increase the 
size and scope of future SDPs to approach this limit. In particular, 
there are many SDPs that currently have effective reimbursement rates 
at or around 100 percent of Medicare reimbursement rates, and others 
with rates below 100 percent of ACR, and that States may potentially 
increase payments associated with these SDPs.
    For the high scenario, we assume that Medicaid SDP spending would 
increase at a faster rate than projected under current law. Under 
current law, Medicaid SDP spending is projected to reach 15 percent of 
managed care spending by 2027; we assume in the high scenario that SDP 
spending would reach about 17.5 percent of managed care spending in 
2027. Under this scenario, SDP spending would increase by approximately 
20 percent by 2027 (or about $16 billion). From 2024 through 2026, SDP 
spending would increase somewhat faster than assumed under current law 
to reach those levels. This increase would include additional spending 
from current SDPs increasing payment rates to the ACR, and may also 
include new or expanded SDPs. We would also expect that this would 
occur mostly among SDPs for hospitals and academic medical centers, as 
those are currently the providers that receive the majority of SDPs. We 
have not estimated a breakdown of impacts by provider type or by State 
in this analysis. The estimated impacts are provided in Table 7.

  Table 7--Projected Medicaid State Directed Payment Spending Under Proposed Rule, High Scenario, FY 2024-2028
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                                       2024            2025            2026            2027            2028
----------------------------------------------------------------------------------------------------------------
Current law.....................           $67.5           $73.1           $79.2           $85.7           $91.2
Proposed rule...................            72.2            81.7            91.8           101.9           108.5
Impact..........................             4.7             8.6            12.6            16.2            17.3
----------------------------------------------------------------------------------------------------------------


[[Page 28229]]

    In Table 8, we provide estimates of the impacts on the Federal 
government and on States.

Table 8--Projected Medicaid State Directed Payment Spending Under Proposed Rule By Payer, High Scenario, FY 2024-
                                                      2028
                                            [in billions of dollars]
----------------------------------------------------------------------------------------------------------------
                                       2024            2025            2026            2027            2028
----------------------------------------------------------------------------------------------------------------
Total impact....................            $4.7            $8.6           $12.6           $16.2           $17.3
Federal government..............             3.1             5.6             8.2            10.5            11.1
States..........................             1.6             3.0             4.4             5.7             6.2
----------------------------------------------------------------------------------------------------------------

    We project that the Federal government would pay an additional 
$11.1 billion in 2028, with the States paying an additional $6.2 
billion in the high scenario. We would note that for the States, they 
would have discretion of whether or not to increase SDP spending 
(through existing or new SDPs), and that the source of the non-Federal 
share may vary. Many States already use sources other than State 
general revenues (such as IGTs and provider taxes, as noted 
previously), and therefore the direct impact to State expenditures may 
be less than projected.
    As noted previously, there is a wide range of possible outcomes of 
this proposed rule on SDP expenditures. The actual changes in spending 
may be difficult to determine, as there is uncertainty in the future 
amount of spending through SDPs in the baseline. The specific impacts 
could also vary over time, by State, and by provider type. We believe 
actual impacts can reasonably be expected to fall within the range 
shown here.
    There are additional proposals in this rule that may also slightly 
increase SDP spending. This includes allowing States to:
    (1) Direct expenditures for non-network providers;
    (2) Set the amount and frequency for VBP SDPs;
    (3) Recoup unspent funds for VBP SDPs; and
    (4) Exempting minimum fee schedules at the Medicare rate from prior 
approval.
    We do not have quantitative data to analyze the impact of these 
provisions. However, based on a qualitative analysis of our work with 
States, we believe these regulatory changes would have much more 
moderate effects on the economic impact in comparison to the ceiling on 
payment levels described above. Allowing States to direct expenditures 
for non-network providers will likely increase the number of State 
contract provisions; however, we anticipate that most States will want 
to require minimum fee schedules tied to State plan rates, which will 
likely result in very small changes from existing rate development 
practices. Regarding the proposal to remove the existing regulatory 
requirements for setting the amount and frequency for VBP SDPs and 
recouping unspent funds for VBP SDPs, we anticipate this will change 
the types of SDPs States seek, encouraging them to pursue VBP models, 
that would replace existing VBPs, though a few States may pursue new 
models. The proposed regulatory requirement to exempt minimum fee 
schedules tied to Medicare rates will likely cause some increase in 
spending as more States may take up this option, but again, we do not 
anticipate this to have as significant impact on rate development.
    There are a few proposals in this rule that are likely to exert 
some minor downward pressure on the rate of growth in SDP spending, 
such as the enhanced evaluation requirements, requirements related to 
financing of the non-Federal share, and eliminating States' ability to 
use reconciliation processes. We expect that these provisions would not 
have any significant effect on Medicaid expenditures.
    Aside from spending, we believe many of the proposals in section 
I.B.2. of this proposed rule would have significant qualitative impacts 
on access, quality, and transparency. One example is our proposal to 
permit the use of SDPs for non-network providers (section I.B.2.d. of 
this proposed rule). One of the most frequently used non-network 
provider types is family planning. Permitting States to use SDPs for 
family planning providers could greatly improve access and ease access 
for enrollees consistent with the statutory intent of section 
1902(a)(23)(B) of the Act. Our proposal to permit States to set the 
frequency and amount of SDP payments (section I.B.2.h. of this proposed 
rule) should remove unnecessary barriers for States implementing VBP 
SDPs. This should have direct impacts on quality of care as States will 
be more inclined to use VBP SDPs. It will allow the payments to be more 
closely linked to the services provided in a timely fashion, and it 
will allow States to establish strong parameters and operational 
details that define when and how providers will receive payment to 
support robust provider participation. Lastly, our proposal (section 
I.B.2.b. of this proposed rule) to require specific information in 
managed care plan contracts would improve accountability to ensure that 
the additional funding included in the rate certification is linked to 
a specific service or benefit provided to a specific enrollee covered 
under the contract.
    Taken together, we believe our SDP related proposals in this rule 
would enable us to ensure that SDPs would be used to meet State and 
Federal policy goals to improve access and quality, used for the 
provision of services to enrollees under the contract, and improve 
fiscal safeguards and transparency. The proposals in this rule would 
provide a more robust set of regulations for SDPs and are informed by 
six years of experience reviewing and approving SDP preprints. We 
believe the resulting regulations would enable more efficient and 
effective use of Medicaid managed care funds.
2. Medical Loss Ratio (MLR) Standards (Sec. Sec.  438.8, 438.74, 
457.1201, 457.1203, 457.1285)
    We propose to amend Sec. Sec.  438.3(i), 438.8(e)(2), 457.1201, and 
457.1203 to specify that only those provider incentives and bonuses 
that are tied to clearly defined, objectively measurable, and well-
documented clinical or quality improvement standards that apply to 
providers may be included in incurred claims for MLR reporting. In 
States that require managed care plans to pay remittances back to the 
State for not meeting a minimum MLR, and where remittance calculations 
are based on the MLR standards in Sec.  438.8, the remittance amounts 
may be affected. If managed care plans currently include

[[Page 28230]]

(in reported incurred claims) payments to providers that significantly 
reduce or eliminate remittances while providing no value to consumers, 
the proposed clarification would result in transfers from such managed 
care plans to States in the form of higher remittances or lower 
capitation rates. Although we do not know how many managed care plans 
currently engage in such reporting practices or the amounts improperly 
included in MLR calculations, using information from a prior CCIIO RIA 
analysis,\154\ we estimate the impact of the proposed clarification by 
assuming that provider incentive and bonus payments of 1.06 percent or 
more paid claims (the top 5 percent of such observations) may represent 
incentives based on MLR or similar metrics. Based on this assumption 
and the Medicaid MLR data for 2018, the proposed clarification would 
increase remittances paid by managed care plans to States by 
approximately $12 million per year (total computable).
---------------------------------------------------------------------------

    \154\ 87 FR 703.
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    We propose to amend Sec. Sec.  438.8(e)(3) and 457.1203(c) to 
specify that only expenditures directly related to activities that 
improve health care quality may be included in QIA expenses for MLR 
reporting. In States that require managed care plans to pay remittances 
back to the State for not meeting a minimum MLR, and where the 
remittance calculations are based on the MLR standards in Sec.  438.8, 
the remittance amounts may be affected. This proposed change would 
result in transfers from managed care plans that currently include 
indirect expenses in QIA to States in the form of higher remittances or 
lower capitation rates. Although we do not know how many managed care 
plans include indirect expenses in QIA, using information from a 
previous CCIIO RIA analysis,\155\ we estimate the impact of the 
proposed change by assuming that indirect expenses inflate QIA by 41.5 
percent (the midpoint of the 33 percent to 50 percent range observed 
during CCIIO MLR examinations) for half of the issuers that report QIA 
expenses (based on the frequency of QIA-related findings in CCIIO MLR 
examinations). Based on these assumptions and the Medicaid MLR data for 
2018, the proposed clarification would increase remittances paid by 
managed care plans to States by approximately $49.8 million per year.
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    \155\ 87 FR 703.
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    We propose to amend Sec. Sec.  438.608(a)(2) and (d)(3), and 
457.1285 to require States' contracts with managed care plans to 
include a provision requiring managed care plans to report any 
overpayment (whether identified or recovered) to the State. In States 
that require managed care plans to pay remittances back to the State 
for not meeting a minimum MLR, and where the remittance calculations 
are based on the MLR standards in Sec.  438.8, the remittance amounts 
may be affected. Given that States do not provide this level of payment 
reporting to CMS, we are unable to quantify the benefits and costs of 
this proposed change; however, this proposed change may result in 
transfers from managed care plans to States in the form of higher 
remittances or lower capitation rates.
    We propose to amend 438.8(k) to require managed care plans to 
report SDPs to States as a line item in their MLR reports. In States 
that require managed care plans to pay remittances back to the State 
for not meeting a minimum MLR, and the remittance calculation 
arrangements are based on Sec.  438.8, the remittance amounts may be 
affected. Given that CMS does not have data on actual revenue and 
expenditure amounts for SDPs that would allow for modeling the effect 
of the line item reporting on remittances, we are unable to quantify 
the benefits and costs of this proposed change. We expect that this 
proposed change may result in transfers from States to managed care 
plans in the form of lower remittances or higher capitation rates.
3. In Lieu of Services and Settings (ILOSs) (Sec. Sec.  438.2, 438.3, 
438.16, 457.1201, 457.120)
    In the May 6, 2016 final rule (81 FR 27830), the regulatory impact 
analysis addressed the financial and economic effects of allowing FFP 
for capitation payments made for enrollees that received inpatient 
psychiatric services during short-term stays in an institution for 
mental disease (IMD) as an ILOS; however, it did not address other 
potential ILOS (see 81 FR 27840 and 27841 for further details). When we 
analyzed the May 6, 2016 final rule for the regulatory impact analysis, 
we concluded that the financial and economic effects of all other ILOSs 
would be offset by a decrease in expenditures for the State plan-
covered services and settings for which ILOSs are a medically 
appropriate and cost effective substitute. The use of ILOSs is a 
longstanding policy in managed care given the flexibility that managed 
care plans have historically had in furnishing care in alternate 
settings and services in a risk-based delivery system, if cost 
effective, on an optional basis and to the extent that the managed care 
plan and the enrollee agree that such setting or service would provide 
medically appropriate care. States and managed care plans historically 
have utilized ILOSs that are immediate substitutes for covered services 
and settings under the State plan, such as a Sobering Center as a 
substitute for an emergency department visit. More recently, a few 
States and managed care plans have begun utilizing ILOSs as longer term 
substitutes for covered services and settings under the State plan. On 
January 7, 2021, CMS published a State Health Official (SHO) letter 
(SHO# 21-001) \156\ that described opportunities under Medicaid and 
CHIP to better address social determinants of health (SDOH). 
Additionally, on January 4, 2023, CMS published a State Medicaid 
Director (SMD) letter (SMD# 23-001) \157\ that outlined additional 
guidance for ILOSs in Medicaid managed care. Since CMS published this 
guidance, States have been working to implement changes in their 
Medicaid managed care programs to meet the HRSNs of Medicaid 
beneficiaries more effectively, including partnering with community-
based organizations that routinely address HRSNs.
---------------------------------------------------------------------------

    \156\ Opportunities in Medicaid and CHIP to Address Social 
Determinants of Health, https://www.medicaid.gov/federal-policy-guidance/downloads/sho21001.pdf.
    \157\ Additional Guide on Use of In Lieu of Services and 
Settings in Medicaid Managed Care, https://www.medicaid.gov/federal-policy-guidance/downloads/smd23001.pdf.
---------------------------------------------------------------------------

    We believe that expanding the definition of what is allowable as 
ILOSs in Medicaid managed care would likely lead to an increase in 
Medicaid expenditures. Many of these services intended to address HRSNs 
may not have been previously eligible for coverage under Medicaid as an 
ILOS. While guidance requires these to be cost effective, the proposed 
rule does not require cost effectiveness to be ``budget neutral.'' 
Moreover, for ILOSs that are intended to be in lieu of some future 
service, the cost effectiveness may need to be measured over years.
    Data on ILOS is extremely limited, and CMS does not currently 
collect any data (outside of ILOS spending for IMDs as part of the 
managed care rate contract). Moreover, there is limited information on 
the additional ILOSs that States may use. Therefore, we are providing a 
range of potential impacts for this section as well.
    At the low end of the range, we project that there would be no 
impact on Medicaid expenditures. In these cases, we would assume (1) 
the use of new ILOSs are relatively lower; and (2) additional ILOS 
spending is offset by savings from other Medicaid services.

[[Page 28231]]

    At the high end of the range, we project that there would be some 
increase in Medicaid spending. We make the following assumptions for 
the high scenario: (1) half of States would use new ILOSs; (2) States 
would increase use of ILOSs to 2 percent of total Medicaid managed care 
spending; and (3) additional ILOSs would offset 50 percent of new 
spending. Table 9 shows the impacts in the high scenario.

       Table 9--Projected Medicaid ILOS Spending Under Proposed Rule by Payer, High Scenario, FY 2024-2028
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                                       2024            2025            2026            2027            2028
----------------------------------------------------------------------------------------------------------------
Total impact....................            $2.4            $2.5            $2.7            $2.9            $3.0
Federal government..............             1.6             1.6             1.7             1.9             2.0
States..........................             0.8             0.9             1.0             1.0             1.0
----------------------------------------------------------------------------------------------------------------

    We also believe it is important for CMS to begin to capture data on 
ILOS expenditures as a portion of total capitation payments that are 
eligible for FFP to ensure appropriate fiscal oversight, as well as 
detail on the managed care plans' ILOS costs. Therefore, we proposed 
reporting related to the final ILOS cost percentage and actual MCO, 
PIHP and PAHP ILOS costs in Sec. Sec.  438.16(c) and 457.1201(c). This 
will also aid us in future regulatory impact analyses.
4. Regulatory Review Cost Estimation
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on the 2016 final rule will be the number of reviewers of 
this proposed rule. We received 879 unique comments on the 2016 final 
rule. We acknowledge that this assumption may understate or overstate 
the costs of reviewing this rule. It is possible that not all 
commenters reviewed the 2016 rule in detail, and it is also possible 
that some reviewers chose not to comment on the proposed rule. For 
these reasons, we thought that the number of past commenters would be a 
fair estimate of the number of reviewers of this rule. We welcome any 
comments on the approach in estimating the number of entities which 
will review this proposed rule.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this proposed rule, 
and therefore, for the purposes of our estimate, we assume that each 
reviewer reads approximately 50 percent of the rule. We seek comments 
on this assumption.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $115.22 per hour, including overhead and fringe benefits 
https://www.bls.gov/oes/current/oes_nat.htm. Assuming an average 
reading speed, we estimate that it would take approximately 20 hours 
for the staff to review half of this proposed rule. For each entity 
that reviews the rule, the estimated cost is $2,304. Therefore, we 
estimate that the total cost of reviewing this regulation is $2 
million.

D. Alternatives Considered

1. State Directed Payments (SDPs)
    As discussed in section I.B.2.f. of this proposed rule on provider 
payment limits, we are considering alternatives to the ACR as a total 
payment rate limit for inpatient hospital services, outpatient hospital 
services, nursing facility services, and qualified practitioner 
services at an academic medical center for each SDP. The alternatives 
we are considering include the Medicare rate, some level between 
Medicare and the ACR, or a Medicare equivalent of the ACR. We are also 
considering an alternative that would establish a total payment rate 
limit for any SDPs described in paragraphs (c)(1)(i) and (ii) that are 
for any of these four services, at the ACR, while limiting the total 
payment rate for any SDPs described in paragraph Sec.  
438.6(c)(1)(iii)(C) through (E), at the Medicare rate. We are also 
considering and seek public comment on establishing a total payment 
rate limit for all services for all SDP arrangements described in Sec.  
438.6(c)(1)(i) and (ii), and 438.6(c)(1)(iii)(C) through (E) at the 
Medicare rate. For each of these alternatives, we acknowledge that some 
States currently have SDPs that have total payment rates up to the ACR. 
Therefore, these alternative proposals could be more restrictive, and 
States could need to reduce funding from current levels, which could 
have a negative impact on access to care and health equity initiatives.
2. Medical Loss Ratio (MLR) Standards
    For all MLR-related proposed changes, except those relating to SDP 
reporting, the only alternative considered was no change. We considered 
alternatives to requiring actual SDP amounts as part of MLR reports, 
including creating a new separate reporting process for SDPs or 
modifying existing reporting processes to include SDPs. We determined 
that creating a new separate reporting process specific to SDPs would 
impose significant burden on States as it would require State staff to 
learn a new process and complete an additional set of documents for SDP 
reporting. We considered modifying other State managed care reporting 
processes, for example, MCPAR, to include SDPs but, unlike MLR 
reporting, those processes were not specific to reporting financial 
data. We propose integrating SDP reporting in the MLR as the current 
MLR process requires reporting of financial data from managed care 
plans, and in turn, States provide a summary of these reports to CMS in 
the form of the annual MLR summary report. The integration of managed 
care plan and State SDP reporting using current MLR processes will 
encourage States to add the monitoring and oversight of SDPs as a part 
of a State's established MLR reporting process.
3. In Lieu of Services and Settings (ILOSs) (Sec. Sec.  438.2, 438.3, 
438.16, 457.1201, 457.120)
    One alternative we considered was leaving the 2016 final rule as it 
is today; however, since the rule was finalized in 2016, we continue to 
hear of increased State and plan utilization and innovation in the use 
of ILOSs, and we do not believe the current regulation ensures 
appropriate enrollee and fiscal protections. As a result, we propose 
many additional safeguards in this rule. The ILOS proposals seek to 
ensure appropriate safeguards while also specifying that States and 
managed care plans can consider both short term and

[[Page 28232]]

longer term substitutes for State plan-covered services and settings. 
Additionally, we considered including enrollee protections and ILOS 
transparency without the 5 percent limit on the ILOS cost percentage 
and the ILOS evaluation, when applicable. However, we have concerns 
regarding the potential unrestrained growth of ILOS expenditures.

