Modernizing Medicaid Managed Care

Print Friendly, PDF & Email

By David Chorney and Maggie Schmid

The Balanced Budget Act of 1997 (the “BBA”) represented the first comprehensive revision to federal status governing Medicaid managed care since the 1980s, and in 2002, regulations were promulgated to implement the standards set forth in the BBA.  Since 2002, the Medicaid health care delivery landscape has changed dramatically,[1] but the Centers for Medicare and Medicaid Services (“CMS”) guidance has been minimal.

Recognizing the need for updated guidance, especially after the passage of the Affordable Care Act (“ACA”), CMS released a proposed rule (the “Proposed Rule” or the “Rule”) on May 26, 2015[2] that aims to modernize the Medicaid program, with a particular focus on revamping the regulatory framework governing Managed Care Organizations (“MCOs”) contracted to provide services to Medicaid beneficiaries.  The Rule has multiple aims: to clarify the concept of actuarial soundness by refining the methodology underlying rate setting; to modernize the Medicaid managed care regulatory structure to facilitate and support delivery system reform initiatives to improve health outcomes and the beneficiary experience while managing costs; and to align Medicaid managed care with other sources of coverage (specifically, Medicare Advantage and Exchange plans).  The foregoing initiatives support the Proposed Rule’s ultimate goal to bring Medicaid MCO regulations in line with industry standards while at the same time balancing states’ flexibility with increased regulatory oversight and accountability.

This article summarizes certain key MCO-related provisions set forth in the Proposed Rule and points out areas of specific change for Massachusetts.  Given the Rule’s expansive scope and preliminary form, however, this summary should not be relied upon as a comprehensive source of information.  Additionally, while this article focuses on reforms to Medicaid MCOs, the proposed regulations also incorporate changes to the Children’s Health Insurance Program (“CHIP”) that are not addressed herein.


The Proposed Rule seeks to align Medicaid MCOs with Qualified Health Plans (“QHPs”) by changing the rules governing MCO marketing, appeals and grievances processes, and Medical Loss Ratios (“MLRs”).[4]  A QHP is a private health plan that meets ACA requirements to be sold on a state or federal health insurance exchange.  CMS recognizes that with expanded Medicaid coverage, many beneficiaries will swing between qualifying for full Medicaid coverage to being eligible for QHP and/or private coverage.  The purpose of this market alignment is to increase Medicaid beneficiaries’ awareness of MCOs and to create a smooth transition for beneficiaries who move from Medicaid insurance products to non-Medicaid health insurance products (and vice versa).


The Proposed Rule provides that CMS will conduct a comprehensive review of Medicaid managed care capitation rates.  Shifting away from the old, process-based framework, the new Rule amplifies the old rule’s definition of “actuarially sound” by emphasizing substantive review and assessment of the actuarial assumptions and methodologies underlying the development of the MCO rates.  CMS proposes to define actuarially sound capitation rates as rates that are projected to provide for “all reasonable, appropriate, and attainable costs that are required under the terms of the contract” in the context of both the time period and the covered population(s).[6]

In developing the Rule’s formula for actuarial soundness, CMS relied on the following principles: (1) capitation rates should be sufficient and appropriate for the anticipated service utilization of the populations and services covered under the contract and provide appropriate compensation to the health plans for reasonable non-benefit costs; (2) capitation rates should promote program goals, such as quality of care, improved population health, community integration of enrollees, and cost containment; (3) the actuarial rate certification underlying the capitation rates should provide sufficient detail, documentation, and transparency of the rate-setting components; and (4) a transparent and uniformly applied rate review and approval process based on actuarial practices should ensure that both the state and CMS act effectively as fiscal stewards and in the interests of beneficiary access to care.[7]

To help with rate setting, MCOs must submit audited financial statements on an annual basis, conducted in accordance with generally accepted accounting principles.[8]  CMS proposes that a minimum MLR for MCOs be calculated, reported, and used in the development of actuarially sound capitation rates.  Currently, MassHealth (Massachusetts’s Medicaid program) does not require contracted MCOs to meet any MLR standard, and thus, the Proposed Rule will impact the way Massachusetts develops actuarially sound capitation rates for MCOs.


