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CMS Publishes Medicaid Managed Care and Access Rules

May 8, 2024

The Centers for Medicare & Medicaid Services (CMS) on April 22 issued two final rules — Medicaid and CHIP Managed Care Access, Finance, and Quality and Ensuring Access to Medicaid Services — that modify existing Medicaid managed care regulations and seek to ensure access to care across fee-for-service (FFS) and managed care delivery systems.

The final Medicaid managed care rule codifies significant regulatory changes applicable to state directed payments (SDPs), as well as broader Medicaid managed care changes related to:

  • Requirements applicable to “in lieu of services and settings” (ILOS).
  • Medical loss ratio (MLR) policy and reporting.
  • State quality strategies, improvements, and reviews.
  • Access-to-care requirements for managed care.

Of note, the managed care rule confirms states’ ability to implement directed payments for certain services to increase payment levels up to the average commercial rate (ACR), including for hospital and nursing facility services and professional services at academic medical centers. In a departure from the proposed rule, the final rule prohibits states’ use of “separate payment terms” — amounts states pay to managed care plans for SDPs that are separate from per member per month payments — and will instead require states to incorporate their directed payments as an adjustment to the base capitation rates they pay to plans.

The rule also expressly applies the agency’s policy outlined in a 2023 informational bulletin prohibiting providers from participating in private provider tax “hold harmless” arrangements but postpones enforcement of that requirement until 2028. CMS did not implement any overall limit on directed payments as a share of expenditures, though the agency had requested comments on the idea in the proposed rule.

The final Medicaid access rule adds new requirements for access and rate transparency in FFS Medicaid programs, most of which take effect in July 2026. However, many of the new standards still do not directly apply to hospital services.

The rule also finalizes changes to home-and community-based services (HCBS) rate setting and adds new requirements for beneficiary engagement in the development of Medicaid policies. In a departure from the managed care rule, which adopts timeliness standards for plans related to certain services, CMS declined to adopt such standards in the FFS program.

SDP Provisions

The final managed care rule sets limits on SDPs and makes several substantial changes to the 2016 regulations that first explicitly authorized this payment authority. In general, many of the changes in the final rule intend to address fiscal integrity concerns associated with the growth in SDPs. The rule also makes changes to tie SDPs to state quality goals and adds more transparency requirements.

Use of the ACR as An Upper Limit for SDPs

The final rule codifies CMS’ policy of allowing states to make directed payments up to the ACR for inpatient hospital services, outpatient hospital services, qualified practitioner services at academic medical centers, and nursing facility services. CMS declined to adopt an explicit limit on SDPs for other services, but the rule notes that CMS intends to use the ACR as the fiscal benchmark by which it will evaluate whether total payment rates for all SDPs are reasonable, appropriate, and attainable.

If the total payment under the SDP exceeds the Medicare payment rate, states are required to conduct ACR demonstrations for services subject to the limit. Among other requirements, the demonstrations must use state-specific payment data that is no older than from the three most recent and complete years prior to the rating period of the requested approval. CMS did not require states to use a particular source of data for the ACR but indicated that it expects to publish additional guidance that highlights state best practices that are consistent with the final rule. The demonstration must be submitted with applications for new SDPs and any renewal or amendment and updated every three years.

Unlike Medicaid upper payment limit (UPL) demonstrations in FFS, CMS’ final rule does not require states to conduct ACR demonstrations for a particular provider class. As a result, it is possible for a hospital to be paid higher than the ACR for their individual hospital if aggregate payments in the state for the service are below the ACR.

Financing Attestation Requirement

CMS’ final rule codifies a new requirement that states attest that the financing of the nonfederal share of SDPs complies with all applicable federal requirements. These requirements apply for rating periods that begin after July 9, 2027. States will be required to provide such attestations to CMS, upon request, unless they provide a satisfactory explanation as to why an attestation has not been provided.