E. Accounting Statement and Table

    As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), we have prepared an accounting statement in 
Table 10 showing the classification of the impact associated with the 
provisions of this proposed rule. In the case of SDPs, we categorize 
these as transfers from the Federal government and States to health 
care providers. For ILOSs, we categorize these as transfers from the 
Federal government and States to beneficiaries in the form of 
additional services. Finally, for MLR requirements, we categorize these 
as transfers from managed care organizations to the Federal government 
and States.
    This provides our best estimates of the transfer payments outlined 
in the ``Section C. Detailed Economic Analysis'' above. We detail our 
estimates of the low and high end of the ranges in this section, and 
the primary estimate is the average of the low and high scenario 
impacts. This reflects a wide range of possible outcomes, but given the 
uncertainty in the ways and degrees to which States may use the SDPs 
and ILOSs, we believe that this is a reasonable estimate of the 
potential impacts under this proposed rule. For the MLR provisions, we 
have not provided a range given the relatively small size of the 
estimated impact.
    These impacts are discounted at seven percent and three percent, 
respectively, as reflected in Table 10.

                                                             Table 10--Accounting Statement
                                                              [In millions of 2024 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Quantified....................................  This proposed rule would support many benefits to the Medicaid program, including to align State and
                                                      Federal efforts to improve timely access to care for Medicaid managed care enrollees, enhance and
                                                     improve quality-based provider payments to better support care delivery, and support better quality
                                                                          improvement throughout the Medicaid managed care program.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Transfers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Units
                                                                                                      --------------------------------------------------
            Annual monetized transfers               Primary estimate   Low estimate    High estimate   Year dollars    Discount rate    Period covered
                                                                                                                            (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
From Federal Government to Providers..............              3,384               0           6,767            2024               7          2024-2028
                                                                3,449               0           6,899            2024               3          2024-2028
                                                                       ..............
From States to Providers..........................              1,846               0           3,692            2024               7          2024-2028
                                                                1,882               0           3,764            2024               3          2024-2028
From Federal Government to Beneficiaries..........                809               0           1,617            2024               7          2024-2028
                                                                  809               0           1,619            2024               3          2024-2028
From States to Beneficiaries......................                428               0             856            2024               7          2024-2028
                                                                  429               0             858            2024               3          2024-2028
From Managed Care Plans to Federal Government.....                 62              62              62            2024               7          2024-2028
                                                                   62              62              62            2024               3          2024-2028
From Managed Care Plans to States.................                 34              34              34            2024               7          2024-2028
                                                                   34              34              34            2024               3          2024-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------

F. Regulatory Flexibility Act (RFA)

    Effects on MCOs, PIHPs or PAHPs (referred to as ``managed care 
plans'') will not have a significant economic impact. As outlined in 
section II.B. of this proposed rule, we utilized data submitted by 
States for enrollment in Medicaid managed care plans for CY 2020. The 
enrollment data reflected 58,521,930 enrollees in MCOs, 37,692,501 
enrollees in PIHPs or PAHPs, and 6,089,423 enrollees in PCCMs, for a 
total of 67,836,622 Medicaid managed care enrollees.\158\ This includes 
duplicative counts when enrollees are enrolled in multiple managed care 
plans concurrently. This data also showed 43 States that contract with 
467 MCOs, 11 States that contract with 162 PIHPs or PAHPs, 19 States 
that contract with 21 non-emergency transportation PAHPs, and 13 States 
with 26 PCCM or PCCM entities. For CHIP, we utilized State submitted 
data for enrollment in managed care plans for CY 2017. The enrollment 
data reflected 4,580,786 Medicaid expansion and 2,593,827 separate CHIP 
managed care enrollees.\159\ These data also showed that 32 States use 
managed care entities for CHIP enrollment contracting with 199 managed 
care entities.\160\
---------------------------------------------------------------------------

    \158\ Medicaid Managed Care Enrollment and Program 
Characteristics (2020).
    \159\ Centers for Medicare and Medicaid Services, Statistical 
Enrollment Data System (2017), Quarterly Enrollment Data Form 21E: 
Number of Children Served in Separate CHIP Program/Quarterly 
Enrollment Data Form 64.21E: Number of Children Served in CHIP 
Medicaid Expansion Program/Quarterly Enrollment Data Form 21PW: 
Number of Pregnant Women Served, accessed December 5, 2022.
    \160\ Results of managed care survey of States completed by 
Centers for Medicare and Medicaid Services, Center for Medicaid and 
CHIP Services, Children and Adults Health Programs Group, Division 
of State Coverage Programs, 2017.

---------------------------------------------------------------------------

[[Page 28233]]

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
some managed care plans may be small entities as that term is used in 
the RFA. We believe that only a few managed care plans may qualify as 
small entities. Specifically, we believe that approximately 14-25 
managed care plans may be small entities. We believe that the remaining 
managed care plans have average annual receipts from Medicaid and CHIP 
contracts and other business interests in excess of $41.5 million; 
therefore, we do not believe that this proposed rule will have a 
significant economic impact on a substantial number of small 
businesses.
    For purposes of the RFA, approximately 0.04 percent of Medicaid 
managed care plans may be considered small businesses according to the 
Small Business Administration's size standards with total revenues of 
$8 million to $41.5 million in any 1 year. Individuals and States are 
not included in the definition of a small entity. The cost impact on 
Medicaid managed care plans on a per entity basis is approximately 
$54,500. This proposed rule will not have a significant impact measured 
change in revenue of 3 to 5 percent on a substantial number of small 
businesses or other small entities.
    The proposed rule would specifically address standards for (1) 
timely access to care and States' monitoring and enforcement efforts; 
(2) reduce burden for State directed payments (SDPs) and certain 
quality reporting requirements; (3) add new standards that would apply 
when States use in lieu of services and settings (ILOSs) to promote 
effective utilization and identify the scope and nature of ILOS; (4) 
specify medical loss ratio (MLR) requirements; and (5) establish a 
quality rating system (QRS) for Medicaid and CHIP managed care plans. 
As outlined, these efforts do not impact small entities.
    As its measure of significant economic impact on a substantial 
number of small entities, HHS uses a change in revenue of more than 3 
to 5 percent. We do not believe that this threshold will be reached by 
the requirements in this proposed rule. Therefore, the Secretary has 
certified that this proposed rule will not have a significant economic 
impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule 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 603 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 of a metropolitan 
statistical area and has fewer than 100 beds. We do not anticipate that 
the provisions in this proposed rule will have a substantial economic 
impact on most hospitals, including small rural hospitals. Provisions 
include some proposed new standards for State governments and managed 
care plans but no direct requirements on providers, including 
hospitals. The impact on individual hospitals will vary according to 
each hospital's current and future contractual relationships with 
Medicaid managed care plans, but any additional burden on small rural 
hospitals should be negligible. We invite comment on our proposed 
analysis of the impact on small rural hospitals regarding the 
provisions of this proposed rule. We have determined that 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 
proposed 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 2023, that 
is approximately $177 million. This proposed rule does not contain any 
Federal mandate costs 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. We 
have determined that this proposed rule does not impose any mandates on 
State, local, or tribal governments, or the private sector that will 
result in an annual expenditure of $177 million or more.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. We 
believe this proposed regulation gives States appropriate flexibility 
regarding managed care standards (for example, setting network adequacy 
standards, setting credentialing standards, EQR activities), while also 
aligning Medicaid and CHIP managed care standards with those for plans 
in the Marketplace and MA to better streamline the beneficiary 
experience and to reduce administrative and operational burdens on 
States and health plans across publicly-funded programs and the 
commercial market. We have determined that this proposed rule would not 
significantly affect States' rights, roles, and responsibilities.

G. Unfunded Mandates Reform Act (UMRA)

    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 2023, that 
threshold is approximately $177 million. This proposed rule would not 
impose a mandate that will result in the expenditure by State, local, 
and Tribal Governments, in the aggregate, or by the private sector, of 
more than $177 million in any one year.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has Federalism implications. This 
proposed rule will not have a substantial direct effect on State or 
local governments, preempt States, or otherwise have a Federalism 
implication.
    Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on April 24, 2023.

List of Subjects

42 CFR Part 430

    Administrative practice and procedure, Grant programs-health, 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 438

    Citizenship and naturalization, Civil rights, Grant programs-
health, Individuals with disabilities, Medicaid, Reporting and 
recordkeeping requirements, Sex discrimination.

42 CFR Part 457

    Administrative practice and procedure, Grant programs-health,

[[Page 28234]]

Health insurance, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 430--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

0
1. The authority citation for part 430 is revised to read as follows:

    Authority: 42 U.S.C. 1302.

0
2. Amend Sec.  430.3 by revising the introductory text and adding 
paragraph (d) to read as follows:


Sec.  430.3  Appeals under Medicaid.

    Four distinct types of disputes may arise under Medicaid.
* * * * *
    (d) Disputes that pertain to disapproval of written prior approval 
by CMS of State directed payments under 42 CFR 438.6(c)(2)(i) are also 
heard by the Board in accordance with procedures set forth in 45 CFR 
part 16. 45 CFR part 16, appendix A, lists all the types of disputes 
that the Board hears.

PART 438--MANAGED CARE

0
3. The authority citation for part 438 continues to read as follows:

    Authority: 42 U.S.C. 1302.

0
4. Amend Sec.  438.2 by--
0
a. Adding the definition of ``In lieu of service or setting (ILOS)'' in 
alphabetical order; and
0
b. Revising paragraph (9) in the definition of ``Primary care case 
management entity (PCCM entity)''.
    The addition and revision read as follows:


Sec.  438.2  Definitions.

* * * * *
    In lieu of service or setting (ILOS) is a service or setting that 
is provided to an enrollee as a substitute for a covered service or 
setting under the State plan in accordance with Sec.  438.3(e)(2). An 
ILOS can be used as an immediate or longer-term substitute for a 
covered service or setting under the State plan, or when the ILOS can 
be expected to reduce or prevent the future need to utilize the covered 
service or setting under the State plan.
* * * * *
    Primary care case management entity (PCCM entity) * * *
    (9) Coordination with mental and substance use disorder health 
systems and providers.
* * * * *
0
5. Amend Sec.  438.3 by:
0
a. Revising paragraphs (c)(1)(ii) and (e)(2);
0
b. Adding paragraphs (i)(3) and (4); and
0
c. Revising paragraph (v).
    The additions and revisions read as follows:


Sec.  438.3  Standard contract requirements.

* * * * *
    (c) * * *
    (1) * * *
    (ii) The final capitation rates must be based only upon services 
covered under the State plan, ILOS, and additional services deemed by 
the State to be necessary to comply with the requirements of subpart K 
of this part (applying parity standards from the Mental Health Parity 
and Addiction Equity Act), and represent a payment amount that is 
adequate to allow the MCO, PIHP or PAHP to efficiently deliver covered 
services to Medicaid-eligible individuals in a manner compliant with 
contractual requirements.
* * * * *
    (e) * * *
    (2) An MCO, PIHP or PAHP may cover, for enrollees, an ILOS as 
follows:
    (i) The State determines that the ILOS is a medically appropriate 
and cost effective substitute for the covered service or setting under 
the State plan;
    (ii) The enrollee is not required by the MCO, PIHP, or PAHP to use 
the ILOS, and the MCO, PIHP or PAHP must comply with the following 
requirements:
    (A) An enrollee who is offered or utilizes an ILOS offered as a 
substitute for a covered service or setting under the State plan 
retains all rights and protections afforded under part 438, and if an 
enrollee chooses not to receive an ILOS, they retain their right to 
receive the service or setting covered under the State plan on the same 
terms as would apply if an ILOS was not an option; and
    (B) An ILOS may not be used to reduce, discourage, or jeopardize an 
enrollee's access to services and settings covered under the State 
plan, and an MCO, PIHP or PAHP may not deny access to a service or 
setting covered under the State plan, on the basis that the enrollee 
has been offered an ILOS as an optional substitute for a service or 
setting covered under the State plan, is currently receiving an ILOS as 
a substitute for a service or setting covered under the State plan, or 
has utilized an ILOS in the past;
    (iii) The approved ILOS is authorized and identified in the MCO, 
PIHP or PAHP contract, and will be offered to enrollees at the option 
of the MCO, PIHP or PAHP;
    (iv) The utilization and actual cost of the ILOS is taken into 
account in developing the component of the capitation rates that 
represents the covered State plan services and settings, unless a 
statute or regulation explicitly requires otherwise; and
    (v) With the exception of a short term stay as specified in Sec.  
438.6(e) in an Institution for Mental Diseases (IMD), as defined in 
Sec.  435.1010 of this chapter, for inpatient mental health or 
substance use disorder treatment, an ILOS must also comply with the 
requirements in Sec.  438.16.
* * * * *
    (i) * * *
    (3) The State, through its contracts with an MCO, PIHP, and PAHP 
must require that incentive payment contracts between the MCO, PIHP, 
and PAHP and network providers:
    (i) Have a defined performance period that can be tied to the 
applicable MLR reporting periods.
    (ii) Be signed and dated by all appropriate parties before the 
commencement of the applicable performance period.
    (iii) Include well-defined quality improvement or performance 
metrics that the provider must meet to receive the incentive payment.
    (iv) Specify a dollar amount that can be clearly linked to 
successful completion of the metrics defined in the incentive payment 
contract, including a date of payment.
    (4) The State through its contracts with an MCO, PIHP, and PAHP 
must:
    (i) Define the documentation that must be maintained by the MCO, 
PIHP, and PAHP to support the provider incentive payments.
    (ii) Prohibit the use of attestations as supporting documentation 
for data that factor into the MLR calculation.
    (iii) Require the MCO, PIHP, and PAHP to make incentive payment 
contracts, and any documentation in paragraph (e)(4)(i), available to 
the State upon request and at any routine frequency established in the 
State's contract with the MCO, PIHP, and PAHP.
* * * * *
    (v) Applicability date. Paragraphs (e)(2)(v), (i)(3), and (i)(4) of 
this section apply to the first rating period for contracts with MCOs, 
PIHPs and PAHPs beginning on or after 60 days following [EFFECTIVE DATE 
OF THE FINAL RULE].
* * * * *


Sec.  438.6  Special contract provisions related to payment.

0
6. Amend Sec.  438.6--
0
a. In paragraph (a) by:
0
i. Revising the introductory text;

[[Page 28235]]

0
ii. Adding definitions for ``Academic medical center'', ``Average 
commercial rate'', ``Condition-based payment'', ``Final State directed 
payment cost percentage'', ``Inpatient hospital services'', ``Maximum 
fee schedule'', ``Minimum fee schedule'', ``Outpatient hospital 
services'', ``Nursing facility services'', ``Performance measure'', 
``Population-based payment'', ``Qualified practitioner services at an 
academic medical center'', ``Separate payment term'', ``Total payment 
rate'', ``Total published Medicare payment rate'', and ``Uniform 
increase'' in alphabetical order;
0
b. By revising paragraph (c) paragraph heading and paragraphs 
(c)(1)(iii),(c)(2) and (c)(3).
0
c. By adding paragraphs (c)(4) through (8); and
0
d. By revising paragraph (e).
    The revisions and additions read as follows:


Sec.  438.6  Special contract provisions related to payment.