As noted above, CMS intends to utilize MLR – the ratio of how much of an individual’s premium is spent on medical expenses versus how much is spent on administrative expenses – to improve the actuarial soundness of MCO contracts.  Currently, Medicaid and CHIP are the only two public health benefit coverage programs that do not utilize a MLR; the ACA sets forth a MLR for private health insurance plans and for Medicare Advantage.  While Massachusetts has strict MLR requirements for private health plans operating within its borders[10], the Commonwealth does not presently impose a MLR requirement upon Medicaid MCOs.

The Proposed Rule requires MCOs to use projected revenue and costs for a given Rate Year to achieve a minimum MLR of 85%.  States that currently have higher minimum MLR standards will be able to keep their MLR requirements, states with minimum MLRs below 85% will need to increase their requirements. Federally, commercial Medicare Advantage plans must meet an MLR of 85%.  Given this, it is likely that Massachusetts will set its MLR at 85% or 90%.  As of 2013, all Massachusetts MCOs would be able to meet an MLR of 85%.[11]

By requiring the MLR to be included in a MCO’s rate setting process, CMS aims to ensure that Medicaid program dollars spent by MCOs are spent on health care services, covered benefits, and quality improvement efforts rather than administrative expenses. In addition to factoring projected MLR into current rates, CMS is requiring states to take into account real MLR from previous years when determining future rates.  Meaning, if a MCO has not met the MLR standard of 85% in previous years, the state would take that into account in determining future capitation rates.

A. Calculation[12]

MLR is calculated by taking the sum of a MCO’s incurred claims, expenditures on activities that improve health care quality, and required compliance activities divided by the adjusted premium revenue collected.  In the most basic sense, the MLR may be thought of as a simple fraction, with the numerator being incurred claims plus regulatory qualified expenditures over, divided by, the denominator, adjusted premium revenue collected.  As noted below, premium revenues (the denominator), can only be adjusted when specifically authorized through regulation.  The goal of MLRs is to incentivize the MCO to use premium revenue for the payment of health care services received by its members instead of using such revenue for administrative or other less member-centric initiatives.  As such, to meet the MLR threshold, a MCO will pay as many claims as possible to increase the numerator and, in addition, take advantage of any express regulatory rules that allow the MCO to decrease its denominator (i.e., premium revenue). The proposed rules on calculating MLR are generally the same as the rules for calculating Medicare Advantage plans.[13]

B. Rebates[14]

Under the Proposed Rule, states are not required, but are urged, to require rebates from an MCO if the MCO falls below the MLR standard for any reporting period.  If a state chooses not to require rebates, the MCO will still need to rebate the federal government their share.  Massachusetts currently requires health plans that do not meet applicable MLR standards to submit rebates.  As such, it is highly likely this requirement will be extended to Massachusetts MCOs.

C. Reporting[15]

Under the Proposed Rule, MLR reporting is to start with state MCO contracts beginning on or after January 1, 2017.  States have the discretion to align MLR reporting deadlines with either the calendar year or the MCO contracting year.  No matter which reporting year a state chooses, it must be for a period of no more than 12 months.  CMS realizes there are a lot of unknowns for new plans and as such, there is no reporting requirement for the first year in which the MCO contracts with the state. All MLRs will need to be recalculated and reported in any state that makes a retroactive change to capitation rates that changes the MLR calculation for a given reporting year.


MassHealth MCOs enter into robust contracts with Massachusetts’s Executive Office of Health and Human Services to provide services to the Commonwealth’s Medicaid beneficiaries.  The Proposed Rule attempts to standardize certain MCO contract provisions by organizing the contract structure into five subsections: (1) standard contract terms, (2) actuarial soundness, (3) rate development standards, (4) special contract provisions related to payment, and (5) rate certification submission.

CMS hopes that these strengthened terms will increase access and quality of health services and better delineate the administrative duties to be carried out by carriers on behalf of the state.  For example, the standard contract terms set forth specific performance standards that states must include in their managed care contracts.  In addition, sexual orientation is added as a protected class for the purposes of MCO enrollment (i.e., a MCO cannot discriminate enrollment based on an enrollee’s sexual orientation).  While Massachusetts already includes sexual orientation as a protected class, MCO contracts with the Commonwealth may need to be updated to incorporate these new standards once the final rules are published and effective.