At the same time, the preamble of the final rule reiterates CMS’ broad interpretation of impermissible “hold harmless” arrangements, which many stakeholders view as change in federal policy that could jeopardize some currently permissible provider taxes. Under CMS’ interpretation, first articulated in a February 2023 informational bulletin, providers subject to a Medicaid provider tax cannot enter into private arrangements to redistribute payments to mitigate the tax’s impact.

In a separate informational bulletin issued on the same day as the final rule, CMS noted it will not enforce the February 2023 hold harmless policy for existing redistribution arrangements until Jan. 1, 2028, acknowledging that states will need time to bring their financing arrangements into compliance with the policy. The agency, however, will continue to identify and track provider tax hold harmless arrangements.

Administrative Limits on SDPs

The rule adds new administrative limits on SDPs that intend to ensure that SDPs are consistent with “the risk-based nature of managed care.” These changes ultimately add more risk for providers about whether the total payment amount that they receive through SDPs will be the same as what the state initially estimated.

Prohibits Separate Payment Terms

The final rule prohibits states’ use of “separate payment terms” and will instead require states to incorporate their directed payments as an adjustment to the base capitation rates they pay to plans per member per month. The elimination of the state option to make separate payment terms is a shift from the proposed rule, in which CMS indicated that it planned to permit separate payment terms with increased regulatory oversight. This new prohibition will take effect for rate years that begin after July 9, 2027.

CMS notes that about 55 percent of SDPs currently use separate payment terms, and most of the comments that CMS received about separate payment terms were positive. For example, states, plans, and providers noted that separate payment terms were administratively simpler than incorporating SDPs into base capitation rates. In addition, stakeholders noted that separate payment terms remove a disincentive for health plans to direct patients to providers that receive targeted rate enhancements through SDPs.

Ultimately, CMS’ rationale for eliminating separate payment terms is its concern that this arrangement provides little or no risk for managed care plans.

Prohibits Fixed Payment Pools Based on Historic Utilization and End-of-Year Reconciliation

The final rule also prohibits states from using a fixed payment pool where interim payments are based on historic utilization and then reconciled to actual utilization after the end of the rate year. CMS noted it was prohibiting this practice because it eliminates risk for both the managed care plan and the providers eligible for the payments. The agency further noted its concern that such payment arrangements are driven by the financing of the nonfederal share of the payments rather than by furthering goals and objectives in the states’ managed care quality strategies.

Requires SDP Preprints to be Submitted in Advance of Effective Date

The final rule requires states to submit preprints and amendments to preprints prospectively before the date on which the payment arrangement in the SDP or amendment is to take effect. This final requirement is more restrictive than what CMS initially proposed, which would have allowed SDPs that were retroactively effective if the preprint was submitted at least 90 days before the end of the rating period or if an amendment was submitted before the end of the rating period.

CMS clarifies the four components of a complete SDP application or amendment:

  1. The completed preprint.
  2. Total payment rate analysis.
  3. ACR demonstration for applicable services.
  4. Evaluation plan.

These requirements do not apply to SDPs that set a minimum fee schedule using Medicaid state plan rates or the total published Medicare rate because these SDPs do not require CMS’ written prior approval under current CMS policy.

New Flexibility for Value-based Directed Payments

In contrast to many of the new limits placed on states’ ability to design SDP terms, CMS finalized proposals to give states greater flexibility in structuring value-based directed payments. These include allowing states to recoup any SDP funding provided to plans that is not paid out to providers and allowing performance-based SDPs to be based on performance for up to 12 months prior to the rating period.

At the same time, for performance-based SDPs, states must include at least one performance measure using performance targets set to improve or maintain performance over an established baseline. CMS also requires that any SDPs using population-based or condition-based payments (such as per member per month payments for an attributed population) must replace rather than supplement negotiated rates between plans and providers.

Transparency and Evaluation Requirements

The rule finalizes some transparency and evaluation requirements that CMS previously proposed.