    (a) Definitions. As used in this section, the following terms have 
the indicated meanings:
    Academic medical center means a facility that includes a health 
professional school with an affiliated teaching hospital.
    Average commercial rate means the average rate paid for services by 
the highest claiming third-party payers for specific services as 
measured by claims volume.
* * * * *
    Condition-based payment means a prospective payment for a defined 
set of Medicaid covered service(s) that are tied to a specific 
condition and delivered to Medicaid managed care enrollees.
    Final State directed payment cost percentage means the annual 
amount calculated, in accordance with paragraph (c)(7)(iii) of this 
section, for each State directed payment for which written prior 
approval is required under paragraph (c)(2)(i) of this section and for 
each managed care program.
* * * * *
    Inpatient hospital services means the same as specified at Sec.  
440.10.
    Maximum fee schedule means any State directed payment where the 
State requires an MCO, PIHP, or PAHP to pay no more than a certain 
amount for a covered service(s).
    Minimum fee schedule means any State directed payment where the 
State requires an MCO, PIHP, or PAHP to pay no less than a certain 
amount for a covered service(s).
    Outpatient hospital services means the same as specified in Sec.  
440.20(a).
    Nursing facility services means the same as specified in Sec.  
440.40(a).
* * * * *
    Performance measure means, for State directed payments, a 
quantitative measure with a numerator and denominator that is used to 
monitor performance at a point in time or track performance over time, 
of provider service delivery, quality of care, or outcomes as defined 
in Sec.  438.320 for enrollees.
    Population-based payment means a prospective payment for a defined 
set of Medicaid service(s) for a population of Medicaid managed care 
enrollees covered under the contract attributed to a specific provider 
or provider group.
    Qualified practitioner services at an academic medical center means 
professional services provided by both physicians and non-physician 
practitioners affiliated with or employed by an academic medical 
center.
* * * * *
    Separate payment term means a pre-determined and finite funding 
pool that the State establishes and documents in the Medicaid managed 
care contract for a State directed payment for which the State has 
received written prior approval under Sec.  438.6(c)(2)(i). Payments 
made from this funding pool are made by the State to the MCOs, PIHPs or 
PAHPs exclusively for State directed payments for which the State has 
received written prior approval under Sec.  438.6(c)(2)(i) and are made 
separately and in addition to the capitation rates identified in the 
contract as required under Sec.  438.3(c)(1)(i).
    State directed payment (SDP) means a contract arrangement that 
directs an MCO's, PIHP's, or PAHP's expenditures under paragraphs 
(c)(1)(i) through (iii) of this section.
* * * * *
    Total payment rate means the aggregate for each managed care 
program of:
    (i) The average payment rate paid by all MCOs, PIHPs, or PAHPs to 
all providers included in the specified provider class for each service 
identified in the State directed payment;
    (ii) The effect of the State directed payment on the average rate 
paid to providers included in the specified provider class for the same 
service for which the State is seeking prior approval under paragraph 
(c)(2)(i) of this section;
    (iii) The effect of any and all other State directed payments on 
the average rate paid to providers included in the specified provider 
class for the same service for which the State is seeking prior 
approval under paragraph (c)(2)(i) of this section; and
    (iv) The effect of any and all allowable pass-through payments, as 
defined in paragraph (a) of this section, paid to any and all providers 
included in the provider class specified in the State directed payment 
for which the State is seeking prior approval under paragraph (c)(2)(i) 
of this section on the average payment rate to providers in the 
specified provider class.
    Total published Medicare payment rate means amounts calculated as 
payment for specific services that have been developed under Title 
XVIII Part A and Part B.
    Uniform increase means any State directed payment that directs the 
MCO, PIHP, or PAHP to pay the same amount (the same dollar amount or 
the same percentage increase) per Medicaid covered service(s) in 
addition to the rates the MCO, PIHP or PAHP negotiated with the 
providers included in the specified provider class for the service(s) 
identified in the State directed payment.
* * * * *
    (c) State directed payments under MCO, PIHP, or PAHP contracts--
    (1) * * *
    (iii) The State may require the MCO, PIHP, or PAHP to:
    (A) Adopt a minimum fee schedule for providers that provide a 
particular service under the contract using State plan approved rates.
    (B) Adopt a minimum fee schedule for providers that provide a 
particular service under the contract using a total published Medicare 
payment rate that was in effect no more than 3 years prior to the start 
of the rating period and the minimum fee schedule to be used by the 
MCO, PIHP, or PAHP is equivalent to 100 percent of the specified total 
published Medicare payment rate.
    (C) Adopt a minimum fee schedule for providers that provide a 
particular service under the contract using rates other than the State 
plan approved rates or one or more total published Medicare payment 
rates described in paragraph (c)(1)(iii)(B) of this section.
    (D) Provide a uniform dollar or percentage increase for providers 
that provide a particular service under the contract.
    (E) Adopt a maximum fee schedule for providers that provide a 
particular service under the contract, so long as the MCO, PIHP, or 
PAHP retains the ability to reasonably manage risk and has discretion 
in accomplishing the goals of the contract.
    (2) Standards for State directed payments. (i) State directed 
payments

[[Page 28236]]

specified in paragraphs (c)(1)(i) and (ii) and (c)(1)(iii)(C) through 
(E) of this section must have written prior approval that the standards 
and requirements in this section are met.
    (ii) Each State directed payment must meet the following standards. 
Specifically, each State directed payment must:
    (A) Be based on the utilization and delivery of services;
    (B) Direct expenditures equally, and using the same terms of 
performance, for a class of providers providing the service under the 
contract;
    (C) Expect to advance at least one of the goals and objectives in 
the quality strategy in Sec.  438.340;
    (D) Have an evaluation plan that measures the degree to which the 
State directed payment advances at least one of the goals and 
objectives in the quality strategy in Sec.  438.340 and includes all of 
the elements outlined in paragraph (c)(2)(iv) of this section;
    (E) Not condition provider participation in State directed payments 
on the provider entering into or adhering to intergovernmental transfer 
agreements;
    (F) Result in achievement of the stated goals and objectives in 
alignment with the State's evaluation plan;
    (G) Comply with all Federal legal requirements for the financing of 
the non-Federal share, including but not limited to, 42 CFR 433, 
subpart B;
    (H) Ensure that each provider receiving payment under a State 
directed payment attests that it does not participate in any hold 
harmless arrangement with respect to any health care-related tax as 
specified in Sec.  433.68(f)(3) of this subchapter in which the State 
or other unit of government imposing the tax provides for any direct or 
indirect payment, offset, or waiver such that the provision of the 
payment, offset, or waiver directly or indirectly guarantees to hold 
the provider harmless for all or any portion of the tax amount, and 
ensure that such attestations are available upon CMS request;
    (I) Ensure that the total payment rate for each service and 
provider class included in the State directed payment must be 
reasonable, appropriate and attainable and, upon request from CMS, the 
State must provide documentation demonstrating the total payment rate 
for each service and provider class; and
    (J) Be developed in accordance with Sec.  438.4, and the standards 
specified in Sec. Sec.  438.5, 438.7, and 438.8.
    (iii) The total payment rate projected for each State directed 
payment for which written prior approval is required under paragraph 
(c)(2)(i) of this section for inpatient hospital services, outpatient 
hospital services, nursing facility services, or qualified practitioner 
services at an academic medical center must not exceed the average 
commercial rate. To demonstrate compliance with this paragraph, States 
must submit:
    (A) The average commercial rate demonstration, for which States 
must use payment data that:
    (1) Is specific to the State;
    (2) Is no older than from the three most recent and complete years 
prior to the rating period of the initial request following the 
applicability date of this section;
    (3) Is specific to the service(s) addressed by the State directed 
payment;
    (4) Includes the total reimbursement by the third-party payer and 
any patient liability, such as cost sharing and deductibles;
    (5) Excludes payments to FQHCs, RHCs, and from any non-commercial 
payers, such as Medicare; and
    (6) Excludes any payment data for services or codes that the 
applicable Medicaid MCOs, PIHPs, or PAHPs do not cover.
    (B) A total payment rate comparison, for which States must provide 
a comparison of the total payment rate for these services included in 
the State directed payment to the average commercial rate that:
    (1) Is specific to each managed care program that the State 
directed payment applies to;
    (2) Is specific to each provider class to which the State directed 
payment applies;
    (3) Is projected for the rating period for which the State is 
seeking prior approval under paragraph (c)(2)(i) of this section;
    (4) Uses payment data that are specific to each service included in 
the State directed payment; and
    (5) Describes each of the components of the total payment rate as a 
percentage of the average commercial rate (demonstrated by the State as 
provided in paragraph (c)(2)(iii)(A) of this section) for each of these 
services included in the State directed payment.
    (C) The ACR demonstration described in paragraph (c)(2)(iii)(A) of 
this section must be included with the initial documentation submitted 
for written prior approval of the State directed payment under 
paragraph (c)(2)(i) of this section, and then subsequently updated at 
least once every 3 years thereafter as long as the State continues to 
include the State directed payment that requires prior approval under 
paragraph (c)(2)(i) of this section in any MCO, PIHP, or PAHP contract. 
The total payment rate comparison described in paragraph (c)(2)(iii)(B) 
of this section must be included with the documentation submitted for 
written prior approval under paragraph (c)(2)(i) of this section and 
updated with each amendment and subsequent renewal.
    (iv) For State directed payments for which written prior approval 
under paragraph (c)(2)(i) of this section is required, the State must 
include a written evaluation plan with its submission for written prior 
approval under paragraph (c)(2)(i) of this section and an updated 
written evaluation plan with each amendment and subsequent renewal. The 
evaluation plan must include the following elements:
    (A) Identification of at least two metrics that will be used to 
measure the effectiveness of the State directed payment in advancing at 
least one of the goals and objectives in the quality strategy on an 
annual basis, which must:
    (1) Be specific to the State directed payment, and when practicable 
and relevant, attributable to the performance by the providers for 
enrollees in all of the State's managed care program(s) to which the 
State directed payment applies; and
    (2) Include at least one performance measure as defined in Sec.  
438.6(a) as part of the metrics used to measure the effectiveness of 
the State directed payment;
    (B) Include baseline statistics on all metrics that will be used in 
the evaluation of the State directed payment for which the State is 
seeking written prior approval under paragraph (c)(2)(i) of this 
section;
    (C) Include performance targets for all metrics to be used in the 
evaluation of the State directed payment for which the State is seeking 
written prior approval under paragraph (c)(2)(i) of this section that 
demonstrate either maintenance or improvement over the baseline 
statistics and not a decline relative to baseline. The target for at 
least one performance measure, as defined in Sec.  438.6(a), must 
demonstrate improvement over baseline; and
    (D) Include a commitment by the State to submit an evaluation 
report in accordance with Sec.  438.6(c)(2)(v) if the final State 
directed payment cost percentage exceeds 1.5 percent.
    (v) For any State directed payment for which written prior approval 
is required under paragraph (c)(2)(i) of this section that has a final 
State directed payment cost percentage greater than 1.5 percent, the 
State must complete and submit an evaluation report using the 
evaluation plan outlined during the prior approval

[[Page 28237]]

process under paragraph (c)(2)(iv) of this section.
    (A) This evaluation report must:
    (1) Include all of the elements in paragraph (c)(2)(iv) of this 
section as specified in the approved evaluation plan;
    (2) Include three most recent and complete years of annual results 
for each metric as required in paragraph (c)(2)(iv)(A) of this section; 
and
    (3) Be published on the public facing website as required under 
Sec.  438.10(c)(3).
    (B) States must submit the initial evaluation report as described 
in paragraph (c)(2)(v)(A) of this section to CMS no later than 2 years 
after the conclusion of the 3-year evaluation period. Subsequent 
evaluation reports must be submitted to CMS every 3 years.
    (vi) Any State directed payments described in paragraph (c)(1)(i) 
or (ii) of this section must:
    (A) Make participation in the value-based purchasing, delivery 
system reform, or performance improvement initiative available using 
the same terms of performance to a class of providers providing 
services under the contract related to the reform or improvement 
initiative;
    (B) If the State directed payment for which written prior approval 
is required under paragraph (c)(2)(i) of this section conditions 
payment upon performance, the payment to providers under the State 
directed payment:
    (1) Cannot be conditioned upon administrative activities, such as 
the reporting of data nor upon the participation in learning 
collaboratives or similar administrative activities.
    (2) Must use a common set of performance measures across all of the 
payers and providers specified in the State directed payment;
    (3) Must define and use a performance measurement period that must 
not exceed the length of the rating period and must not precede the 
start of the rating period in which the payment is delivered by more 
than 12 months, and all payments must be documented in the rate 
certification for the rating period in which the payment is delivered;
    (4) Must identify baseline statistics on all metrics that will be 
used to measure the performance that is the basis for payment to the 
provider from the MCO, PIHP, or PAHP; and
    (5) Must use measurable performance targets, which are attributable 
to the performance by the providers in delivering services to enrollees 
in each of the State's managed care program(s) to which the State 
directed payment applies, that demonstrate improvement over baseline 
data on all metrics that will be used to measure the performance that 
is the basis for payment to the provider from the MCO, PIHP, or PAHP.
    (C) If the State directed payment is a population-based or 
condition-based payment, the State directed payment must:
    (1) Be conditioned upon the delivery by the provider of one or more 
specified Medicaid covered service(s) during the rating period or the 
attribution of a covered enrollee to a provider for the rating period 
for treatment;
    (2) If conditioning payment on the attribution to a provider, have 
an attribution methodology using data that are no older than the three 
most recent and complete years of data; seeks to preserve existing 
provider-enrollee relationships; accounts for enrollee preference in 
choice of provider; and describes when patient panels are attributed, 
how frequently they are updated, and how those updates are communicated 
to providers;
    (3) Replace the negotiated rate between an MCO, PIHP, or PAHP and 
providers for the Medicaid covered service(s) included in the 
population or condition-based payment; no other payment may be made by 
an MCO, PIHP, or PAHP to the same provider on behalf of the same 
enrollee for the same services included in the population or condition-
based payment; and
    (4) Include at least one metric in the evaluation plan required 
under paragraph (c)(2)(iv) of this section that measures performance at 
the provider class level; the target for this performance measure, as 
defined in Sec.  438.6(a), must be set to demonstrate improvement over 
baseline.
    (vii) Any State directed payment described in paragraph (c)(1)(iii) 
of this section must:
    (A) Condition payment from the MCO, PIHP, or PAHP to the provider 
on the utilization and delivery of services under the contract for the 
rating period for which the State is seeking written prior approval 
only; and
    (B) Not condition payment from the MCO, PIHP, or PAHP to the 
provider on utilization and delivery of services outside of the rating 
period for which the State is seeking written prior approval and then 
require that payments be reconciled to utilization during the rating 
period.
    (viii) A State must submit all required documentation for all State 
directed payments for which written prior approval is required under 
(c)(2)(i) of this section no later than:
    (A) Ninety days before the end of the rating period for any State 
directed payments that begins at least 90 days before the end of the 
rating period.
    (B) Before the end of the rating period for any State directed 
payment that begins less than 90 days before the end of the rating 
period.
    (C) For any State directed payments that are approved for multiple 
rating periods as provided in paragraph (c)(3) of this section, the 
same time frames described in paragraphs (c)(2)(viii)(A) and (B) of 
this section apply to the first rating period for which the State is 
seeking written prior approval under paragraph (c)(2)(i) of this 
section.
    (ix) States seeking to amend State directed payments after CMS has 
issued written prior approval under paragraph (c)(2)(i) of this section 
must obtain written prior approval of the amendment(s). States must 
submit all required documentation for written prior approval of such 
amendment(s):
    (A) Prior to the end of the rating period to which the State 
directed payment applies to amend the State directed payment; and
    (B) For any State directed payments that are approved for multiple 
rating periods as provided in paragraph (c)(3) of this section, within 
120 days of the start of the rating period for amendments to the State 
directed payment for either the second or third rating period. States 
cannot amend State directed payments that are approved on a multi-year 
basis as defined in paragraph (c)(3) of this section for rating periods 
that have concluded.
    (3) Approval and renewal timeframes. (i) Approval of a State 
directed payment described in paragraphs (c)(1)(i) and (ii) of this 
section is for one rating period unless a multi-year approval of up to 
three rating periods is requested and meets all of the following 
criteria:
    (A) The State has explicitly identified and described the State 
directed payment in the contract as a multi-year State directed 
payment, including a description of the State directed payment by year 
and if the State directed payment varies by year.
    (B) The State has developed and described its plan for implementing 
a multi-year State directed payment, including the State's plan for 
multi-year evaluation, and the impact of a multi-year State directed 
payment on the State's goals and objectives in the State's quality 
strategy in Sec.  438.340.
    (C) The State has affirmed that it will not make any changes to the 
State directed payment methodology, or magnitude of the payment, 
described in the contract for all years of the multi-year State 
directed payment without CMS written prior approval. If the State 
determines that changes to the State