A. Contract standards for prescription drugs[17]

The Proposed Rule requires all state contracts with MCOs to include coverage of those covered outpatient drugs required under federal Medicaid requirements.  This includes the amount, duration and scope of coverage, coverage limits, utilization management, and prior authorization.  The Proposed Rule also requires MCOs to report utilization data, so states can apply for rebates from drug manufacturers.  To report utilization data, a MCO must conduct a drug utilization review to ensure prescriptions (1) are appropriate, (2) medically necessary, and (3) not likely to result in adverse medical results.  CMS recommends states’ drug utilization review boards (in the Commonwealth, the MassHealth Drug Utilization Review Board) coordinate with MCOs to conduct review activities on an annual basis.  Finally, the Proposed Rule requires that MCOs respond to a dispensation request for a covered outpatient drug within 24 hours and provide a 72 hour supply of a covered outpatient drug in an emergency situation.[18]

B. Increased access for dually eligible populations

For MCOs covering a dually eligible population, the Proposed Rule requires MCOs to sign a “Coordination of Benefits Agreement” and to participate in Medicare’s automated crossover process.  Given the complex reimbursement and regulatory scheme surrounding dually eligible beneficiaries, the new standard terms aim to encourage MCOs to serve dually eligible beneficiaries.[19]  At this time, the Commonwealth does not allow Medicare beneficiaries to be eligible to participate in MassHealth’s MCO program.[20]  Rather, dual eligible beneficiaries residing in Massachusetts participate in the Commonwealth’s OneCare program (a managed care program structured specifically for dual eligible beneficiaries).

C. Substance abuse and mental health payments – An exception to CMS’ IMD Exclusion[21]

Currently, Federal Medicaid rules do not allow for Federal Financial Participation (“FFP”) for services provided to adult (21 to 64 years of age) residents of institutions for mental diseases (“IMDs”).  An IMD is an inpatient facility with 16 or more beds where more than 51% of its current patients are individuals with severe mental illness or substance abuse issues.  CMS’s outdated policy related to payment for IMD stays has exacerbated access and coverage issues for Medicaid beneficiaries seeking short-stay inpatient mental health or substance abuse services.  Under the Proposed Rule, states are authorized to include short-term IMD stays in capitation payments.  Short-term stays must be limited to 15 days in a given month; however, a stay can be extended by combining two short-term stays over two consecutive months, resulting in a 30 day stay.  To qualify for this exception, “the facility [must be] a hospital providing psychiatric or substance use disorder (“SUD”) inpatient care or subacute facility providing psychiatric or SUD crisis residential services and the stay in the IMD is less than 15 days in that month.”[22]

The Proposed Rule also provides updated guidance on the use of substitute providers, or CMS’s “in lieu of” policy.[23]  This change in policy recognizes MCO’s history of having the flexibility to provide care in alternative settings.  Under the “in lieu of” policy, a MCO could consider a short-term inpatient stay at an IMD as “in lieu of services” covered under a state plan.  However, a MCO cannot require an enrollee to use such “in lieu of” services.  CMS describes the “in lieu of” policy as limited, in that “the use of IMD settings in lieu of covered settings for this care is sufficiently limited so as to not contravene the Medicaid coverage exclusion … Our proposal recognizes that managed care plans have flexibility in ensuring access and availability of covered services while ensuring that use of an appropriate alternate setting does not endanger beneficiaries’ overall access to Medicaid benefits for the entire month during which a brief stay occurs.”[24]  While the Proposed Rule provides an option for MCOs and states to work around traditional coverage limitations, many states have not taken advantage of similar opportunities under the ACA.[25]

Currently, MassHealth members enrolled in the Primary Care Clinician plan receive behavioral health services through a behavioral health contractor, and MassHealth-contracted MCOs coordinate for the provision of covered behavioral health services to their enrollees. By relaxing it’s policy related to IMD stays, CMS is giving MassHealth another tool to use to ensure that MassHealth members’ behavioral health needs are met.


While the Proposed Rule still bars certain marketing practices like pressured sales or misrepresentations, the Rule now allows carriers to advertise their full range of products to consumers.  Meaning, a carrier can advertise its QHP to Medicaid beneficiaries even where the carrier is the entity providing those beneficiaries with a Medicaid managed care plan.  So long as the QHP is not sold “in conjunction with” or as a “tie-in” to the Medicaid managed care plan, direct advertising to a beneficiary regarding a QHP offered by their MCO carrier is not prohibited.  This Proposed Rule by CMS clarifies previous rules and aims to make the transition between Medicaid and QHPs that many Americans may experience easier.  As noted by CMS, “consumers may experience periodic transition between Medicaid and QHP eligibility, and families may have members who are divided between Medicaid and QHP coverage, selecting a carrier that offers both types of products may be the most effective way for some consumers to manage their health care.”[27]