New Reporting on SDP Expenditures and Provider-Level Payments

The final rule requires states to report the total dollars expended by managed care plans for SDPs, including amounts paid to individual providers. States must report this information no later than one year following the rating period through the transformed Medicaid statistical information system used to track other Medicaid spending. CMS noted that it may use this information to verify whether SDP payments were made in accordance with managed care contracts and determine whether an SDP should be renewed. CMS noted that these data could be used to assess the accuracy of states’ total payment rate analyses submitted with their preprints. CMS also signaled interest in using these data to inform future Medicaid payment policy changes intended to promote fiscal integrity.

State Directed Payments in MLR Calculations

The final rule also codifies CMS’ proposal to require managed care plans to include all SDPs in their plan-level MLR reporting. Under the rule, SDPs paid by managed care plans to providers will be reported as incurred claims in the MLR numerator, and total SDP-premium revenue from states to managed care plans will be included in the MLR denominator.

Quality Reporting and Evaluation Requirements

Under current rules, states are required to establish evaluation plans for all SDPs, and the current preprint asks for the results of the evaluation. CMS has made these requirements more rigorous and specific. The agency requires that evaluation plans include at least two metrics to evaluate performance against the SDP’s stated goals and objectives, at least one of which is a performance measure that includes a specific performance baseline and a target set to maintain or improve performance over the baseline. The evaluation plan must be submitted with each preprint submission or renewal.

In addition, the final rule requires states to complete an evaluation report for all SDPs evaluating the extent to which the SDP met its goals and objectives, including the performance targets. The reports will need to be submitted to CMS for large SDPs — those with a “cost percentage” of 1.5 percent or more — once every three years. The cost percentage is the percentage of total capitation payments attributable to the SDP. CMS has authority to disapprove the renewal if evaluation reports indicate that a directed payment program is repeatedly not meeting its stated goals and objectives, whether or not the report is submitted to CMS.

Other Directed Payment Changes

SDP Payments to Non-Network Providers Permitted

Under the final rule, states will be permitted to include non-network providers in their SDPs.

“Grey Area” Payments Subject to SDP Requirements

CMS has codified its policy, previously announced in guidance, that general contract provisions requiring plans to increase payments to providers must comply with all SDP requirements, even if they do not specify the amount, timing, or methodology of the payments.

More Detail About SDPS in States’ Contracts with Plans

Currently, some states include a very general reference to compliance with state SDPs in their contracts with managed care plans, providing more detail outside the contract in guidance or other communications. The rule requires the contract to include more detail on each SDP, including:

  • The eligible providers.
  • The specific fee schedule, if applicable.
  • The uniform increase percentage or dollar amount, if applicable.
  • For value-based SDPs, the performance measures, populations, or conditions on which payment is based.

Establishing Disapproval and Appeals Process

To date, CMS has not had any formal process for disapproving a proposed SDP. The final rule allows for disapprovals based on impermissible financing, failure to show required improvement in the quality measures, or other noncompliance with the regulations. In addition, the rule establishes procedures for appeals of SDP disapprovals to the Departmental Appeals Board, while clarifying that states also can seek redress directly in the courts.

Other Managed Care Changes

The final rule makes other significant changes applicable to state Medicaid managed care programs.


CMS’ final rule codifies its proposed changes to managed care plans’ coverage of services or settings “in lieu” of those specified in the state plan. States and managed care plans have used the ILOS authority to expand access to and availability of covered services and to address social determinants of health and health-related social needs. As defined in the final rule, an ILOS can be used:
• As an immediate or longer-term substitute for a covered service or setting under the state plan.
• When the ILOS can be expected to reduce or prevent the future need to use the covered service or setting under the state plan.

CMS expects this definition may facilitate coverage of ILOS, such as medically tailored meals or housing transition navigation services for certain populations for which these interventions may reduce health complications and demand for state plan services, such as emergency department use.

The final rule imposes some constraints and additional oversight on ILOS. For example, it clarifies that ILOS must be an approvable service or setting under a state plan or under a section 1915(c) HCBS waiver program, and the ILOS must be specifically identified in the contract with the plan. It also limits ILOS payments, other than those attributable to a short-term stay in an Institute of Mental Disease, to 5 percent of total capitation payments, inclusive of all SDPs and pass-through payments, for each managed care program. It requires retrospective five-year evaluations of ILOS if their cost percentage exceeds 1.5 percent.