[[Page 28238]]

directed payment methodology, or magnitude of the payment, are 
necessary, the State must obtain written prior approval of such changes 
under paragraph (c)(2) of this section.
    (ii) Written prior approval of a State directed payment described 
in paragraph (c)(1)(iii)(C) through (E) of this section is for one 
rating period.
    (iii) State directed payments are not automatically renewed.
    (4) Reporting requirements. The State must submit to CMS no later 
than 180 days after each rating period, data to the Transformed 
Medicaid Statistical Information System, and in any successor format or 
system designated by CMS, specifying the total dollars expended by each 
MCO, PIHP, and PAHP for State directed payments, including amounts paid 
to individual providers. The initial report will be due after the 
rating period following the release of reporting instructions by CMS. 
Minimum data fields to be collected include the following:
    (i) Provider identifiers.
    (ii) Enrollee identifiers.
    (iii) MCO, PIHP or PAHP identifiers.
    (iv) Procedure and diagnosis codes.
    (v) Allowed, billed, and paid amounts. Paid amounts include the 
amount that represents the MCO's, PIHP's or PAHP's negotiated payment 
amount, the amount of the State directed payment, the amount for any 
pass-through payments under paragraph (d) of this section, and any 
other amounts included in the total amount paid to the provider.
    (5) Requirements for Medicaid Managed Care contract terms for State 
directed payments. State directed payments must be specifically 
described and documented in the MCO's, PIHP's, or PAHP's contracts. The 
MCO's, PIHP's or PAHP's contract must include, at a minimum, the 
following information for each State directed payment:
    (i) The State directed payment start date and, if applicable, the 
end date within the applicable rating period;
    (ii) A description of the provider class eligible for the State 
directed payment and all eligibility requirements;
    (iii) A description of the State directed payment, which must 
include at a minimum:
    (A) For State directed payments described in paragraphs 
(c)(1)(iii)(A), (B), and (C) of this section:
    (1) The required fee schedule;
    (2) The procedure and diagnosis codes to which the fee schedule 
applies;
    (3) The applicable dates of service within the rating period for 
which the fee schedule applies;
    (4) For State directed payments that specify State plan approved 
rates, the contract must also reference the State plan page, when it 
was approved, and a link to the currently approved State plan page when 
possible; and
    (5) For State directed payments that specify a Medicare-referenced 
fee schedule, the contract must also include information about the 
Medicare fee schedule(s) that is necessary to implement the State 
directed payment, including identifying the specific Medicare fee 
schedule, the time period for which the Medicare fee schedule is in 
effect, and any material adjustments due to geography or provider type 
that need to be applied.
    (B) For State directed payments described in paragraphs 
(c)(1)(iii)(D) of this section, the contract must include the 
following:
    (1) Whether the uniform increase will be a specific dollar amount 
or a percentage increase of negotiated rates;
    (2) The procedure and diagnosis codes to which the uniform dollar 
or percentage increase applies;
    (3) The specific dollar amount or percentage increase that the MCO, 
PIHP or PAHP must apply or the methodology to establish the specific 
dollar amount or percentage increase;
    (4) The applicable dates of service within the rating period for 
which the uniform increase applies; and
    (5) The roles and responsibilities of the State and the MCO, PIHP, 
or PAHP, the timing of payments, and other significant relevant 
information.
    (C) For State directed payments described in paragraph 
(c)(1)(iii)(E) of this section, the contract must include the 
following:
    (1) The fee schedule the MCO, PIHP, or PAHP must ensure that 
payments are below;
    (2) The procedure and diagnosis codes to which the fee schedule 
applies;
    (3) The applicable dates of service within the rating period for 
which the fee schedule applies; and
    (4) Details of the State's exemption process for MCOs, PIHPs, or 
PAHPs and providers to follow if they are under contractual obligations 
that result in the need to pay more than the maximum fee schedule.
    (D) For State directed payments described in paragraphs (c)(1)(i) 
and (ii) of this section that condition payment based upon performance:
    (1) The approved performance measures upon which payment will be 
conditioned;
    (2) The approved measurement period for those measures;
    (3) The approved baseline statistics for all measures against which 
performance will be measured;
    (4) The performance targets that must be achieved on each measure 
for the provider to obtain the performance-based payment;
    (5) The methodology to determine if the provider qualifies for the 
performance-based payment as well as the amount of the payment; and
    (6) The roles and responsibilities of the State and the MCO, PIHP, 
or PAHP, the timing of payments, what to do with any unearned payments, 
and other significant relevant information.
    (E) For State directed payments described in paragraphs (c)(1)(i) 
and (ii) of this section using a population-based or condition-based 
payment as defined in paragraph (a) of this section:
    (1) The Medicaid covered service(s) that the population or 
condition-based payment is for;
    (2) The time period that the population or condition-based payment 
covers;
    (3) When the population or condition-based payment is to be made 
and how frequently;
    (4) A description of the attribution methodology, if one is used, 
which must include at a minimum the data used, when the panels will be 
established, how frequently those panels will be updated, and how the 
attribution methodology will be communicated to providers; and
    (5) The roles and responsibilities of the State and the MCO, PIHP, 
or PAHP in operationalizing the attribution methodology if an 
attribution methodology is used.
    (iv) Any encounter reporting and separate reporting requirements 
necessary for auditing the State directed payment in addition to the 
reporting requirements in paragraph (c)(4) of this section; and
    (v) If the State will be using a separate payment term as defined 
in paragraph (a) of this section to implement the State directed 
payment for which written prior approval is required under paragraph 
(c)(2)(i) of this section.
    (vi) All State directed payments must be specifically described and 
documented in the MCO's, PIHP's, and PAHP's contracts no later than 120 
days after the start date of the State directed payment for which the 
State has obtained written prior approval or 120 days after the date 
CMS issued written prior approval of the State directed payment under 
(c)(2) of this section, whichever is later.
    (6) Separate payment term requirements. All separate payment terms 
must:
    (i) Be reviewed and approved as part of the review of the State 
directed payment for which written prior approval is required under 
paragraph (c)(2)(i) of this section;

[[Page 28239]]

    (ii) Not be used to implement a State directed payment described in 
paragraphs (c)(1)(iii)(A) and (B) of this section;
    (iii) Be specific to each Medicaid managed care program and 
specific to the individual State directed payment for which the State 
has obtained written prior approval under paragraph (c)(2) of this 
section;
    (iv) Not exceed the total amount documented in the written prior 
approval for each State directed payment for which the State has 
obtained written prior approval under paragraph (c)(2)(i) of this 
section and for each Medicaid managed care program; and
    (v) Be documented in the State's contracts with the MCOs, PIHPs, or 
PAHPs no later than 120 days after the start date of the State directed 
payment for which the State has obtained written prior approval under 
paragraph (c)(2)(i) of this section or 120 days after the date CMS 
issued written prior approval of the State directed payment under 
(c)(2)(i) of this section, whichever is later.
    (A) The separate payment term cannot be amended except to account 
for a payment methodology that is first approved by CMS as an amendment 
to the State directed payment for which the State has obtained written 
prior approval under paragraph (c)(2)(i) of this section.
    (B) The documentation in the MCO's, PIHP's, or PAHP's contract must 
include:
    (1) The total dollars that the State will pay to the MCOs, PIHPs, 
or PAHPs for the individual State directed payment for which the State 
has obtained written prior approval under paragraph (c)(2)(i) of this 
section.
    (2) The timing and frequency of payments that will be made under 
the separate payment term from the State to the MCO, PIHP, or PAHP;
    (3) A description or reference to the specific State directed 
payment for which the State has obtained written prior approval under 
paragraph (c)(2)(i) of this section for which the separate payment term 
is to be used; and
    (4) Any separate reporting requirements that the State requires to 
ensure appropriate reporting of the separate payment term for the 
purposes of MLR reporting under Sec.  438.8.
    (7) Final State directed payment cost percentage. For each State 
directed payment for which written prior approval is required under 
paragraph (c)(2)(i) of this section, unless the State voluntarily 
submits the evaluation report per paragraph (c)(2)(v) of this section, 
the State must calculate the final State directed payment cost 
percentage and if the final State directed payment cost percentage is 
below 1.5 percent the State must provide a final State directed payment 
cost percentage report to CMS as follows:
    (i) State directed payment cost percentage calculation. The final 
State directed payment cost percentage must be calculated on an annual 
basis and recalculated annually.
    (ii) State directed payment cost percentage certification. The 
final State directed payment cost percentage must be certified by an 
actuary and developed in a reasonable and appropriate manner consistent 
with generally accepted actuarial principles and practices.
    (iii) Calculation of the final State directed payment cost 
percentage. The final State directed payment cost percentage is the 
result of dividing the amount determined in paragraph (c)(7)(iii)(A) of 
this section by the amount determined in paragraph (c)(7)(iii)(B) of 
this section.
    (A) The actual total amount that is paid as a separate payment term 
described in paragraph (c)(6) of this section and portion of the actual 
total capitation payments that is attributable to the State directed 
payment for which the State has obtained written prior approval under 
paragraph (c)(2)(i) of this section, for each managed care program.
    (B) The actual total capitation payments, defined at Sec.  438.2, 
for each managed care program, including all State directed payments in 
effect under Sec.  438.6(c) and pass-through payments in effect under 
Sec.  438.6(d), and the actual total amount of all State directed 
payments that are paid as separate payment terms as described in 
paragraph(c)(6).
    (iv) Annual CMS review of the final State directed payment cost 
percentage. The State must submit the final State directed payment cost 
percentage annually to CMS for review as a separate report concurrent 
with the rate certification submission required in Sec.  438.7(a) for 
the rating period beginning 2 years after the completion of each 12-
month rating period that includes a State directed payment for which 
the State has obtained written prior approval under paragraph (c)(2)(i) 
of this section.
    (8) Applicability dates. States must comply with:
    (i) Paragraphs (a), (c)(1)(iii), (c)(2)(i), (c)(2)(ii)(A) through 
(C), (c)(2)(ii)(E), (c)(2)(ii)(G), (c)(2)(ii)(I) and (J), 
(c)(2)(vi)(A), (c)(3), (c)(6)(i) through (iv) of this section beginning 
on [EFFECTIVE DATE OF THE FINAL RULE].
    (ii) Paragraphs (c)(2)(iii), (c)(2)(vi)(B), and (c)(2)(vi)(C)(1) 
and (2) of this section no later than the first rating period for 
contracts with MCOs, PIHPs and PAHPs beginning on or after [insert the 
effective date of the final rule].
    (iii) Paragraphs (c)(2)(ii)(H), (c)(2)(vi)(C)(3) and (4), 
(c)(2)(vii), (c)(2)(viii), (c)(2)(ix) and (c)(5)(i) through (v) of this 
section no later than the first rating period for contracts with MCOs, 
PIHPs and PAHPs beginning on or after 2 years after [insert the 
effective date of the final rule].
    (iv) Paragraphs (c)(2)(ii)(D) and (F), (c)(2)(iv), (c)(2)(v) and 
(c)(7) of this section no later than the first rating period for 
contracts with MCOs, PIHPs and PAHPs beginning on or after 3 years 
after [insert the effective date of the final rule].
    (v) Paragraphs (c)(5)(vi) and (c)(6)(v) of this section no later 
than the first rating period for contracts with MCOs, PIHPs and PAHPs 
beginning on or after 4 years after [insert the effective date of the 
final rule].
    (vi) Paragraph (c)(4) of this section no later than the first 
rating period following the release of reporting instructions by CMS.
* * * * *
    (e) Payments to MCOs and PIHPs for enrollees that are a patient in 
an institution for mental disease. The State may make a monthly 
capitation payment to an MCO or PIHP for an enrollee aged 21-64 
receiving inpatient treatment in an Institution for Mental Diseases, as 
defined in Sec.  435.1010 of this chapter, so long as the facility is a 
hospital providing mental health or substance use disorder inpatient 
care or a sub-acute facility providing mental health or substance use 
disorder crisis residential services, and length of stay in the IMD is 
for a short term stay of no more than 15 days during the period of the 
monthly capitation payment. The provision of inpatient mental health or 
substance use disorder treatment in an IMD must meet the requirements 
for in lieu of services at Sec.  438.3(e)(2)(i) through (iii). For 
purposes of rate setting, the State may use the utilization of services 
provided to an enrollee under this section when developing the 
inpatient mental health or substance use disorder component of the 
capitation rate, but must price utilization at the cost of the same 
services through providers included under the State plan.
0
7. Amend Sec.  438.7 by--
0
a. Revising paragraph (b)(6); and
0
b. Adding paragraphs (c)(4) through (6) and (f) and (g).
    The revisions and additions read as follows:

[[Page 28240]]

Sec.  438.7  Rate certification submission.

* * * * *
    (b) * * *
    (6) Special contract provisions. A description of any of the 
special contract provisions related to payment in Sec.  438.6 and ILOS 
in Sec.  438.3(e)(2) that are applied in the contract.
    (c) * * *
    (4) The State must submit a revised rate certification for any 
changes in the capitation rate per rate cell, as required under 
paragraph (a) of this section for any special contract provisions 
related to payment described in Sec.  438.6 and ILOS in Sec.  
438.3(e)(2) not already described in the rate certification, regardless 
of the size of the change in the capitation rate per rate cell.
    (5) Retroactive adjustments to the capitation rates, as outlined in 
paragraph (c)(2), resulting from a State directed payment described in 
Sec.  438.6(c) must be a result of adding or amending any State 
directed payment consistent with the requirements in Sec.  438.6(c), or 
a material error in the data, assumptions or methodologies used to 
develop the initial capitation rate adjustment such that modifications 
are necessary to correct the error.
    (6) The rate certification or retroactive adjustment to capitation 
rates resulting from any State directed payments for which the State 
has obtained written prior approval under Sec.  438.6(c)(2)(i) must be 
submitted no later than 120 days after the start date of the State 
directed payment for which the State has obtained written prior 
approval under Sec.  438.6(c)(2)(i) of this section or 120 days after 
the date CMS issued written prior approval of the State directed 
payment under Sec.  438.6(c)(2)(i) of this section, whichever is later.
* * * * *
    (f) State certification. The State, through its actuary, must 
certify the total dollar amount for each separate payment term included 
in the State's MCO, PIHP or PAHP contracts in alignment with the 
requirements of Sec.  438.6(c)(6).
    (1) The State may pay each MCO, PIHP or PAHP a different amount 
under the separate payment term that is different than the amount paid 
to another MCO, PIHP or PAHP, so long as the aggregate total dollars 
paid to all MCOs, PIHPs and PAHPs does not exceed the total dollars of 
the separate payment term for each respective Medicaid managed care 
program included in the Medicaid managed care contract.
    (2) As part of the State's rate certification documentation for a 
separate payment term, the State, through its actuary, must provide an 
estimate of the impact of the separate payment term on a rate cell 
basis, as paid per the State directed payment approved by CMS under 
Sec.  438.6(c)(2)(i).
    (3) No later than 12 months following the end of the rating period, 
the State must submit documentation to CMS that demonstrates the impact 
of the separate payment term by rate cell for which the State has 
obtained written prior approval under Sec.  438.6(c)(2)(i) consistent 
with the distribution methodology described in the State directed 
payment for which the State obtained written prior approval under Sec.  
438.6(c)(2)(i) in the manner and form required by CMS.
    (4) Once CMS has issued written prior approval under Sec.  
438.6(c)(2)(i), the State must submit a rate certification or a rate 
certification amendment incorporating the separate payment term no 
later than 120 days after the start date of the State directed payment 
for which the State has obtained written prior approval under Sec.  
438.6(c)(2)(i) or 120 days after the date CMS issued written prior 
approval of the State directed payment under Sec.  438.6(c)(2)(i), 
whichever is later.
    (g) Applicability dates. (1) Paragraph (b)(6) of this section 
applies to the rating period for contracts with MCOs, PIHPs and PAHPs 
beginning on or after 60 days following [insert the effective date of 
the final rule]. Until that applicability date, States are required to 
continue to comply with paragraph (b)(6) of this section contained in 
42 CFR, parts 430 to 481, edition most recently published prior to the 
final rule.
    (2) Paragraphs (c)(4), (c)(5), (f)(1), (f)(2) and (f)(3) of this 
section applies beginning on [insert the effective date of the final 
rule].
    (3) Paragraphs (c)(6) and (f)(4) of this section apply no later 
than the first rating period for contracts with MCOs, PIHPs and PAHPs 
beginning on or after 4 years after [insert the effective date of the 
final rule].
0
8. Amend Sec.  438.8 by--
0
a. Revising paragraph (e)(2)(iii)(A);
0
b. Adding paragraph (e)(2)(iii)(C);
0
c. Revising paragraph (e)(3)(i);
0
d. Adding paragraph (f)(2)(vii);
0
e. Revising paragraphs (h)(4) introductory text and (k)(1)(vii);
0
f. Adding paragraphs (k)(1)(xiv) through (xvi); and
0
g. Revising paragraph (m).
    The revisions and additions read as follows:


Sec.  438.8  Medical loss ratio (MLR) standards.

* * * * *
    (e) * * *
    (2) * * *
    (iii) * * *
    (A) The amount of incentive and bonus payments made, or expected to 
be made, to network providers that are tied to clearly-defined, 
objectively measurable, and well-documented clinical or quality 
improvement standards that apply to providers.
* * * * *
    (C) The amount of payments made under all contract arrangements 
that direct the MCO's, PIHP's, or PAHP's expenditures as specified in 
Sec.  438.6(c)(1)(i) through (iii).
* * * * *
    (3) * * *
    (i) An MCO, PIHP, or PAHP activity that meets the requirements of 
45 CFR 158.150(a) and (b) and is not excluded under 45 CFR 158.150(c).
* * * * *
    (f) * * *
    (2) * * *
    (vii) Payments to the MCO, PIHP, or PAHP for expenditures approved 
under Sec.  438.6(c)(1)(i) through (iii).
* * * * *
    (h) * * *
    (4) CMS will publish base credibility factors for MCOs, PIHPs, and 
PAHPs that are developed according to the following methodology:
* * * * *
    (k) * * *
    (1) * * *
    (vii) Methodology(ies) for allocation of expenditures, which must 
include a detailed description of the methods used to allocate 
expenses, including incurred claims, quality improvement expenses, 
Federal and State taxes and licensing or regulatory fees, and other 
non-claims costs, as described in 45 CFR 158.170(b).
* * * * *
    (xiv) The amount of payments made to providers under all contract 
arrangements that direct the MCO's, PIHP's, or PAHP's expenditures as 
described in Sec.  438.6(c)(1)(i) through (iii).
    (xv) Payments to the MCO, PIHP, or PAHP from the State for 
expenditures approved under Sec.  438.6(c)(1)(i) through (iii).
    (xvi) Paragraphs (k)(1)(xiv) and (xv) of this section apply to the 
rating period for contracts with MCOs. PIHPs, and PAHPs beginning on or 
after 60 days following [EFFECTIVE DATE OF THE FINAL RULE].
* * * * *
    (m) Recalculation of MLR. In any instance where a State makes a 
retroactive change to the capitation rates for an MLR reporting year 
where the report has already been submitted to the State, the MCO, 
PIHP, or PAHP must re-

[[Page 28241]]

calculate the MLR for all MLR reporting years affected by the 
retroactive rate change and submit a new report meeting the 
requirements in paragraph (k) of this section.
* * * * *
0
9. Amend Sec.  438.10 by--
0
a. Revising paragraphs (c)(3), (d)(2), (g)(2)(ix), (h)(1) introductory 
text;
0
b. Adding paragraph (h)(1)(ix);
0
c. Revising paragraph (h)(2)(iv);
0
d. Adding paragraph (h)(3)(iii); and
0
e. Revising paragraph (j).
    The revisions and additions read as follows:


Sec.  438.10  Information requirements.