A. Enrollment[29] & Disenrollment[30]

CMS proposes several new requirements related to Medicaid beneficiary enrollment in Medicaid managed care plans.  Under the Proposed Rule states still have flexibility to enroll Medicaid beneficiaries through either mandatory or voluntary processes; however, CMS states that “[i]n both voluntary and mandatory managed care programs, we believe that beneficiaries are best served when they affirmatively exercise their right to make a choice of delivery system or plan enrollment.”[31]  Regardless of the enrollment mode, the Proposed Rule requires states to provide beneficiaries with informational notices, followed by a 14 day choice period accompanied by interim fee-for-service coverage, if necessary.  Massachusetts currently provides a 14 day window in which eligible MassHealth beneficiaries may select their MCO of choice, so this particular provision of the Rule will not impact Medicaid participants in the Commonwealth.

The Proposed Rule also clarifies CMS’s position on its 90 day “without cause” enrollee requested disenrollment period.  Formerly, the Agency’s regulations were interpreted to allow enrollees to disenroll from a MCO during the first 90 days of the beneficiary’s enrollment in the plan and reenroll in another MCO until the beneficiary had exhausted all contracted MCO options for which he or she was eligible.  Having concluded that such an approach is disruptive to the goals of establishing enrollee-provider relationships that support a coordinated delivery system and dissatisfied with an inconsistent application of this rule, CMS now proposes to limit the 90 day disenrollment period to the first 90 days of an enrollee’s initial enrollment into any MCO.  Thus, under the new Rule, an enrollee is only permitted one 90 day “without cause” disenrollment per enrollment period.  In terms of notice required for disenrollment, the Proposed Rule clarifies that states have the flexibility to accept disenrollment requests either orally, in written form, or both if the state so desires.

Massachusetts MassHealth MCO beneficiaries have heretofore enjoyed the flexibility of being able to transfer to or from an available managed care provider at any time without cause, so MassHealth MCO beneficiaries will certainly feel the impact of this change.[32] However, for a MassHealth MCO to disenroll a beneficiary from a MCO, the MCO must demonstrate to MassHealth that the MCO has made reasonable efforts to provide medically necessary services to the member and, “despite such efforts, the continued enrollment of the member with the MCO seriously impairs the MCO’s ability to furnish services to either this particular member or other members.”[33]

Grievances & Appeals[34]

The Proposed Rule aligns MCO grievance and appeals procedures to make them more compatible across markets.  These changes include providing any reasonable assistance, upon request of a beneficiary, in completing forms and other procedural steps required by a MCO’s grievance process.  In addition, individuals reviewing appeals and grievances are required to take into account all comments, documents, records, and other information submitted, even if such information was not considered in the initial review.  Under the Proposed Rule, beneficiaries would also have a right to the case file including the medical record.

However, the most significant changes regarding grievances and appeals are contained in provisions regarding time frames, notice standards, and the process for receiving a State Fair Hearing (“SFH”).  The Proposed Rule shortens the timeframe for which a MCO can take to make a decision on an internal grievance or appeal from 45 to 30 days.  This change will impact Massachusetts MCOs directly as such entities are currently given 45 days to resolve standard internal appeals.[35]  In addition, the Proposed Rule requires that expedited appeals be determined within 72 hours of receipt.  MCOs are required to allow an external review request within 60 days, while some states require far shorter times. Of note, and depending on the circumstances, Massachusetts allows either 120 days or 30 days from receiving a final adverse determination.[36]

Before a beneficiary can request a SFH, they must exhaust the MCO’s internal appeals process.  However, throughout the appeals process and any SFH, the beneficiary will continue to be covered.  This portion of the Proposed Rule tracks with Massachusetts requirements as Medicaid beneficiaries in Massachusetts are covered throughout the appeals process.