Additionally, the rule requires states to notify CMS within 30 days if the state determines that the ILOS is no longer a medically appropriate or cost-effective alternative for state plan services or is otherwise out of compliance. CMS may require termination of noncompliant ILOS through a state-developed ILOS transition plan. Finally, the rule explicitly requires that enrollees be advised of their right to receive the service or setting covered under the state plan, rather than a service or setting offered as an ILOS.

Provider Incentive Arrangements

CMS finalizes new requirements for provider incentive arrangements between plans and network providers. As indicated in the proposed rule, CMS has concerns that managed care plans may have a financial incentive to pay provider incentives inappropriately when the plans are unlikely to meet minimum MLR requirements. CMS is concerned that such payments may inappropriately inflate the numerator of the MLR calculation and reduce or eliminate plan obligations to pay remittances to their states. CMS noted this is a particular risk for managed care plans that are integrated with a medical or hospital system, which may be incentivized to move revenue out of their plan and into the affiliated medical or hospital system.

To address this concern, CMS will require provider incentive payment contracts to include more specific information, such as a defined performance period, quality improvement or performance metrics, and a specific dollar amount or percentage of an identifiable dollar amount in the contract that can be clearly linked to successful completion of these metrics. Incentive payment contracts also must be signed before the start of the performance period. Additionally, moving forward, CMS will review state oversight practices for vertically integrated health plans’ provider incentives as part of its MLR reviews of state managed care programs and Children’s Health Insurance Programs (CHIP).

Appointment Wait Times

In contrast to CMS’ final FFS access rule, under which CMS opted not to adopt timeliness standards for care, the final managed care rule requires states to establish appointment wait time standards for their Medicaid and CHIP managed care programs. Under the rule, states will be required to develop and enforce wait time standards that managed care plans must meet for routine appointments for four types of services:

  • Adult and pediatric outpatient mental health and substance use disorder (SUD).
  • Adult and pediatric primary care.
  • OB-GYN care.
  • An additional type of service determined by the state that targets a challenge in their local market.

At a minimum, state appointment wait time standards must be no longer than 10 business days for routine outpatient mental health and SUD appointments and 15 business days for routine primary care. States will be responsible for defining what is considered a “routine appointment” within each category of services as they deem appropriate. The final rule establishes a 90 percent compliance rate with the maximum appointment wait time standards for managed care plans. CMS specifies that telemedicine visits can be used to meet these requirements as long as states appropriately balance the use of telemedicine with the availability of in-person care to reflect enrollees’ needs and preferences for the settings in which they receive care.

Enrollee Experience Survey

CMS finalized as proposed the requirements to explicitly include an annual enrollee experience survey in their managed care program monitoring systems. CMS expects states to use the data to improve performance under their managed care programs. States that contract with MCOs and use external quality review organizations to administer or validate the experience survey may be eligible to receive up to 75 percent enhanced federal match.

State Quality Strategies

Under current regulations, states are required to establish quality strategies for assessing and improving the quality of care provided by managed care plans, submit them to CMS, and update them every three years. These strategies include goals and objectives, which SDPs must be designed to promote. The final rule strengthens opportunities for public comment on the strategy and requires states to post on their websites results of their three-year reviews of the strategies. Following the state’s review and evaluation of the strategy, states must submit a revised strategy to CMS at least every three years and whenever they make a significant change to the strategy.

External Quality Review (EQR)

The final rule eliminates certain EQR requirements that CMS identified as burdensome for states to make EQR more meaningful for driving quality improvement, including through SDPs. Specifically, the rule:

  • Makes it easier for states to use accreditation reviews for EQR.
  • Establishes consistent 12-month review periods for annual EQR activities.
  • Requires the inclusion of more meaningful data and information about managed care plans and programs, including quality outcomes, timeliness of care, and access.