* * * * *
    (c) * * *
    (3) The State must operate a website that provides the content, 
either directly or by linking to individual MCO, PIHP, PAHP, or PCCM 
entity web pages, specified at Sec.  438.602(g) and elsewhere in this 
part. States must:
    (i) Include all content, either directly or by linking to 
individual MCO, PIHP, PAHP, or PCCM entity websites, on one web page;
    (ii) Include clear and easy to understand labels on documents and 
links;
    (iii) Verify no less than quarterly, the accurate function of the 
website and the timeliness of the information presented; and
    (iv) Explain that assistance in accessing the required information 
on the website is available at no cost and include information on the 
availability of oral interpretation in all languages and written 
translation available in each prevalent non-English language, how to 
request auxiliary aids and services, and a toll-free and TTY/TDY 
telephone number.
* * * * *
    (d) * * *
    (2) Make oral interpretation available in all languages and written 
translation available in each prevalent non-English language. Written 
materials that are critical to obtaining services for potential 
enrollees and experience surveys for enrollees must include taglines in 
the prevalent non-English languages in the State, explaining the 
availability of written translations or oral interpretation to 
understand the information provided, information on how to request 
auxiliary aids and services, and the toll-free telephone number of the 
entity providing choice counseling services as required by Sec.  
438.71(a). Taglines for written materials critical to obtaining 
services must be printed in a conspicuously-visible font size.
* * * * *
    (g) * * *
    (2) * * *
    (ix) Enrollee rights and responsibilities, including the elements 
specified in Sec.  438.100 and, if applicable, Sec.  438.3(e)(2)(ii).
* * * * *
    (h) * * *
    (1) Each MCO, PIHP, PAHP, and when appropriate, the PCCM entity, 
must make available in paper form upon request and searchable 
electronic form, the following information about its network providers:
* * * * *
    (ix) Whether the provider offers covered services via telehealth.
    (2) * * *
    (iv) Mental health and substance use disorder providers; and
* * * * *
    (3) * * *
    (iii) MCOs, PIHPs, or PAHPs must use the information received from 
the State pursuant to Sec.  438.68(f)(1)(iii) to update provider 
directories no later than the timeframes specified in (h)(3)(i) and 
(ii).
* * * * *
    (j) Applicability. States will not be held out of compliance with 
the requirements of paragraph (c)(3) of this section prior to the first 
rating period for contracts with MCOs, PIHPs, or PAHPs beginning on or 
after 2 years after [insert the effective date of the final rule], so 
long as they comply with the corresponding standard(s) codified in 
paragraph (c)(3) of this section contained in the 42 CFR, parts 430 to 
481, most recently published before the final rule. States will not be 
held out of compliance with the requirements of paragraph (d)(2) of 
this section prior to the first rating period for contracts with MCOs, 
PIHPs, or PAHPs beginning on or after 3 years after the [insert the 
effective date of the final rule], so long as they comply with the 
corresponding standard(s) codified in paragraphs (d)(2) of this section 
contained in the 42 CFR, parts 430 to 481, most recently published 
before the final rule. States will not be held out of compliance with 
the requirements of paragraph (h)(1) of this section prior to July 1, 
2025, so long as they comply with the corresponding standard(s) 
codified in paragraph (h)(1) of this section contained in the 42 CFR, 
parts 430 to 481, most recently published before the final rule. States 
will not be held out of compliance with the requirements of paragraph 
(h)(1)(ix) of this section prior to July 1, 2025. Paragraph (h)(3)(iii) 
of this section applies to the first rating period for contracts with 
MCOs, PIHPs and PAHPs beginning on or after 4 years after [insert the 
effective date of the final rule].
* * * * *
0
10. Add Sec.  438.16 to read as follows:


Sec.  438.16  In lieu of services and settings (ILOS) requirements.

    (a) Definitions. As used in this part, the following terms have the 
indicated meanings:
    Final ILOS cost percentage is the annual amount calculated, in 
accordance with paragraph (c)(3) of this section, specific to each 
managed care program that includes ILOS.
    Projected ILOS cost percentage is the annual amount calculated, in 
accordance with paragraph (c)(2) of this section, specific to each 
managed care program that includes ILOS.
    Summary report of actual MCO, PIHP, and PAHP ILOS costs is the 
report calculated, in accordance with paragraph (c)(4) of this section, 
specific to each managed care program that includes ILOS.
    (b) General rule. An ILOS must be approvable as a service or 
setting through a waiver under section 1915(c) of the Act or a State 
plan amendment, including section 1905(a), 1915(i), or 1915(k) of the 
Act.
    (c) ILOS Cost Percentage and summary report of actual MCO, PIHP, 
and PAHP ILOS costs.
    (1) General rule. (i) The projected ILOS cost percentage calculated 
as required in paragraph (c)(2) of this section may not exceed 5 
percent and the final ILOS cost percentage calculated as required in 
paragraph (c)(3) of this section may not exceed 5 percent.
    (ii) The projected ILOS cost percentage, the final ILOS cost 
percentage, and the summary report of actual MCO, PIHP, and PAHP ILOS 
costs must be calculated on an annual basis and recalculated annually.
    (iii) The projected ILOS cost percentage, the final ILOS cost 
percentage, and the summary report of actual MCO, PIHP, and PAHP ILOS 
costs must be certified by an actuary and developed in a reasonable and 
appropriate manner consistent with generally accepted actuarial 
principles and practices.
    (2) Calculation of the projected ILOS cost percentage. The 
projected ILOS cost percentage is the result of dividing the amount 
determined in paragraph (c)(2)(i) of this section by the amount 
determined in paragraph (c)(2)(ii) of this section.
    (i) The portion of the total capitation payments that is 
attributable to all ILOSs, excluding a short term stay in an

[[Page 28242]]

IMD as specified in Sec.  438.6(e), for each managed care program.
    (ii) The projected total capitation payments for each managed care 
program, including all State directed payments in effect under Sec.  
438.6(c) and pass-through payments in effect under Sec.  438.6(d), and 
the projected total State directed payments in effect under Sec.  
438.6(c) that are paid as a separate payment term as described in Sec.  
438.6(c)(6).
    (3) Calculation of the final ILOS cost percentage. The final ILOS 
cost percentage is the result of dividing the amount determined in 
paragraph (c)(3)(i) of this section by the amount determined in 
paragraph (c)(3)(ii) of this section.
    (i) The portion of the total capitation payments that is 
attributable to all ILOSs, excluding a short term stay in an IMD as 
specified in Sec.  438.6(e), for each managed care program.
    (ii) The actual total capitation payments, defined at Sec.  438.2, 
for each managed care program, including all State directed payments in 
effect under Sec.  438.6(c) and pass-through payments in effect under 
Sec.  438.6(d), and the actual total State directed payments in effect 
under Sec.  438.6(c) that are paid as a separate payment term as 
described in Sec.  438.6(c)(6).
    (4) Summary report of actual MCO, PIHP, and PAHP ILOS costs. The 
State must submit to CMS a summary report of the actual MCO, PIHP and 
PAHP costs for delivering ILOSs based on the claims and encounter data 
provided by the MCO(s), PIHP(s) and PAHP(s).
    (5) CMS review of the projected ILOS cost percentage, the final 
ILOS cost percentage and the summary report of actual MCO, PIHP and 
PAHP ILOS costs.
    (i) The State must annually submit the projected ILOS cost 
percentage to CMS for review as part of the rate certification required 
in Sec.  438.7(a).
    (ii) The State must submit the final ILOS cost percentage and the 
summary report of actual MCO, PIHP, and PAHP ILOS costs annually to CMS 
for review as a separate report concurrent with the rate certification 
submission required in Sec.  438.7(a) for the rating period beginning 2 
years after the completion of each 12-month rating period that includes 
an ILOS.
    (d) Documentation requirements--(1) State requirements. All States 
that include an ILOS in an MCO, PIHP, or PAHP contract are required to 
include, at minimum, the following:
    (i) The name and definition of each ILOS;
    (ii) The covered service or setting under the State plan for which 
each ILOS is a medically appropriate and cost-effective substitute;
    (iii) The clinically defined target populations for which each ILOS 
is determined to be medically appropriate and cost effective;
    (iv) The process by which a licensed network or MCO, PIHP, or PAHP 
staff provider, determines and documents in the enrollee's records that 
each identified ILOS is medically appropriate for the specific 
enrollee;
    (v) The enrollee rights and protections, as defined in Sec.  
438.3(e)(2)(ii); and
    (vi) A requirement that the MCO, PIHP, or PAHP will utilize 
specific codes established by the State that identify each ILOS in 
encounter data, as required under Sec.  438.242.
    (2) Additional documentation requirements. A State with a projected 
ILOS cost percentage that exceeds 1.5 percent is also required to 
provide the following documentation concurrent with the contract 
submission for review and approval by CMS under Sec.  438.3(a).
    (i) A description of the process and supporting evidence the State 
used to determine that each ILOS is a medically appropriate service or 
setting for the clinically defined target population(s), consistent 
with paragraph (d)(1)(iii) of this section.
    (ii) A description of the process and supporting data the State 
used to determine that each ILOS is a cost-effective substitute for the 
clinically defined target population(s), consistent with paragraph 
(d)(1)(iii) of this section.
    (3) Provision of additional information. At the request of CMS, the 
State must provide additional information, whether part of the MCO, 
PIHP or PAHP contract, rate certification or supplemental materials, if 
CMS determines that the requested information is pertinent to the 
review and approval of a contract that includes ILOS.
    (e) Monitoring, evaluation and oversight. (1) Retrospective 
evaluation. A State with a final ILOS cost percentage that exceeds 1.5 
percent, is required to submit at least one retrospective evaluation of 
ILOS to CMS. The retrospective evaluation must:
    (i) Be completed separately for each managed care program that 
includes an ILOS.
    (ii) Be completed using the 5 most recent years of accurate and 
validated data for the ILOS. The State must utilize these data to at 
least evaluate cost, utilization, access, grievances and appeals, and 
quality of care for each ILOS.
    (iii) Evaluate at least:
    (A) The impact each ILOS had on utilization of State plan approved 
services or settings, including any associated cost savings;
    (B) Trends in MCO, PIHP, or PAHP and enrollee use of each ILOS;
    (C) Whether encounter data supports the State's determination that 
each ILOS is a medically appropriate and cost-effective substitute for 
the identified covered service and setting under the State plan or a 
cost-effective measure to reduce or prevent the future need to utilize 
the covered service and setting under the State plan;
    (D) The impact of each ILOS on quality of care;
    (E) The final ILOS cost percentage for each year consistent with 
the report in paragraph (c)(5)(ii) of this section with a declaration 
of compliance with the allowable threshold in paragraph (c)(1)(i) of 
this section;
    (F) Appeals, grievances, and State fair hearings data, reported 
separately, related to each ILOS, including volume, reason, resolution 
status, and trends; and
    (G) The impact each ILOS had on health equity efforts undertaken by 
the State to mitigate health disparities.
    (iv) The State must submit the retrospective evaluation to CMS no 
later than 2 years after the completion of the first 5 rating periods 
that included ILOS.
    (v) CMS reserves the right to require the State to submit 
additional retrospective evaluations to CMS.
    (2) Oversight. Oversight for each ILOS must include the following:
    (i) State notification requirement. The State must notify CMS 
within 30 calendar days if:
    (A) The State determines that an ILOS is no longer a medically 
appropriate or cost effective substitute for the covered service or 
setting under the State plan identified in the contract as required in 
paragraph (d)(1)(ii) of this section; or
    (B) The State identifies noncompliance with requirements in this 
section.
    (ii) CMS oversight process. If CMS determines that a State is out 
of compliance with any requirement in this part or receives a State 
notification in paragraph (e)(2)(i) of this section, CMS may require 
the State to terminate the use of an ILOS.
    (iii) Process for termination of ILOS. When a State decides to 
terminate an ILOS, an MCO, PIHP or PAHP decides to cease offering an 
ILOS to its enrollees, or CMS makes the decision to require the State 
to terminate an ILOS, the State must submit an ILOS transition plan to 
CMS for review and approval within 15 calendar days of the

[[Page 28243]]

decision. The transition plan must include at least the following:
    (A) A process to notify enrollees of the termination of an ILOS 
that they are currently receiving as expeditiously as the enrollee's 
health condition requires.
    (B) A transition of care policy, not to exceed 12 months, to 
arrange for State plan services and settings to be provided timely and 
with minimal disruption to care to any enrollee who is currently 
receiving the ILOS that will be terminated. The State must make the 
transition of care policy publicly available.
    (C) An assurance the State will submit the modification of the MCO, 
PIHP, or PAHP contract to remove the ILOS and submission of the 
modified contracts to CMS as required in Sec.  438.3(a), and a 
reasonable timeline for submitting the contract amendment.
    (D) An assurance the State and its actuary will submit an 
adjustment to the actuarially sound capitation rate, as needed, to 
remove utilization and cost of the ILOS from capitation rates as 
required in Sec. Sec.  438.4, 438.7(a) and 438.7(c)(2), and a 
reasonable timeline for submitting the revised rate certification.
    (f) Applicability date. Section 438.16 applies to the rating period 
for contracts with MCOs, PIHPs and PAHPs beginning on or after 60 days 
following [insert the effective date of the final rule].
0
11. Amend Sec.  438.66 by revising paragraphs (b)(4), (c)(5), 
(e)(2)(vi) and (vii), and (e)(3)(i), and (f) to read as follows:


Sec.  438.66  State monitoring requirements.

* * * * *
    (b) * * *
    (4) Enrollee materials, enrollee experience, and customer services, 
including the activities of the beneficiary support system.
* * * * *
    (c) * * *
    (5) Results from an annual enrollee experience survey conducted by 
the State and any provider satisfaction survey conducted by the State 
or MCO, PIHP, or PAHP.
* * * * *
    (e) * * *
    (2) * * *
    (vi) Availability and accessibility of covered services, including 
any ILOS, within the MCO, PIHP, or PAHP contracts, including network 
adequacy standards.
    (vii) Evaluation of MCO, PIHP, or PAHP performance on quality 
measures and results of an enrollee experience survey, including as 
applicable, consumer report card, provider surveys, or other reasonable 
measures of performance.
* * * * *
    (3) * * *
    (i) Posted on the website required under Sec.  438.10(c)(3) within 
30 calendar days of submitting it to CMS.
* * * * *
    (f) With respect to applicability, States will not be held out of 
compliance with the requirements of paragraphs (b) through (c) of this 
section prior to the first rating period for contracts with MCOs, 
PIHPs, or PAHPs beginning on or after 3 years after [insert the 
effective date of the final rule], so long as they comply with the 
corresponding standard(s) codified in Sec.  438.66 contained in the 42 
CFR, parts 430 to 481, edition most recently published prior to the 
final rule.
0
12. Amend Sec.  438.68 by--
0
a. Revising paragraphs (b)(1) introductory text, (b)(1)(iii), (d)(1), 
(d)(2) and (e); and
0
b. Adding paragraphs (f) through (h).
    The revisions and additions read as follows:


Sec.  438.68  Network adequacy standards.

* * * * *
    (b) * * *
    (1) Provider types. At a minimum, a State must develop a 
quantitative network adequacy standard, other than appointment wait 
times, for the following provider types, if covered under the contract:
* * * * *
    (iii) Mental health and substance use disorder, adult and 
pediatric.
* * * * *
    (d) * * *
    (1) To the extent the State permits an exception to any of the 
provider-specific network standards developed under this section, the 
standard by which the exception will be evaluated and approved must:
    (i) Be specified in the MCO, PIHP or PAHP contract.
    (ii) Be based, at a minimum, on the number of providers in that 
specialty practicing in the MCO, PIHP, or PAHP service area.
    (iii) Include consideration of the payment rates offered by the 
MCO, PIHP, or PAHP to the provider type for which an exception is being 
requested.
    (2) States that grant an exception in accordance with paragraph 
(d)(1) of this section to an MCO, PIHP or PAHP must monitor enrollee 
access to that provider type on an ongoing basis and include the 
findings to CMS in the managed care program assessment report required 
under Sec.  438.66(e).
    (e) Appointment wait time standards. States must establish and 
enforce appointment wait time standards.
    (1) Routine appointments. Standards must be established for routine 
appointments with the following provider types and within the specified 
limits:
    (i) If covered in the MCO's, PIHP's, or PAHP's contract, outpatient 
mental health and substance use disorder, adult and pediatric, within 
State-established time frames but no longer than 10 business days from 
the date of request.
    (ii) If covered in the MCO's, PIHP's, or PAHP's contract, primary 
care, adult and pediatric, within State-established time frames but no 
longer than 15 business days from the date of request.
    (iii) If covered in the MCO's, PIHP's, or PAHP's contract, 
obstetrics and gynecological within State-established time frames but 
no longer than 15 business days from the date of request.
    (iv) State-selected, other than those listed in paragraphs 
(e)(1)(i) through (iii) of this section, chosen in an evidence-based 
manner within State-established time frames.
    (2) Minimum compliance. MCOs, PIHPs, and PAHPs will be deemed 
compliant with the standards established in paragraph (e)(1) of this 
section when secret shopper results, consistent with paragraph (f)(2) 
of this section, reflect a rate of appointment availability that meets 
the standards established at paragraph (e)(1)(i) through (iv) of at 
least 90 percent.
    (3) Selection of additional types of providers. After consulting 
with States and other interested parties and providing public notice 
and opportunity to comment, CMS may select additional types of 
providers to be added to paragraph (e)(1) of this section.
    (f) Secret shopper surveys. States must contract with an entity, 
independent of the State Medicaid agency and any of its contracted 
MCOs, PIHPs and PAHPs subject to the survey, to conduct annual secret 
shopper surveys of each MCO's, PIHP's, and PAHP's compliance with the 
provider directory requirements in Sec.  438.10(h) as specified in 
paragraph (f)(1) of this section and appointment wait time requirements 
as specified in paragraph (f)(1) of this section.
    (1) Provider directories. (i) A secret shopper survey must be 
conducted to determine the accuracy of the information specified in 
paragraph (f)(1)(ii) of this section in each MCO's, PIHP's, and PAHP's 
most current electronic provider directories, as required at Sec.  
438.10(h), for the following provider types:

[[Page 28244]]

    (A) Primary care providers, if they are included in the MCO's, 
PIHP's, or PAHP's provider directory;
    (B) Obstetric and gynecological providers, if they are included in 
the MCO's, PIHP's, or PAHP's provider directory;
    (C) Outpatient mental health and substance use disorder providers, 
if they are included in the MCO's, PIHP's, or PAHP's provider 
directory; and
    (D) The provider type chosen by the State in (e)(1)(iv).
    (ii) A secret shopper survey must assess the accuracy of the 
information in each MCO's, PIHP's, and PAHP's most current electronic 
provider directories for at least:
    (A) The active network status with the MCO, PIHP, or PAHP;
    (B) The street address(es) as required at Sec.  438.10(h)(1)(ii);
    (C) The telephone number(s) as required at Sec.  438.10(h)(1)(iii); 
and
    (D) Whether the provider is accepting new enrollees as required at 
Sec.  438.10(h)(1)(vi).
    (iii) States must receive information, sufficient to facilitate 
correction by the MCO, PIHP, or PAHP, on errors in directory data 
identified in secret shopper surveys from the entity conducting the 
secret shopper survey no later than 3 business days from the day the 
error is identified by the entity conducting the secret shopper survey.
    (iv) States must send information required in paragraph (f)(1)(iii) 
of this section to the applicable MCO, PIHP, or PAHP no later than 3 
business days from receipt.
    (2) Timely appointment access. A secret shopper survey must be used 
to determine each MCO's, PIHP's, and PAHP's rate of network compliance 
with the appointment wait time standards in paragraph (e)(1) of this 
section.
    (i) After consulting with States and other interested parties and 
providing public notice and opportunity to comment, CMS may select 
additional types of appointments to be added to a secret shopper 
survey.
    (ii) Appointments offered via telehealth can only be counted toward 
compliance with the appointment wait time standards in paragraph (e)(1) 
of this section if the provider being surveyed also offers in-person 
appointments to the MCO's, PIHP's, or PAHP's enrollees and must be 
identified separately from in-person appointments in survey results.
    (3) Independence. An entity will be considered independent of the 
State as specified in paragraph (f)(3)(i) of this section and 
independent of the MCOs, PIHPs, or PAHPs subject to the surveys as 
specified in paragraph (f)(3)(ii) of this section.
    (i) An entity will be considered independent of the State if it is 
not part of the State Medicaid agency.
    (ii) An entity will be considered independent of an MCO, PIHP, or 
PAHP subject to the secret shopper surveys if the entity is not an MCO, 
PIHP, or PAHP, is not owned or controlled by any of the MCOs, PIHPs, or 
PAHPs subject to the surveys, and does not own or control any of the 
MCOs, PIHPs, or PAHPs subject to the surveys.
    (4) Methodological standards. Secret shopper surveys required in 
this paragraph must:
    (i) Use a random sample;
    (ii) Include all areas of the State covered by the MCO's, PIHP's, 
or PAHP's contract; and
    (iii) For secret shopper surveys required in paragraph (f)(2) of 
this section for appointment wait time standards, be completed for a 
statistically valid sample of providers.
    (5) Results reporting. Results of the secret shopper surveys 
conducted pursuant to paragraphs (f)(1) and (2) of this section must be 
analyzed, summarized, and:
    (i) Reported to CMS using the content, form, and submission times 
as specified at Sec.  438.207(d); and
    (ii) Posted on the State's website required at Sec.  438.10(c)(3) 
within 30 calendar days of submission to CMS.
    (g) Publication of network adequacy standards. States must publish 
the standards developed in accordance with paragraphs (b)(1) and (2), 
and (e) of this section on the website required by Sec.  438.10(c)(3). 
Upon request, network adequacy standards must also be made available at 
no cost to enrollees with disabilities in alternate formats or through 
the provision of auxiliary aids and services.
    (h) Applicability. States will not be held out of compliance with 
the requirements of paragraph (b)(1) and of this section prior to the 
first rating period beginning on or after 3 years after [insert the 
effective date of the final rule], so long as they comply with the 
corresponding standard(s) codified in paragraphs (b) of this section 
contained in the 42 CFR, parts 430 to 481, most recently published 
before the final rule. Paragraph (d)(1)(iii) of this section applies to 
the first rating period for contracts with MCOs, PIHPs and PAHPs 
beginning on or after 2 years after [insert the effective date of the 
final rule]. Paragraph (e) of this section applies to the first rating 
period for contracts with MCOs, PIHPs and PAHPs beginning on or after 3 
years after [insert the effective date of the final rule]. Paragraph 
(f) of this section applies to the first rating period for contracts 
with MCOs, PIHPs and PAHPs beginning on or after 4 years after [insert 
the effective date of the final rule]. States will not be held out of 
compliance with the requirements of paragraph (g) of this section prior 
to the first rating period that begins on or after 3 years after 
[insert the effective date of the final rule], so long as they comply 
with the corresponding standard(s) codified in paragraph (g) of this 
section contained in the 42 CFR, parts 430 to 481, most recently 
published before the final rule.
0
13. Amend Sec.  438.74 by revising paragraph (a) to read as follows:


Sec.  438.74  State oversight of the minimum MLR requirement.

    (a) State reporting requirement. (1) The State must annually submit 
to CMS a summary description of each report(s) received from the 
MCO(s), PIHP(s), and PAHP(s) under contract with the State, according 
to Sec.  438.8(k), with the rate certification required in Sec.  438.7.
    (2) The summary description must be provided for each MCO, PIHP, or 
PAHP under contract with the State and must include, at a minimum, the 
amount of the numerator, the amount of the denominator, the MLR 
percentage achieved, the number of member months, and any remittances 
owed by each MCO, PIHP, or PAHP for that MLR reporting year.
    (3) The summary description must also include line items for:
    (i) The amount of payments made under all contract arrangements 
that direct the MCO's, PIHP's, or PAHP's expenditures as specified in 
Sec.  438.6(c)(1)(i) through (iii); and
    (ii) Payments to the MCO, PIHP, or PAHP for expenditures approved 
under Sec.  438.6(c)(1)(i) through (iii).
    (4) Paragraph (a)(3) of this section applies to the rating period 
for contracts with MCOs, PIHPs, and PAHPs beginning on or after 60 days 
following [insert the effective date of the final rule].
* * * * *
0
14. Amend Sec.  438.206 by revising paragraphs (c)(1)(i) and (d) to 
read as follows:


Sec.  438.206  Availability of services.

* * * * *
    (c) * * *
    (1) * * *
    (i) Meet and require its network providers to meet State standards 
for timely access to care and services taking into account the urgency 
of the need for services as well as appointment wait times specified in 
Sec.  438.68(e).
* * * * *

[[Page 28245]]

    (d) Applicability date. States will not be held out of compliance 
with the requirements of paragraphs (c)(1)(i) of this section prior to 
the first rating period that begins on or after 4 years after [insert 
the effective date of the final rule], so long as they comply with the 
corresponding standard(s) codified in paragraph (c)(1)(i) of this 
section contained in the 42 CFR, parts 430 to 481, most recently 
published before the final rule.
* * * * *
0
15. Amend Sec.  438.207--
0
a. In paragraph (b)(1), by removing the ``.'' at the end of the 
paragraph and adding in its place ``;''.
0
b. In paragraph (b)(2), by removing the ``.'' at the end of the 
paragraph and adding in its place ``; and'';
0
c. By adding paragraph (b)(3);
0
d. By revising paragraphs (d) and (e);
0
e. By revising paragraph (f) and adding paragraph (g).
    The revisions and additions read as follows:


Sec.  438.207  Assurances of adequate capacity and services.

* * * * *
    (b) * * *
    (3) Except as specified in paragraphs (b)(3)(iii) and (iv) of this 
section and if covered by the MCO's, PIHP's, or PAHP's contract, 
provides a payment analysis using paid claims data from the immediately 
prior rating period that demonstrates each MCO's, PIHP's, or PAHP's 
level of payment as specified in paragraphs (b)(3)(i) and (ii) of this 
section.
    (i) The payment analysis must provide the total amount paid for 
evaluation and management current procedural terminology codes in the 
paid claims data from the prior rating period for primary care, OB/GYN, 
mental health, and substance use disorder services, as well as the 
percentage that results from dividing the total published Medicare 
payment rate for the same services.
    (A) A separate total and percentage must be reported for primary 
care, obstetrics and gynecology, mental health, and substance use 
disorder services; and
    (B) If the percentage differs between adult and pediatric services, 
the percentages must be reported separately.
    (ii) For homemaker services, home health aide services, and 
personal care services, the payment analysis must provide the total 
amount paid and the percentage that results from dividing the total 
amount paid by the amount the State's Medicaid FFS program would have 
paid for the same services.
    (A) A separate total and percentage must be reported for homemaker 
services, home health aide services, and personal care services; and
    (B) If the percentage differs between adult and pediatric services, 
the percentages must be reported separately.
    (iii) Payments by MCOs, PIHPS, and PAHPs for the services specified 
in Sec.  438.207(b)(3)(i) but for which the MCO, PIHP, or PAHP is not 
the primary payer are excluded from the analysis required in this 
paragraph.
    (iv) Services furnished by a Federally-qualified health center as 
defined in section 1905(l)(2) and services furnished by a rural health 
clinic as defined in section 1905(l)(1) are excluded from the analysis 
required in this paragraph.
* * * * *
    (d) State review and certification to CMS. After the State reviews 
the documentation submitted by the MCO, PIHP, or PAHP as specified in 
paragraph (b) of this section and the secret shopper evaluation results 
as required at Sec.  438.68(f), the State must submit an assurance of 
compliance to CMS, in the format prescribed by CMS, that the MCO, PIHP, 
or PAHP meets the State's requirements for availability of services, as 
set forth in Sec. Sec.  438.68 and 438.206.
    (1) The submission to CMS must include documentation of an analysis 
that supports the assurance of the adequacy of the network for each 
contracted MCO, PIHP or PAHP related to its provider network.
    (2) The analysis in paragraph (d)(1) of this section must include 
the payment analysis submitted by each MCO, PIHP, or PAHP, as required 
in paragraph (b)(3) of this section, and contain:
    (i) The data provided by each MCO, PIHP, and PAHP in paragraph 
(b)(3) of this section; and
    (ii) A State level payment percentage for each service type 
specified in paragraphs (b)(3)(i) and (ii) of this section produced by 
using the number of member months for the applicable rating period to 
weight each MCO's, PIHP's, or PAHP's reported percentages, as required 
in paragraph (b)(3) of this section.
    (3) States must submit the assurance of compliance required in 
paragraph (d) of this section as specified in paragraphs (i) through 
(iii) of this section and post the report on the State's website 
required in Sec.  438.10(c)(3) within 30 calendar days of submission to 
CMS.
    (i) At the time it submits a completed readiness review, as 
specified at Sec.  438.66(d)(1)(iii).
    (ii) On an annual basis and no later than 180 calendar days after 
each rating period.
    (iii) At any time there has been a significant change as specified 
in paragraph (c)(3) of this section and with the submission of the 
associated contract, as required at Sec.  438.3(a).
    (e) CMS' right to inspect documentation. The State must make 
available to CMS, upon request, all documentation collected by the 
State from the MCO, PIHP, or PAHP as well as documentation from all 
secret shopper surveys required at Sec.  438.68(f).
    (f) Remedy plans to improve access. (1) When the State, MCO, PIHP, 
PAHP, or CMS identifies an area in which an MCO's, PIHP's, or PAHP's 
access to care under the access standards in this part could be 
improved, including the standards at Sec. Sec.  438.68 and 438.206, the 
State must:
    (i) Submit to CMS for approval a remedy plan as specified in 
paragraph (f)(ii) of this section no later than 90 calendar days 
following the date that the State becomes aware of an MCO's, PIHP's, or 
PAHP's access issue;
    (ii) Develop a remedy plan that addresses the identified access 
issue within 12 months and that identifies specific steps with 
timelines for implementation and completion, and responsible parties. 
State's and managed care plans' actions may include a variety of 
approaches, including, but not limited to: increasing payment rates to 
providers, improving outreach and problem resolution to providers, 
reducing barriers to provider credentialing and contracting, providing 
for improved or expanded use of telehealth, and improving the 
timeliness and accuracy of processes such as claim payment and prior 
authorization;
    (iii) Ensure that improvements in access are measurable and 
sustainable; and
    (iv) Submit quarterly progress updates to CMS on implementation of 
the remedy plan.
    (2) If the remedy plan required in paragraph(f)(1) of this section 
does not result in addressing the MCO's, PIHP's, or PAHP's access issue 
by improving access within 12 months, CMS may require the State to 
continue the remedy plan for another 12 months and may require revision 
to the remedy plan required in paragraph (f)(1) of this section.
    (g) Applicability date. Paragraphs (b)(3) and (d)(2) of this 
section apply to the first rating period for contracts with MCOs, 
PIHPs, or PAHPs beginning on or after 2 years after [insert the 
effective date of the final rule]. Paragraph (d)(3) of this section 
applies to the first rating period beginning on or after 1 year after 
[insert the effective date of the final rule]. States will not be held 
out of

[[Page 28246]]

compliance with the requirements of paragraph (e) of this section prior 
to the rating period beginning on or after 4 year after [insert the 
effective date of the final rule], so long as they comply with the 
corresponding standard(s) codified in paragraph (e) of this section 
contained in the 42 CFR, parts 430 to 481, most recently published 
before the final rule. Paragraph (f) of this section applies to the 
first rating period for contracts with MCOs, PIHPs, or PAHPs beginning 
on or after 4 years after [EFFECTIVE DATE OF THE FINAL RULE].
0
16. Amend Sec.  438.214 is amended by--
0
a. Revising paragraph (b)(1); and
0
b. Adding paragraph (d)(2).
    The revision and addition read as follows:


Sec.  438.214  Provider Selection.

* * * * *
    (b) * * *
    (1) Each State must establish a uniform credentialing and 
recredentialing policy that addresses acute, primary, mental health, 
substance use disorders, and LTSS providers, as appropriate, and 
requires each MCO, PIHP and PAHP to follow those policies.
* * * * *
    (d) * * *
    (2) States must ensure through its contracts that MCOs, PIHPs, and 
PAHPs terminate any providers of services or persons terminated (as 
described in section 1902(kk)(8) of the Social Security Act) from 
participation under this title, title XVIII, or title XXI from 
participating as a provider in any network.
* * * * *
0
17. Amend Sec.  438.310 by revising paragraphs (b)(5) introductory 
text, (c)(2), and (d) to read as follows:


Sec.  438.310  Basis, scope, and applicability.

* * * * *
    (b) * * *
    (5) Requirements for annual external quality reviews of each 
contracting MCO, PIHP, PAHP including--
* * * * *
    (c) * * *
    (2) The provisions of Sec.  438.330(b)(2) and (3), (c), and (e), 
and Sec.  438.340 apply to States contracting with PCCM entities whose 
contracts with the State provide for shared savings, incentive payments 
or other financial reward for the PCCM entity for improved quality 
outcomes.
* * * * *
    (d) Applicability dates. States will not be held out of compliance 
with the following requirements of this subpart prior to the dates 
noted below so long as they comply with the corresponding standard(s) 
in 42 CFR part 438 contained in the 42 CFR parts 430 to 481, edition 
revised as of [insert effective date of final rule]:
    (1) States must comply with Sec.  438.330(d)(4) no later than the 
rating period for contracts beginning after [insert the effective date 
of the final rule].
    (2) States must comply with updates to Sec.  438.340 no later than 
1 year from [insert the effective date of the final rule].
    (3) States must comply with updates to Sec. Sec.  438.358 and 
438.364(c)(2)(iii) no later than December 31, 2025.
    (4) States must comply with Sec.  438.364(a)(2)(iii) no later 1 
year from the issuance of the associated protocol.
0
18. Amend Sec.  438.330 by revising paragraph (d)(4) to read as 
follows:


Sec.  438.330  Quality assessment and performance improvement program.

* * * * *
    (d) * * *
    (4) The State may permit an MCO, PIHP, or PAHP exclusively serving 
dual eligibles to substitute an MA organization chronic care 
improvement program conducted under Sec.  422.152(c) of this chapter 
for one or more of the performance improvement projects otherwise 
required under this section.
* * * * *


Sec.  438.334  [Removed and reserved]

0
19. Section 438.334 is removed and reserved.
0
20. Amend Sec.  438.340 by revising paragraphs (b)(4), (c)(1) 
introductory text, (c)(2)(ii), and (c)(3) to read as follows:


Sec.  438.340  Managed care State quality strategy.

* * * * *
    (b) * * *
    (4) Arrangements for annual, external independent reviews, in 
accordance with Sec.  438.350, of the quality outcomes and timeliness 
of, and access to, the services covered under each MCO, PIHP, and PAHP 
contract.
* * * * *
    (c) * * *
    (1) Make the strategy available for public comment before 
submitting the strategy to CMS for review in accordance with paragraph 
(c)(3) of this section, including:
* * * * *
    (2) * * *
    (ii) The State must make the results of the review, including the 
evaluation conducted pursuant to paragraph (c)(2)(i) of this section, 
available on the website required under Sec.  438.10(c)(3).
* * * * *
    (3) Prior to adopting as final, submit to CMS the following:
    (i) A copy of the initial strategy for CMS comment and feedback.
    (ii) A copy of the strategy--
    (A) Every 3 years following the review in paragraph (c)(2) of this 
section;
    (B) Whenever significant changes, as defined in the State's quality 
strategy per paragraph (b)(10) of this section, are made to the 
document;
    (C) Whenever significant changes occur within the State's Medicaid 
program.
* * * * *


Sec.  438.344  [Removed and reserved]

0
21. Remove and reserve 438.344.
0
22. Amend Sec.  438.350 by revising the introductory text and paragraph 
(a) to read as follows:


Sec.  438.350  External quality review.