B. Coverage & Authorization of Services & Continuation of Benefits While Appeal is Pending[37]

Under the Proposed Rule, Medicaid managed care plans are estopped from denying coverage for services pending determination of beneficiary appeals.  CMS acknowledged that the current standards reflect an “acute care model of health care delivery and do not speak to the appropriate medical management of individuals with ongoing or chronic conditions, or the authorization of non-clinical services that maximize opportunities for individuals to have access to the benefits of community living and the opportunity to receive services in the most integrated setting.”[38]  The Proposed Rule emphasizes continuity of care and seeks to put those beneficiaries that have ongoing chronic conditions on equal footing with other beneficiaries who might utilize services on a discrete basis.  Subsequent to an adverse benefit determination, states may decide to allow recoupment from an enrollee so long as the same standard is applied between Medicaid FFS and managed Medicaid.  Currently, Massachusetts requires the continuation of coverage when an appealable action involves the reduction, suspension, termination, or restriction of assistance.[39]

C. Continued Services to Beneficiaries[40]

In 2002, when the current regulations were finalized, the use of managed care to provide medical services to complex populations was not as prevalent and, thus, not substantially reflected in the regulations.  The Proposed Rule requires states to have a transition of care policy for individuals switching from one delivery system to another within Medicaid.[41]  Such transition of care policies must include, among other things, receipt of services for a period of time and assurance that medical records are transitioned.   As of the effective date of Medicaid expansion in Massachusetts, MCOs have been required to provide care transition plans for their MassHealth enrollees.[42]

D. Beneficiary Support System[43]

CMS proposes to require states to develop and implement a beneficiary support system to provide support before and after beneficiary enrollment.  The system must include: (1) choice counseling for all beneficiaries; (2) training for MCOs and provider networks on community-based resources and supports that can be linked with covered benefits; (3) assistance for enrollees in understanding managed care; and (4) assistance for enrollees who utilize long-term services and supports.  The foregoing beneficiary supports must be available through multiple mediums, including telephone, internet, in-person, and via auxiliary aides.

E. Managed Long-Term Services & Supports[44]

Managed long-term services and supports (“MLTSS”) refers to an arrangement between state Medicaid programs and MCOs through which the MCO receives a capitated payment for providing long-term services and supports (“LTSS”).  The Proposed Rule codifies CMS’s previous guidance governing managed LTSS waivers and demonstration programs (including program planning, stakeholder engagement, enhanced home and community-based services, payment alignment, beneficiary support and protections, qualified providers, and quality) and applies them across all MLTSS programs.  As part of these new requirements, states will be required to establish network adequacy standards for MLTSS programs, including time and distance standards and network provider accommodations for disabled beneficiaries, and must submit documentation demonstrating compliance with the rule.


A. Availability of Services[46]

Availability of services and network adequacy are given much consideration in the Proposed Rule and the Agency sets forth an extensive regulatory framework designed to align with other insurance markets (e.g., the market for health plans sold on state Exchanges).  CMS proposes that time and distance standards be required for the following network provider types: primary care (adult and pediatric), OB/GYN, behavior health, specialist (adult and pediatric), hospital, pharmacy, pediatric dental, and additional provider types when it promotes the objectives of the Medicaid program.  Massachusetts assigns members to MCOs based on the provider’s service type, member’s geographic service area, the physical accessibility of the provider’s building to the member, provider’s suitability to member based on member’s age and sex, availability of necessary interpretation services, and availability of any necessary transportation services.[47]

In addition to the foregoing, the Proposed Rule outlines factors that states must consider in setting their standards, including anticipated enrollment, expected service utilization, population health needs, the number and types of providers needed to deliver contractual services, the number of network providers not accepting new patients, and geographic accessibility of providers to enrollees.

B. State Monitoring Standards[48]

The Proposed Rule mandates that a state’s monitoring system address, at a minimum, specific aspects of a managed care program such as administration and management, appeal and grievance systems, claims management, enrollee materials and customer services, finance, information systems, marketing, medical management, program integrity, provider network management, quality improvement, and the delivery of LTSS.  Contracted MCOs will also be subject to states’ readiness reviews at various program points, including prior to the start of a new managed care program, when a new contractor enters an existing program, or when the state adds new benefits, populations, or geographic areas to the scope of its contracted managed care plans.

C. Quality of Care[49]

Approaches to assessing quality, access, and timeliness of care have evolved significantly since 2002, and the Proposed Rule reflects this evolution by expanding quality improvement efforts, aligning with Medicare and State Exchange standards, and increasing consumer and stakeholder engagement.  The proposed changes focus on standards for performance measures and topics for performance improvement projects, performance review and approval process, the development of a quality rating system, the expansion of a comprehensive quality strategy, and revisions to the external quality review system.