CMS also finalized its proposal to add a new optional EQR activity to assist in evaluation of SDPs, state quality strategies, and ILOS. CMS will develop a protocol for these evaluations, in conjunction with the National Governors Association. In addition to reducing administrative burden on states, CMS further noted utilizing these optional EQR activities could reduce financial burden on states to carry out these evaluations, as EQR activities are eligible to receive an enhanced match of 75 percent.

Medicaid Managed Care Quality Rating System (MAC QRS)

CMS finalized its proposal to enhance its Medicaid and CHIP Managed Care Quality Rating System framework to include mandatory quality measures, a methodology for calculating quality ratings, and a mandatory website display format. CMS aims to provide one location where beneficiaries can access information easily and compare plans that best fit their needs. The final rule also allows states to include additional measures, in addition to the CMS-identified mandatory measures, without seeking CMS approval.

Payment Rate Analyses and Access to Care

Both rules add new requirements for monitoring payment rates for selected services. These requirements replace the access monitoring review plan (AMRP) process that CMS created after the Supreme Court ruled in 2015 that providers cannot sue to enforce Medicaid access requirements.

The final rule contains no requirement to analyze hospital rates in fee-for-service or managed care. However, the FFS access rule does include additional rate transparency requirements.

In managed care, the rule includes several additional access requirements that do not apply in FFS. These include new appointment wait time standards and requirements to collect more feedback from beneficiaries through enrollee experience surveys and secret shoppers. CMS also will impose new website enhancements to improve access to plan information.

Comparative Rate Analysis in FFS and Managed Care

The final rule will require states to develop an analysis comparing Medicaid base payment rates to Medicare nonfacility payment rates in FFS and managed care. The rate analysis will not include supplemental payments but will include base rates effective for the same period for the same set of service codes and same geographic location for:

  • Primary care services.
  • OB-GYN services.
  • Outpatient mental health and substance use disorder services.

CMS also will require states to develop a payment rate disclosure for personal care, home health aide, and homemaker services. For both the comparative payment analysis and payment rate disclosure, rates must be separately identified by population, provider type, and geographical location, if applicable.

CMS widened the scope of OB-GYN services subject to access reviews and excluded other physician specialists and inpatient behavioral health services from current AMRP requirements.

CMS did not extend the comparative rate analysis requirement to other services governed by existing AMRP requirements. Instead, these services will be subject to review through the state plan amendment (SPA) review and approval process.

States must publish the initial comparative payment rate analysis and payment rate disclosures no later than July 1, 2026, for rates in effect July 1, 2025. States must update these analyses and disclosures at least every two years and publish the rates on a state website. Additionally, states must regularly update Medicaid FFS rates for all services starting July 1, 2026.

Should a state fail to meet the procedural requirements, CMS may withhold future federal matching funds until the state complies. CMS may withhold an amount attributable to the state’s administrative expenditures relative to the total expenditures for the categories of services for which the state failed to comply.

Required Analysis for Rate Reduction or Restructuring in FFS

Should a state propose a SPA that would reduce rates or otherwise restructure payments in a way that could reduce access, CMS will require additional data to ensure access to services is maintained. CMS finalized a two-tiered system. A proposed SPA will be subject to first-tier requirements if it meets the following three criteria, under which circumstances CMS believes access is unlikely to be diminished:

  1. Aggregate Medicaid payments, including base and supplemental payments, following the reduction or restructuring for each affected benefit category would be at or above 80 percent of the most recent Medicare FFS payment rates for the same or comparable set of Medicare-covered services.
  2. The proposed change in rates, combined with other reductions or restructurings during the current state fiscal year, likely would result in no more than a four percent reduction in aggregate FFS Medicaid expenditures for each affected benefit category.
  3. Public processes to elicit beneficiary, provider, and other stakeholder feedback have not raised concerns about rates leading to a reduction in access to care.