    Each State that contracts with MCOs, PIHPs, or PAHPs must ensure 
that--
    (a) Except as provided in Sec.  438.362, a qualified EQRO performs 
an annual EQR for each such contracting MCO, PIHP, or PAHP.
* * * * *
0
23. Amend Sec.  438.354 by revising paragraph (c)(2)(iii) to read as 
follows:


Sec.  438.354  Qualifications of external quality review organizations.

* * * * *
    (c) * * *
    (2) * * *
    (iii) Conduct, on the State's behalf, ongoing Medicaid managed care 
program operations related to oversight of the quality of MCO, PIHP, 
PAHP, or PCCM entity (described in Sec.  438.310(c)(2)) services that 
it will review as an EQRO, except for the related activities specified 
in Sec.  438.358;
* * * * *
0
24. Amend Sec.  438.358 by--
0
a. Revising paragraph (a)(1);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraphs (b)(1) introductory text, (b)(1)(i), (ii), and 
(iv);
0
d. Removing and reserving paragraph (b)(2);
0
e. Revising paragraph (c) introductory text and (c)(6); and
0
f. Adding paragraph (c)(7).
    The revisions read as follows:


Sec.  438.358  Activities related to external quality review.

    (a) * * *
    (1) The State, its agent that is not an MCO, PIHP, or PAHP or an 
EQRO may perform the mandatory and optional EQR-related activities in 
this section.
* * * * *
    (3) For the EQR-related activities described in Sec.  438.350(b)(1) 
and (c) of

[[Page 28247]]

this subpart (except Sec.  438.350(b)(1)(iii)), the review period 
begins on the first day of the most recently concluded contract year or 
calendar year, whichever is nearest to the date of the EQR-related 
activity, and is 12 months in duration.
    (b) * * *
    (1) For each MCO, PIHP, or PAHP the following EQR-related 
activities must be performed in the 12 months preceding the 
finalization of the annual report:
    (i) Validation of performance improvement projects required in 
accordance with Sec.  438.330(b)(1) that were underway during the EQR 
review period per paragraph (a)(3) of this section.
    (ii) Validation of MCO, PIHP, or PAHP performance measures required 
in accordance with Sec.  438.330(b)(2) or MCO, PIHP, or PAHP 
performance measures calculated by the State during the EQR review 
period described in paragraph (a)(3) of this section.
* * * * *
    (iv) Validation of MCO, PIHP, or PAHP network adequacy during the 
EQR review period per paragraph (a)(3) of this section to comply with 
requirements set forth in Sec.  438.68 and, if the State enrolls 
Indians in the MCO, PIHP, or PAHP, Sec.  438.14(b)(1).
    (2) [Reserved]
    (c) Optional activities. For each MCO, PIHP, PAHP, and PCCM entity 
(described in Sec.  438.310(c)(2)), the following activities may be 
performed in the 12 months preceding the annual report by using 
information derived during the EQR review period described in paragraph 
(a)(3) of this section:
* * * * *
    (6) Assist with the quality rating of MCOs, PIHPs, and PAHPs 
consistent with 42 CFR part 438, subpart G.
    (7) Assist with evaluations required under Sec. Sec.  438.16(e)(1), 
438.340(c)(2)(i), and 438.6(c)(2)(iv) and (v) pertaining to outcomes, 
quality, or access to health care services
* * * * *
0
25. Amend Sec.  438.360 by revising paragraph (a)(1) to read as 
follows:


Sec.  438.360  Nonduplication of mandatory activities with Medicare or 
accreditation review.

    (a) * * *
    (1) The MCO, PIHP, or PAHP is in compliance with the applicable 
Medicare Advantage standards established by CMS, as determined by CMS 
or its contractor for Medicare, or has obtained accreditation from a 
private accrediting organization recognized by CMS;
* * * * *
0
26. Amend Sec.  438.362 by revising paragraph (b)(2) paragraph heading 
and (b)(2)(i) to read as follows:


Sec.  438.362  Exemption from external quality review.

* * * * *
    (b) * * *
    (2) Medicare information from a private accrediting organization. 
(i) If an exempted MCO has been reviewed by a private accrediting 
organization, the State must require the MCO to provide the State with 
a copy of all findings pertaining to its most recent accreditation 
review if that review has been used to fulfill certain requirements for 
Medicare external review under subpart D of part 422 of this chapter.
* * * * *
0
27. Amend Sec.  438.364 by revising paragraphs (a)(1), (a)(2)(iii), 
(a)(3) through (6), (c)(1) and (c)(2) to read as follows:


Sec.  438.364  External quality review results.

    (a) * * *
    (1) A description of the manner in which the data from all 
activities conducted in accordance with Sec.  438.358 were aggregated 
and analyzed, and conclusions were drawn as to the quality, timeliness, 
and access to the care furnished by the MCO, PIHP, or PAHP.
    (2) * * *
    (iii) The data and a description of data obtained, including 
validated performance measurement, any outcomes data and results from 
quantitative assessments, for each activity conducted in accordance 
with Sec.  438.358(b)(1)(i), (ii) and (iv) of this subpart; and
* * * * *
    (3) An assessment of each MCO's, PIHP's, or PAHP's-strengths and 
weaknesses for the quality, timeliness, and access to health care 
services furnished to Medicaid beneficiaries.
    (4) Recommendations for improving the quality of health care 
services furnished by each MCO, PIHP, or PAHP, including how the State 
can target goals and objectives in the quality strategy, under Sec.  
438.340, to better support improvement in the quality, timeliness, and 
access to health care services furnished to Medicaid beneficiaries.
    (5) Methodologically appropriate, comparative information about all 
MCOs, PIHPs, or PAHPs, consistent with guidance included in the EQR 
protocols issued in accordance with Sec.  438.352(e).
    (6) An assessment of the degree to which each MCO, PIHP, or PAHP 
has addressed effectively the recommendations for quality improvement 
made by the EQRO during the previous year's EQR.
* * * * *
    (c) * * *
    (1) The State must contract with a qualified EQRO to produce and 
submit to the State an annual EQR technical report in accordance with 
paragraph (a) of this section. The State must finalize the annual 
technical report by December 31st of each year.
    (2) The State must--
    (i) Post the most recent copy of the annual EQR technical report on 
the website required-under Sec.  438.10(c)(3) by December 31st of each 
year and notify CMS, in a form and manner determined by CMS, within 14 
calendar days of the Web posting.
    (ii) Provide printed or electronic copies of the information 
specified in paragraph (a) of this section, upon request, to interested 
parties such as participating health care providers, enrollees and 
potential enrollees of the MCO, PIHP, or PAHP beneficiary advocacy 
groups, and members of the general public.
    (iii) Maintain at least the previous 5 years of EQR technical 
reports on the on the website required under Sec.  438.10(c)(3).
* * * * *
0
28. Subpart G is added to part 438 to read as follows:

Subpart G--Medicaid Managed Care Quality Rating System

Sec.
438.500 Definitions.
438.505 General rule and applicability.
438.510 Mandatory QRS measure set for Medicaid managed care quality 
rating system.
438.515 Medicaid managed care quality rating system methodology.
438.520 Website display.
438.525 Alternative quality rating system.
438.530 Annual technical resource manual.
438.535 Annual reporting.


Sec.  438.500  Definitions.

    (a) Definitions. As used in this subpart, the following terms have 
the indicated meanings:
    Measurement period means the period for which data are collected 
for a measure or the performance period that a measure covers.
    Measurement year means the first calendar year and each calendar 
year thereafter for which a full calendar year of claims and encounter 
data necessary to calculate a measure are available.
    Medicaid managed care quality rating system framework (QRS 
framework) means the mandatory measure set identified by CMS in the 
Medicaid and CHIP managed care quality rating

[[Page 28248]]

system technical resource manual described in Sec.  438.530, the 
methodology for calculating quality ratings described in Sec.  438.515, 
and the website display described in Sec.  438.520 of this subpart.
    Medicare Advantage and Part D 5-Star Rating System (MA and Part D 
quality rating system) means the rating system described in subpart D 
of parts 422 of 423 of this chapter.
    Qualified health plan rating system (QHP quality rating system) 
means the health plan quality rating system developed in accordance 
with 45 CFR 156.1120.
    Quality rating means the numeric or other value of a quality 
measure or an assigned indicator that data for the measure is not 
available.
    Technical resource manual means the guidance described in Sec.  
438.530.
    Validation means the review of information, data, and procedures to 
determine the extent to which they are accurate, reliable, free from 
bias, and in accord with standards for data collection and analysis.


Sec.  438.505  General rule and applicability.

    (a) General rule. As part of its quality assessment and improvement 
strategy for its managed care program, each State contracting with an 
applicable managed care plan, as described in paragraph (b) of this 
section, to furnish services to Medicaid beneficiaries must--
    (1)(i) Adopt the QRS framework developed by CMS; or
    (ii) Adopt an alternative managed care quality rating system in 
accordance with Sec.  438.525 of this subpart.
    (2) Implement such managed care quality rating system by the end of 
the fourth calendar year following [the effective date of the final 
rule published in the Federal Register], unless otherwise specified in 
this subpart.
    (3) Use the State's beneficiary support system implemented under 
Sec.  438.71 to provide the services identified at Sec.  
438.71(b)(1)(i) and (ii) to beneficiaries, enrollees, or both seeking 
assistance using the managed care quality rating system implemented by 
the State under this subpart.
    (b) Applicability. The provisions of this subpart apply to States 
contracting with MCOs, PIHPs, and PAHPs for the delivery of services 
covered under Medicaid. The provisions of this subpart do not apply to 
States contracting with Medicare Advantage Dual Eligible Special Needs 
Plans for only Medicaid coverage of Medicare cost sharing.
    (c) Continued alignment. To maintain the QRS framework, CMS aligns 
the mandatory measure set and methodology described in Sec.  438.510 
and Sec.  438.515 of this subpart, to the extent appropriate, with the 
qualified health plan quality rating system developed in accordance 
with 45 CFR 156.1120, the MA and Part D quality rating system, and 
other similar CMS quality measurement and rating initiatives.


Sec.  438.510  Mandatory QRS measure set for Medicaid managed care 
quality rating system.

    (a) Measures required. The quality rating system implemented by the 
State must include the measures in the mandatory QRS measure set 
identified by CMS in the Medicaid and CHIP managed care quality rating 
system technical resource manual, and may include other measures 
identified by the State as described in Sec.  438.520(b).
    (b) Subregulatory process to update mandatory measure set. Subject 
to paragraph (d) of this section, CMS will update the mandatory measure 
set at least every other year, including the addition, removal or 
updating of mandatory measures after:
    (1) Engaging with States and other interested parties (such as 
State officials, measure experts, health plans, beneficiary advocates, 
tribal organizations, health plan associations, and external quality 
review organizations) to evaluate the current mandatory measure set and 
make recommendations to add, remove or update existing measures based 
on the criteria and standards in paragraph (c) of this section; and
    (2) Providing public notice and opportunity to comment through a 
call letter (or similar subregulatory process using written guidance) 
on any planned modifications to the mandatory measure set following the 
engagement described in paragraph (b)(1) of this section.
    (c) Standards for adding mandatory measures. Based on available 
relevant information, including the input received during the process 
described in paragraph (b) of this section, CMS will add a measure in 
the mandatory measure set when each of the following standards are met:
    (1) The measure meets at least 5 of the following criteria:
    (i) Is meaningful and useful for beneficiaries or their caregivers 
when choosing a managed care plan;
    (ii) Aligns with other CMS programs described in Sec.  438.505(c);
    (iii) Measures health plan performance in at least one of the 
following areas: customer experience, access to services, health 
outcomes, quality of care, health plan administration, and health 
equity;
    (iv) Presents an opportunity for managed care plans to influence 
their performance on the measure;
    (v) Is based on data that are available without undue burden on 
States and plans such that it is feasible to report by many States and 
managed care plans;
    (vi) Demonstrates scientific acceptability, meaning that the 
measure, as specified, produces consistent and credible results;
    (2) The proposed measure contributes to balanced representation of 
beneficiary subpopulations, age groups, health conditions, services, 
and performance areas within a concise mandatory measure set, and
    (3) The burdens associated with including the measure does not 
outweigh the benefits to the overall quality rating system framework of 
including the new measure based on the criteria listed in paragraph 
(c)(1).
    (d) Removing mandatory measures. CMS may remove existing mandatory 
measures from the mandatory measure set if--
    (1) After following the process described in paragraph (b) of this 
section, CMS determines that the measure no longer meets the standards 
described in paragraph (c) of this section;
    (2) The measure steward (other than CMS) retires or stops 
maintaining a measure;
    (3) CMS determines that the clinical guidelines associated with the 
specifications of the measure change such that the specifications no 
longer align with positive health outcomes; or
    (4) CMS determines that the measure shows low statistical 
reliability under the standard identified in Sec. Sec.  422.164(e) and 
423.184(e) of this chapter.
    (e) Updating existing mandatory measures. CMS will modify the 
existing mandatory measures that undergo measure technical 
specifications updates as follows--
    (1) Non-substantive updates. CMS will update changes to the 
technical specifications for a measure made by the measure steward; 
such changes will be in the technical resource manual issued under 
paragraph (f) of this section and Sec.  438.530. Examples of non-
substantive updates include, but are not limited to, those that:
    (i) Narrow the denominator or population covered by the measure.
    (ii) Do not meaningfully impact the numerator or denominator of the 
measure.
    (iii) Update the clinical codes with no change in the target 
population or the intent of the measure.
    (iv) Provide additional clarifications such as:
    (A) Adding additional tests that would meet the numerator 
requirements;

[[Page 28249]]

    (B) Clarifying documentation requirements;
    (C) Adding additional instructions to identify services or 
procedures; or
    (D) Adding alternative data sources or expanding of modes of data 
collection to calculate a measure.
    (2) Substantive updates. CMS may adopt substantive updates to a 
mandatory measure not subject to paragraph (e)(1)(i) through (iv) of 
this section only after following the process specified in paragraph 
(b) of this section.
    (f) Finalization and display of mandatory measures and updates. CMS 
will finalize modifications to the mandatory measure set and the 
timeline for State implementation of such modifications in the 
technical resource manual. For new or substantively updated measures, 
CMS will provide each State with at least 2 calendar years from the 
start of the measurement year immediately following the release of the 
annual technical resource manual in which the modification to the 
mandatory measure set is finalized to display measurement results and 
ratings using the new or updated measure(s).


Sec.  438.515  Medicaid managed care quality rating system methodology.

    (a) For each measurement year, the State--
    (1) Must collect the data necessary to calculate quality ratings 
for each quality measure described in Sec.  438.510(a) of this subpart 
from:
    (i) The State's contracted managed care plans that have 500 or more 
enrollees from the State's Medicaid program on July 1 of the 
measurement year; and
    (ii) Sources of Medicare data (including Medicare Advantage plans, 
Medicare providers, and CMS), the State's Medicaid fee-for-service 
providers, or both if all data necessary to calculate a measure cannot 
be provided by the managed care plans described in paragraph (a)(1) of 
this section and such data are available for collection by the State 
without undue burden.
    (2) Must ensure that all data collected under paragraph (a)(1) of 
this section are validated.
    (3) Must use the validated data described in paragraph (a)(2) of 
this section and the methodology described in paragraph (b) of this 
section to calculate for each quality measure described in Sec.  
438.510(a) of this subpart, a measure performance rate for each managed 
care plan whose contract includes a service or action assessed by the 
measure, as determined by the State.
    (4) Must issue quality ratings to each managed care plan for each 
measure calculated for the plan under paragraph (a)(3) of this section.
    (b) Subject to Sec.  438.525, the State must ensure that the 
quality ratings issued under paragraph (a)(4) of this section:
    (1) Include data for all enrollees who receive coverage through the 
managed care plan for a service or action for which data are necessary 
to calculate the quality rating for the managed care plan, including 
data for enrollees who are dually eligible for both Medicare and 
Medicaid, subject to the availability of data under paragraph 
(a)(1)(ii) of this section.
    (2) Are issued to each managed care plan at the plan level, by 
managed care program, so that a plan participating in multiple managed 
care programs is issued distinct ratings for each program in which it 
participates resulting in quality ratings that are representative of 
services provided only to those beneficiaries enrolled in the plan 
through the rated program.
    (c) After engaging with States, beneficiaries, and other interested 
parties, CMS will propose to implement domain-level quality ratings, 
including care domains for which States would be required to calculate 
and assign domain-level quality ratings for managed care plans, a 
methodology to calculate such ratings, and website display requirements 
for displaying such ratings on the MAC QRS website display described in 
Sec.  438.520.


Sec.  438.520  Website display.

