Final Rule Seeks to Modernize Medicaid Managed Care Delivery

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By Nathaniel Weixel

April 25 — A long-awaited final rule released April 25 by the CMS aims to align Medicaid and Children's Health Insurance Program (CHIP) managed care plans with other sources of health insurance coverage.

The rule (CMS-2390-F, RIN 0938-AS25), which runs over 1,400 pages, overhauls the entire Medicaid managed care delivery system and represents the first update to managed care regulations since 2002.

Among many provisions, the rule for the first time will set a minimum medical loss ratio (MLR) for Medicaid. The MLR of 85 percent mandates that plans spend a minimum of 85 percent of their intake on medical expenses, not administrative expenses. The rule also establishes a Medicaid managed care quality rating system and makes sure insurance networks include enough doctors and hospitals.

The final rule will be phased in over time, the agency said. The rule will be published May 6, and most of the requirements will be effective 60 days from that date.

Medicaid managed care is an ever-growing sector of care delivery. To date, 39 states and the District of Columbia enroll beneficiaries in comprehensive managed care plans, and almost two-thirds of the 72 million Medicaid beneficiaries are enrolled in risk-based managed care organizations (MCOs), the Centers for Medicare & Medicaid Services said. In addition, states that are expanding Medicaid under the Affordable Care Act increasingly are relying on managed care to reach the millions of newly eligible beneficiaries.

“The health care delivery landscape has changed substantially, both within the Medicaid program and outside of it. Reflecting the significant role that managed care plays in the Medicaid program and these substantial changes, this rule modernizes the Medicaid managed care regulatory structure to facilitate and support delivery system reform initiatives to improve health care outcomes and the beneficiary experience while effectively managing costs,” the CMS said.

In most states, MCOs assume the full financial risk for delivering a comprehensive set of services. These services generally include all primary, specialty and acute medical care. States pay MCOs a fixed monthly fee per enrollee, and the MCO delivers services through a network of participating providers.

“Medicaid improves the health, well-being, and financial security of millions of Americans,” Vikki Wachino, CMS deputy administrator and director of the Center for Medicaid and CHIP Services, said in a statement. “These new rules will help Medicaid continue to be a leader in providing high-quality care to diverse populations with diverse health needs.”

Mostly Unchanged

CMS officials had said they needed to read through more than 800 comments before releasing a final rule. Mostly, the agency kept many of the rule's original proposals intact.

The proposed rule set a minimum MLR for managed care plans of 85 percent, and that was codified in the final rule. The proposed rule also called for states to develop standards by which to review the provider networks used in Medicaid managed care. That also was left unchanged. The final rule will also require states to establish Medicaid's first managed care quality rating system, as was proposed. However, while the CMS will use most of the same rating system as it uses for exchange plans, it won't give states the option to default to the Medicare Advantage five-star rating system.

The fact that the agency accepted so many comments yet changed very little “shows they pretty much had their mind made up,” Bloomberg Intelligence analyst Brian Rye said in an interview.

“In a year where everyone is focused on the presidential races, the congressional races, the rule underscores the unilateral power the CMS has over the health-care industry,” Rye said. Combined with the recent proposed rule on alternative approaches for paying for Medicare Part B drugs, “there's lots of power within the executive branch of government to influence health care.”

Medical Loss Ratio

Managed care industry representatives had been concerned that the CMS would codify the 85 percent nationwide medical loss ratio from the proposed rule, which they said would be overly restrictive and inflexible. Jeffrey Myers, president and chief executive officer of the Medicaid Health Plans of America, told Bloomberg BNA he was disappointed with the decision.

“We continue to believe this is probably not the right direction to go with the Medicaid program,” Myers told Bloomberg BNA April 25. “Most of what goes into [calculating] the MLR is already in state contracts. Plans will manage, states will manage, life will go on, but this was a missed opportunity for states to have flexibility.”

The MLR reporting requirements will begin July 1, 2017.

Rye said plans shouldn't have been surprised by the agency's decision to keep the proposed MLR intact in the final rule, because much of the insurance industry already operates under one, and the 85 percent minimum is the industry standard for Medicare Advantage and large employers in the private market.

“It's been almost a year since the proposal was released. Everyone has had time to prepare to change things in their organization,” Rye said. “Most [plan representatives] were probably prepared for what they got today, even though they were hoping to be pleasantly surprised.”

According to the CMS, Medicaid and CHIP are the only health benefit coverage programs that don't utilize a minimum MLR for managed care plans.

Myers said the issue wasn't whether or not an MLR needed to be imposed. Most states already have an MLR, he said, and Medicaid plans felt it wasn't necessary for the CMS to set a federal guideline for something states already do well.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Janey Cohen at

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