For first-tier proposals, the state must provide written assurance and relevant supporting documentation that the three conditions are met and a description of the state’s procedures for monitoring continued compliance with the statutory requirement that payments are sufficient to enlist enough providers so that care and services are available under the state plan at least to the extent they are available to the general population in the geographic area.

A state proposal that does not meet the three requirements will be considered second-tier. In addition to the data required for first-tier proposals, the state will have to submit a more rigorous data analysis as a condition of SPA approval, including:

  1. A summary of the proposed payment change, including the reason and policy purpose for the change.
  2. Aggregate Medicaid payment rates, including base and supplemental payments, before and after the proposed reduction or restructuring for each benefit category. The proposal also must include a comparison to current Medicare payment rates for the same or comparable Medicare-covered services, and, if feasible, payment rates of other health care payers in the state.
  3. The number of actively participating service providers, beneficiaries receiving these services through the Medicare FFS delivery system, and Medicaid services furnished in each benefit category affected by the rate change for each of the three years preceding the SPA submission date, by the geographic area, provider type, and site of service.
  4. A summary of and response to any access to care concerns or complaints received from beneficiaries, providers, or other stakeholders.

In State Medicaid Director Letter #17-004, CMS noted several circumstances where Medicaid payment rate reductions are not expected to diminish access:

  • Reductions necessary to implement CMS federal Medicaid payment requirements.
  • Reductions implemented as a decrease to all codes within a service category but continue to be at or above the Medicare or average commercial rate.
  • Reductions from changes implemented through the Medicare program.

This rule does not codify this list; any changes will be subject to the two-tier review process.

CMS will release subregulatory guidance, including a template to support second-tier analysis requirements, before the comparative payment rate analysis timeframe.

CMS will further require that states create ongoing mechanisms for beneficiary and provider input on access to care, respond promptly to such input, and document the input and response to share with CMS upon request.

CMS also finalized compliance enforcement mechanisms related to these rate reduction SPAs. CMS will not approve a SPA unless states have submitted the required information. If the state submits the required information but access concerns related to a proposal remain unresolved, CMS may disapprove a SPA. If a SPA is approved but subsequent state access monitoring shows a decrease in access to care or an increase in beneficiary or provider complaints about access, CMS may withhold federal matching funds for failure to comply with federal requirements until the state remedies the access issue.

The final rule maintains current requirements for state corrective action plans to remedy identified access deficiencies. However, it adds explicit authority for CMS to take a compliance action to remedy an access deficiency by withholding federal matching funds until the deficiency is remedied.

These procedures will be applicable on the effective date of the final rule.

Payment Rate Publication

CMS will require states to publish all Medicaid FFS payment rates on a website to ensure rates are publicly accessible and easily located and understood. The publication must be organized so the public can readily find the amount Medicaid would pay for a service, including bundled payment methodologies (i.e., identifying each service included in the rate and how much of the payment is allocated to each service). Rates should be separated by population, provider type, and geographic locations. The website also should include the state’s comparative payment rate analysis and payment rate disclosure. States must make accommodations for individuals with disabilities and with limited English proficiency.

The website must include when the payment rates were last updated. States must update fee schedules on the website within one month of approval of a SPA, HCBS waiver, or similar amendment revising the payment rates, or the effective date of an approved amendment. The one-month deadline also applies to FFS payment rate changes due to previously approved SPAs containing payment methodologies that produce variable rates (e.g., Medicaid payment rates for durable medical equipment at a percentage of the most recent Medicare fee schedule rate).

CMS requires these rates to be published by July 1, 2026. CMS will limit the initial publication to CMS-approved payment rates and methodologies and exclude any rate changes for a SPA pending CMS review or approval.

Fully FFS States

CMS considered access standards for states with fully FFS delivery systems but is not finalizing them at this time. CMS will consider rulemaking for timeliness standards at a future date.

Medicaid Advisory Committee and Beneficiary Advisory Councils

CMS will rename the Medical Care Advisory Committee to the Medicaid Advisory Committee (MAC) and update committee requirements to provide a framework designed to ensure proper, efficient Medicaid program administration and ensure Medicaid services are provided in beneficiaries’ best interest. Further, states are required to establish a dedicated Medicaid beneficiary advisory council (BAC).