    (a) In a manner that complies with the accessibility standards 
outlined in Sec.  438.10(d) of this part and in a form and manner 
specified by CMS, the State must prominently display on the website 
required under Sec.  438.10(c)(3):
    (1) Information necessary for users to understand and navigate the 
contents of the QRS website display, including:
    (i) A statement of the purpose of the Medicaid managed care quality 
rating system, relevant information on Medicaid, CHIP and Medicare and 
an overview of how to use the information available in the display to 
select a quality managed care plan;
    (ii) Information on how to access the beneficiary support system 
described in Sec.  438.71 to answer questions about using the State's 
managed care quality rating system to select a managed care plan; and
    (iii) If users must input user-specific information to access or 
use the QRS, an explanation of why the information is requested, how it 
will be used, and whether it is optional or required.
    (2) Information that allows beneficiaries to identify managed care 
plans available to them that align with their coverage needs and 
preferences including:
    (i) All available managed care programs and plans for which a user 
may be eligible based on the user's age, geographic location, and 
dually eligible status, if applicable, as well as other demographic 
data identified by CMS;
    (ii) A description of the drug coverage for each managed care plan, 
including the formulary information specified in Sec.  438.10(i) and 
other similar information as specified by CMS;
    (iii) Provider directory information for each managed care plan 
including all information required by Sec.  438.10(h)(1) and (2) and 
such other provider information as specified by CMS;
    (iv) Quality ratings described at Sec.  438.515(a)(4) that are 
calculated by the State for each managed care plan in accordance with 
Sec.  438.515 for mandatory measures identified by CMS in the technical 
resource manual, and
    (v) The quality ratings described in Sec.  438.520(a)(2)(iv) 
calculated by the State for each managed care plan in accordance with 
Sec.  438.515 for mandatory measures identified by CMS, stratified by 
dual eligibility status, race and ethnicity, and sex.
    (3) Standardized information identified by CMS that allows users to 
compare available managed care plans and programs, including:
    (i) The name of each managed care plan;
    (ii) An internet hyperlink to each managed care plan's website and 
each available managed care plan's toll-free customer service telephone 
number;
    (iii) Premium and cost-sharing information including differences in 
premium and cost-sharing among available managed care plans within a 
single program;
    (iv) A summary of benefits including differences in benefits among 
available managed care plans within a single program;
    (v) Certain metrics, as specified by CMS, of managed care plan 
performance that States must make available to the public under 
subparts B and D of this part, including data most recently reported to 
CMS on each managed care program pursuant to Sec.  438.66(e) of this 
part and the results of the secret shopper survey specified in Sec.  
438.68(f) of this part;
    (vi) If a managed care plan offers an integrated Medicare-Medicaid 
plan or a highly or fully integrated Medicare Advantage D-SNP (as those 
terms are defined in Sec.  422.2 of this chapter), an indication that 
an integrated plan is

[[Page 28250]]

available and a link to the integrated plan's most recent rating under 
the Medicare Advantage and Part D 5-Star Rating System.
    (4) Information on quality ratings displayed in accordance with 
paragraph (a)(2)(iv) of this section in a manner that promotes 
beneficiary understanding of and trust in the ratings, including:
    (i) A plain language description of the importance and impact of 
each quality measure assigned a quality rating;
    (ii) The measurement period during which the data used to calculate 
the quality rating was produced; and
    (iii) Information on quality ratings data validation, including a 
plain language description of when, how and by whom the data were 
validated.
    (5) Information or hyperlinks directing users to resources on how 
and where to apply for Medicaid and enroll in a Medicaid or CHIP plan.
    (6) By a date specified by CMS, which shall be no earlier than 2 
years after the implementation date for the quality rating system 
specified in Sec.  438.505:
    (i) A search tool that enables users to identify available managed 
care plans that provide coverage for a drug identified by the user;
    (ii) A search tool that enables users to identify available managed 
care plans that include a provider identified by the user in the plan's 
network of providers; and
    (iii) The quality ratings described in Sec.  438.520(a)(iv) 
calculated by the State for each managed care plan in accordance with 
Sec.  438.515 for mandatory measures identified by CMS, including the 
display of such measures stratified by dual eligibility status, race 
and ethnicity, sex, age, rural/urban status, disability, language of 
the enrollee, or other factors specified by CMS in the annual technical 
resource manual.
    (iv) An interactive tool that enables users to view the quality 
ratings described at Sec.  438.520(a)(iv), stratified by the factors 
described in paragraph (a)(6)(iii) of this section.
    (b) If the State chooses to display quality ratings for additional 
measures not included in the mandatory measures set described in Sec.  
438.510(a), the State must:
    (1) Obtain input on the additional measures, prior to their use, 
from prospective users, including beneficiaries, caregivers, and, if 
the State enrolls American Indians/Alaska Natives in managed care, 
consult with Tribes and Tribal Organizations in accordance with the 
State's Tribal consultation policy; and
    (2) Document the input received from prospective users required 
under paragraph (b)(1) of this section, including modifications made to 
the additional measure(s) in response to the input and rationale for 
input not accepted.
    (c) CMS will periodically consult with States and interested 
parties including Medicaid managed care quality rating system users to 
evaluate the website display requirements described in this section for 
continued alignment with beneficiary preferences and values.


Sec.  438.525  Alternative quality rating system.

    (a) A State may implement an alternative Medicaid managed care 
quality rating system that applies an alternative methodology from that 
described in Sec.  438.510(a)(3) provided that--
    (1) The alternative quality rating system includes the mandatory 
measures identified by CMS under Sec.  438.510(a)(1);
    (2) The ratings generated by the alternative quality rating system 
yield information regarding managed care plan performance which, to the 
extent feasible, is substantially comparable to that yielded by the 
methodology described in Sec.  438.515, taking into account such 
factors as differences in covered populations, benefits, and stage of 
delivery system transformation, to enable meaningful comparison of 
performance across States.
    (3) The State receives CMS approval prior to implementing an 
alternative quality rating system or modifications to an approved 
alternative Medicaid managed care quality rating system.
    (b) Prior to submitting a request for, or modification of, an 
alternative Medicaid managed care quality rating system to CMS, the 
State must--
    (1) Obtain input from the State's Medical Care Advisory Committee 
established under Sec.  431.12 of this chapter; and
    (2) Provide an opportunity for public comment of at least 30 days 
on the proposed alternative Medicaid managed care quality rating system 
or modification.
    (c) To receive CMS approval for an alternative quality rating 
system, a State must:
    (1) Submit a request for, or modification of, an alternative 
Medicaid managed care quality rating system to CMS in a form and manner 
and by a date determined by CMS; and
    (2) Include the following in the State's request for or 
modification of an alternative quality rating system:
    (i) The alternative methodology to be used in generating plan 
ratings;
    (ii) Documentation of the public comment process specified in 
paragraph (b)(1) and (2) this section, including discussion of the 
issues raised by the Medical Care Advisory Committee and any policy 
revisions or modifications made in response to the comments and 
rationale for comments not accepted;
    (iii) Other information or documentation specified by CMS to 
demonstrate compliance with paragraph (a) of this section; and
    (iv) Other supporting documents and evidence that the State 
believes demonstrates compliance with the requirements of (a)(2) of 
this section.


Sec.  438.530  Annual technical resource manual.

    (a) No later than August 1, 2025, CMS will publish a Medicaid 
managed care quality rating system technical resource manual, and 
update it annually thereafter. The technical resource manual must 
include all of the following:
    (1) Identification of all Medicaid managed care quality rating 
system measures, including:
    (i) A list of the mandatory measures; and
    (ii) Any measures newly added or removed from the prior year's 
mandatory measure set.
    (iii) The subset of mandatory measures that must be displayed and 
stratified by factors such as race and ethnicity, sex, age, rural/urban 
status, disability, language, or such other factors as may be specified 
by the CMS in accordance with Sec. Sec.  438.520(a)(2)(iv) and 
438.520(a)(6)(iii).
    (2) Guidance on the application of the methodology used to 
calculate and issue quality ratings as described in Sec.  438.515.
    (3) Measure steward technical specifications for mandatory 
measures.
    (4) A summary of interested party engagement and public comments 
received during the public notice and comment process described in 
Sec.  438.510(b) using the process identified in Sec.  438.510(c) for 
the most recent modifications to the mandatory measure set including:
    (i) Discussion of the feedback and recommendations received on 
potential modifications to mandatory measures;
    (ii) The final modifications and the timeline by which such 
modifications must be implemented; and
    (iii) The rationale for not accepting or implementing specific 
recommendations or feedback submitted during the consultation process.
    (b) In developing and issuing the manual content described in 
paragraphs (a)(1) and (2) of this section, CMS will take into account 
whether stratification is currently required by the measure steward or 
other CMS programs and by

[[Page 28251]]

which factors when issuing guidance that identifies which measures, and 
by which factors, States must stratify mandatory measures.


Sec.  438.535  Reporting.

    (a) Upon CMS' request, but no more frequently than annually, the 
State must submit a Medicaid managed care quality rating system report 
in a form and manner determined by CMS. Such report must include:
    (1) A list of all mandatory measures displayed as required under 
Sec.  438.520(a)(1)(i) and any additional measures the State chooses to 
include in the Medicaid managed care quality rating system as permitted 
under Sec.  438.510(a).
    (2) An attestation that all displayed quality ratings for mandatory 
measures were calculated and issued in compliance with Sec.  438.515, 
and a description of the methodology used to calculate ratings for any 
additional measures, if such methodology deviates from the methodology 
in Sec.  438.515.
    (3) The documentation required under Sec.  438.520(b)(2), if 
including additional measures in the State's Medicaid managed care 
quality rating system in accordance with Sec.  438.520(c)(3).
    (4) The date on which the State publishes or updates the quality 
ratings for the State's managed care plans.
    (5) A link to the State's website for their Medicaid managed care 
quality rating system.
    (6) The application of any technical specification adjustments used 
to calculate and issue quality ratings described in Sec.  438.515(a)(3) 
and (4), at the plan- or State-level, that are outside a measure 
steward's allowable adjustments for a mandatory measure but that the 
measure steward has approved for use by the State.
    (7) A summary of each alternative QRS approved by CMS, including 
the effective dates for each approved alternative QRS.
    (b) States will be given no less than 90 days to submit such a 
report to CMS on their Medicaid managed care quality rating system.
0
29. Amend Sec.  438.602 by adding paragraphs (g)(5) through (13) and 
(j) to read as follows:


Sec.  438.602  State responsibilities.

* * * * *
    (g) * * *
    (5) Enrollee handbooks, provider directories, and formularies 
required at Sec.  438.10(g), (h), and (i).
    (6) The information on rate ranges required at Sec.  
438.4(c)(2)(iv), if applicable.
    (7) The reports required at Sec.  438.66(e) and Sec.  438.207(d).
    (8) The network adequacy standards required at Sec.  438.68(b)(1) 
through (2) and (e).
    (9) The results of secret shopper surveys required at Sec.  
438.68(f).
    (10) State directed payment evaluation reports required in Sec.  
438.6(c)(2)(v)(C).
    (11) Information on all required Application Programming Interfaces 
including as specified in Sec.  431.60(d) and (f).
    (12) Quality related information as required in Sec. Sec.  
438.332(c)(1), 438.340(d), 438.362(c) and 438.364(c)(2)(i).
    (13) Documentation of compliance with requirements in Subpart K--
Parity in Mental Health and Substance Use Disorder Benefits.
* * * * *
    (j) Applicability. Paragraphs (g)(5) through (13) apply to the 
first rating period for contracts with MCOs, PIHPs and PAHPs beginning 
on or after 2 years after [EFFECTIVE DATE OF THE FINAL RULE].
0
30. Amend Sec.  438.608 by revising paragraphs (a)(2) and (d)(3) and 
adding paragraph (e) to read as follows:


Sec.  438.608  Program integrity requirements under the contract.

    (a) * * *
    (2) Provision for reporting within 10 business days all 
overpayments identified or recovered, specifying the overpayments due 
to potential fraud, to the State.
* * * * *
    (d) * * *
    (3) Each MCO, PIHP, or PAHP must report annually to the State on 
all overpayments identified or recovered.
* * * * *
    (e) Standards for provider incentive or bonus arrangements. The 
State, through its contract with the MCO, PIHP or PAHP, must require 
that incentive payment contracts between managed care plans and network 
providers meet the requirements as specified in Sec. Sec.  438.3(i)(3) 
and (4).

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
31. The authority citation for part 457 continues to read as follows:

    Authority: 42 U.S.C. 1302.

0
32. Amend Sec.  457.10 by adding the definition of ``In lieu of service 
or setting (ILOS)'' in alphabetical order to read as follows:


Sec.  457.10  Definitions and use of terms.

* * * * *
    In lieu of service or setting (ILOS) is defined as provided in 
Sec.  438.2 of this chapter.
* * * * *
0
33. Amend Sec.  457.1200 by adding paragraph (d) to read as follows:


Sec.  457.1200  Basis, scope, and applicability.

* * * * *
    (d) Applicability dates. States must comply with the requirements 
of this subpart by the dates established at Sec. Sec.  438.3(v), 
438.16(f), 438.68(h), 438.206(d) and 438.310(d) of this chapter.
0
34. Amend Sec.  457.1201 by revising paragraphs (c), (e), and (n)(2) to 
read as follows:


Sec.  457.1201  Standard contract requirements.

* * * * *
    (c) Payment. The final capitation rates for all MCO, PIHP or PAHP 
contracts must be identified and developed, and payment must be made in 
accordance with Sec. Sec.  438.3(c) and 438.16(c)(1) through (3) of 
this chapter, except that the requirement for preapproval of contracts, 
certifications by an actuary, annual cost reports, contract 
arrangements described in Sec.  438.6(c), and references to pass 
through payments do not apply, and contract rates must be submitted to 
CMS upon request of the Secretary.
* * * * *
    (e) Services that may be covered by an MCO, PIHP, or PAHP. An MCO, 
PIHP, or PAHP may cover, for enrollees, services that are not covered 
under the State plan in accordance with Sec. Sec.  438.3(e) and 
438.16(b), (d), and (e) of this chapter, except that references to 
Sec.  438.7, IMDs, and rate certifications do not apply and that 
references to enrollee rights and protections under part 438 should be 
read to refer to the rights and protections under subparts K and L of 
this part.
* * * * *
    (n) * * *
    (2) Contracts with PCCMs must comply with the requirements of 
paragraph (o) of this section; Sec.  457.1207; Sec.  457.1240(b) 
(cross-referencing Sec.  438.330(b)(2), (b)(3), (c), and (e) of this 
chapter); Sec.  457.1240(e) (cross-referencing Sec.  438.340 of this 
chapter).
* * * * *
0
35. Amend Sec.  457.1203 by revising paragraphs (e) and (f) to read as 
follows:


Sec.  457.1203  Rate development standards and medical loss ratio.

* * * * *
    (e) The State must comply with the requirements related to medical 
loss ratios in accordance with the terms of

[[Page 28252]]

Sec.  438.74 of this chapter, except contract arrangements described in 
Sec.  438.6(c) do not apply and the description of the reports received 
from the MCOs, PIHPs and PAHPs under Sec.  438.8(k) of this chapter 
will be submitted independently, and not with the rate certification 
described in Sec.  438.7 of this chapter.
    (f) The State must ensure, through its contracts, that each MCO, 
PIHP, and PAHP complies with the requirements in Sec.  438.8 of this 
chapter, except that contract arrangements described in Sec.  438.6(c) 
do not apply.
0
36. Revise Sec.  457.1207 to read as follows:


Sec.  457.1207  Information requirements.

    The State must provide, or ensure its contracted MCO, PAHP, PIHP, 
PCCM, and PCCM entities provide, all enrollment notices, informational 
materials, and instructional materials related to enrollees and 
potential enrollees in accordance with the terms of Sec.  438.10 of 
this chapter, except that the terms of Sec.  438.10(c)(2), 
(g)(2)(xi)(E), and (g)(2)(xii) of this chapter do not apply and that 
references to enrollee rights and protections under part 438 should be 
read to refer to the rights and protections under subparts K and L of 
this part. The State must annually post comparative summary results of 
enrollee experience surveys by managed care plan on the State's website 
as described at Sec.  438.10(c)(3) of this chapter.
0
37. Amend Sec.  457.1230 by revising paragraph (b) to read as follows:


Sec.  457.1230  Access standards.

* * * * *
    (b) Assurances of adequate capacity and services. The State must 
ensure, through its contracts, that each MCO, PIHP and PAHP has 
adequate capacity to serve the expected enrollment in accordance with 
the terms of Sec.  438.207 of this chapter, except that the reporting 
requirements in Sec.  438.207(d)(3)(i) of this chapter do not apply. 
The State must evaluate the most recent annual enrollee experience 
survey results as required at section 2108(e)(4) of the Act as part of 
the State's analysis of network adequacy as described at Sec.  
438.207(d) of this chapter.
* * * * *
0
38. Amend Sec.  457.1240 by revising paragraphs (d) and (f) to read as 
follows:


Sec.  457.1240  Quality measurement and improvement.

* * * * *
    (d) Managed care quality rating system. The State must determine a 
quality rating or ratings for each MCO, PIHP, and PAHP in accordance 
with the requirements set forth subpart G of part 438 of this chapter, 
except that references to dually eligible beneficiaries, a beneficiary 
support system, and the terms of Sec.  438.525(b)(1) and (c)(2)(ii) of 
this chapter related to consultation with the Medical Care Advisory 
Committee do not apply.
* * * * *
    (f) Applicability to PCCM entities. For purposes of paragraphs (b) 
and (e) of this section, a PCCM entity described in this paragraph is a 
PCCM entity whose contract with the State provides for shared savings, 
incentive payments or other financial reward for improved quality 
outcomes.
0
39. Amend Sec.  457.1250 by revising paragraph (a) to read as follows:


Sec.  457.1250  External quality review.

    (a) Each State that contracts with MCOs, PIHPs, or PAHPs must 
follow all applicable external quality review requirements as set forth 
in Sec. Sec.  438.350 (except for references to Sec.  438.362), 
438.352, 438.354, 438.356, 438.358 (except for references to Sec.  
438.6), 438.360 (only with respect to nonduplication of EQR activities 
with private accreditation) and 438.364 of this chapter.
* * * * *
0
40. Revise Sec.  457.1285 to read as follows:


Sec.  457.1285  Program integrity safeguards.

    The State must comply with the program integrity safeguards in 
accordance with the terms of subpart H of part 438 of this chapter, 
except that the terms of Sec. Sec.  438.66(e), 438.362(c), 
438.602(g)(6) and (10), 438.604(a)(2), 438.608(d)(4) and references to 
LTSS of this chapter do not apply and that references to subpart K 
under part 438 should be read to refer to parity requirements at Sec.  
457.496.

    Dated: April 24, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-08961 Filed 4-27-23; 4:15 pm]
BILLING CODE 4120-01-P