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CMS Proposes to Streamline Medicaid Managed Care Regulations

The Centers for Medicare & Medicaid Services (CMS) on Nov. 8 released a proposed rule aimed at streamlining Medicaid and Children’s Health Insurance Program (CHIP) managed care regulations.

The proposed rule reflects the agency’s broader strategy to relieve regulatory burden, support state flexibility, and promote transparency and innovation in the delivery of care.

Of particular interest to essential hospitals, the proposal would afford states increased flexibility to direct support to certain providers under managed care contracts through “directed payments” and “pass-through payments.” Under 2016 changes to the Medicaid managed care regulations, CMS established strict criteria and a prior-approval process for states to mandate that plans participate in certain provider payment arrangements (e.g. minimum fee schedules, rate increases, value-based payments, and delivery system reform initiatives). CMS also prospectively prohibited pass-through payments and established a transition period for pre-existing pass-through payments.

In this new proposed rule, CMS acknowledges that the current requirements and review processes have added burden for states and hindered their ability to tailor managed care contracts to their markets. This month’s proposal would:

  • remove the requirements that states obtain written CMS approval prior to implementing required minimum fee schedules based on Medicaid state plan rates (i.e., fee for service [FFS] base rates, exclusive of supplemental payments);
  • explicitly permit states to adopt directed payment rates based on cost, a Medicare equivalent, commercial rates, or another market-based rate; and
  • allow approval of multiyear arrangements if a state meets certain criteria, which codifies guidance issued in November 2017.

CMS also proposes to allow states to establish new pass-through payments when they expand managed care programs. Specifically, states would be permitted to make pass-through payments to hospitals, nursing facilities, or physicians for up to three years as a state transitions either a Medicaid population or service from FFS to managed care. The pass-through payments are subject to limits based on pre-existing FFS supplemental payments, as well as other requirements.

The proposed rule also contains updates to actuarial soundness, rate certifications — including restoring some flexibility to certify rate ranges — network adequacy requirements, quality rating systems, and other provisions.

America’s Essential Hospitals is analyzing the proposed rule and will send members a detailed Action Update in the coming days.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Zina Gontscharow is a former senior policy analyst for America's Essential Hospitals.

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