The Medicaid agency will select MAC and BAC members on a rotating, continuous basis, for a specific amount of time determined by the state. At least 25 percent of the MAC will be individuals in the BAC. MAC also must include representation from clinical providers or administrators familiar with Medicaid, members of state or local consumer advisory groups that represent the interests of Medicaid beneficiaries, and representatives from Medicaid managed care organizations, as well as representatives from other state agencies that serve beneficiaries, serving as ex officio members. CMS recommends representation from several other categories and allows states to decide the size of the MAC.

Further, CMS sets MAC and BAC meeting and transparency requirements. MAC will submit an annual report incorporating BAC perspective and feedback to the states.

States will have one year after the effective date to establish a MAC and BAC and two years after the effective date to finalize the first annual report.

Home-and Community-Based Services (HCBS)

CMS finalized amendments and added new federal HCBS requirements to improve access to care, quality of care, and beneficiary health and quality of life outcomes. The requirements for Section 1915(c) wavier programs and 1915(i), (j), and (k) state plan services included in this rule will apply to such services in approved Section 1115 demonstration projects, unless specified otherwise. These requirements also will apply to both FFS and managed care delivery systems.

Person-Centered Service Plans

The HCBS requirements establish a new strategy for oversight, monitoring, quality assurance, and quality improvement for Section 1915(c) waiver programs. To ensure a more consistent application of person-centered service plan requirements, CMS codified a minimum performance level. Through this, states are required to demonstrate that an annual reassessment of functional need was conducted for at least 90 percent of individuals continuously enrolled in the waiver for at least 365 days.

States also must demonstrate they reviewed and revised the person-centered service plan based on the results of the required reassessment of functional need at least every 12 months for at least 90 percent of individuals. States will have three years after the rule’s effective date to comply with this requirement.

Grievance System

Current regulations require that all Medicaid beneficiaries have the opportunity for a fair hearing before the state Medicaid agency in the event of termination, suspension, or reduction of Medicaid eligibility, benefits, or services. This applies to beneficiaries receiving HCBS services in both FFS and managed care delivery systems. However, managed care enrollees also have access to an appeals system for an adverse benefit determination issued by the plan and a grievance system that allows the enrollee to file an expression of dissatisfaction about something other than an adverse benefit determination. Currently, FFS beneficiaries do not have access to a grievance system. This rule will require states to establish grievance procedures for Medicaid beneficiaries receiving Section 1915(c) waiver program services through FFS. This grievance process does not apply to managed care and does not establish new fair hearing system requirements. States will have two years to establish this process.

Incident Management System

CMS will require states to provide assurance that they operate and maintain an incident management system that identifies, reports, triages, investigates, resolves, tracks, and trends critical incidents. Critical incidents will include, at a minimum:

  • Verbal, physical, sexual, psychological, or emotional abuse.
  • Neglect.
  • Exploitation.
  • Misuse or unauthorized use of restrictive interventions or seclusion.
  • Medication error involving a poison control center, an emergency department visit, an urgent care visit, hospitalization, or death.

Providers will be required to report these incidents that occur during the delivery of HCBS services, and states will be required to use other data sources, such as Adult Protective Services data, to identify unreported critical incidents.

States will be required to report and demonstrate that they met the minimum performance level of 90 percent for investigations of critical incidents, completed investigations, determined a resolution, and took corrective action. States are required to report on their incident management system every 24 months and submit an annual report on critical incidents. States will have three years after the final rule to establish the incident management system.

Payment Adequacy

CMS will require that at least 80 percent of all Medicaid payments, including both base and supplemental payments, be spent on compensation to direct care workers, which provide homemaker services, home health aide services, and personal care services. This applies to salary, wages, and benefits for services delivered in FFS and managed care delivery systems. States must report on this annually.

Contact Director of Policy Rob Nelb, MPH, at or 202.585.0127 with questions.

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