CMS proposes the development of an expanded quality rating system for all states contracting with MCOs.  States would be required to set minimum standards to be used in developing and implementing a Medicaid managed care quality rating system. The components of the rating system will be based on the same summary indicators that are currently used for QHPs: clinical quality management, member experience, plan efficiency, affordability, and management.  For states that have an existing quality rating system, the Proposed Rule offers the option to retain or modify the existing system with CMS approval.

The Agency’s Proposed Rule also contemplates a comprehensive quality improvement strategy extending to all state Medicaid programs. The strategy would apply as a general state plan administration requirement, separate and apart from states’ managed care programs.  According to health policy expert Sara Rosenbaum, “[t]his requirement represents an outgrowth of earlier guidance on Quality Considerations in Medicaid and CHIP, which ‘explains how to incorporate a state’s managed care quality strategy into a larger, statewide comprehensive Medicaid quality strategy.”[50] To ensure that states’ quality improvement strategies are up-to-date and relevant to the Medicaid population, the Proposed Rule sets forth a detailed outline for the development, evaluation, and revision of such quality improvement strategies.

In addition to updating and clarifying the Agency’s pre-existing external quality review regulations, CMS makes clear that states are expected to have a monitoring system for its MCOs to address a broad range of issues including, but not limited to, administration and management, appeal and grievance systems, claims management, enrollee materials and customer services, finance and medical loss ratios, information systems and encounter reporting, marketing, medical management and utilization management, program integrity and provider network management, quality improvement, and LTSS delivery.  States will also be required to submit an annual program assessment to the Agency to help improve the Agency’s oversight efforts.


Finally, the Proposed Rule updates the Agency’s requirements related to third-party liability.  State Medicaid programs are required to identify and seek payment from liable third parties before billing Medicaid.  CMS proposes to eliminate all references to a specific coding system (e.g., ICD-9, ICD-10) and replace such references with a general description of the types of trauma-related diagnoses that states are expected to review with the objective of ascertaining third-party liability.  The Agency’s revisions to this portion of the regulation will not require Massachusetts to change its process for identifying third party liability.  Rather, the alterations set forth in the Proposed Rule will provide MassHealth with greater discretionary authority in developing trauma code edits to best identify liable third parties and achieve the highest third party liability return.

Author Biographies

Margaret Schmid is an Assistant General Counsel with the Massachusetts Executive Office of Health and Human Services (EOHHS).  Before joining EOHHS, Ms. Schmid was an associate at Donoghue Barrett & Singal (DBS) in the firm’s health care practice group.  In that role, Ms. Schmid advised both institutional and individual providers on corporate and regulatory matters.  Prior to working for DBS, Ms. Schmid was a legal intern at EOHHS.  She also worked for the U.S. Department of Health and Human Services, Office of the General Counsel, Public Health Division during her third year of law school.  Ms. Schmid received her law degree from The Catholic University, Columbus School of Law (‘11), where she was a Note and Comment Editor on the Journal of Contemporary Health Law and Policy.  She received her undergraduate degree from Kenyon College (‘06).  This article was prepared Ms. Schmid in her personal capacity. The opinions expressed herein are the author’s own and do not reflect the view of EOHHS.

David Chorney, Esq. ( is an associate with Donoghue, Barrett & Singal and a member of the firm’s corporate health care practice where he advises a variety of providers and health care entities, including hospitals, physicians groups, MCOs, clinics, and non-profits, on insurance laws and regulations, fraud and abuse, transaction matters, and other health care related issues.  A graduate of Suffolk University Law School (’15), his practice can be found at


Proposed Law Possible Effect
Third party liability No substantive changes to Massachusetts’ process of identifying third party liability.  However the proposed rules will allow MassHealth to have greater discretionary authority in developing trauma code edits to better identify third parties to achieve a better third party liability return.
Availability of services Currently MassHealth uses the following criteria to assign members to a MCO provider only where the provider, (1) is available for the member’s coverage type; (2) in the member’s service area; (3) physically accessible to the member, if member is disabled; (4) suitable for the member’s age and sex; (5) able to communicate with the member directly or through an interpreter, unless there is no other medical care available; and (6) located in an area to which the member has available transportation.

The proposed rules would require MassHealth to also consider the following: (1) anticipated enrollment; (2) expected service utilization; (3) population health needs; (4) the number and types of providers needed to deliver contractual services; (5) the number of network providers not accepting new patients; (6) and geographic accessibility of providers to enrollees.

Medical Loss Ratios Massachusetts does not currently require Medicaid MCOs to have a MLR. However, as of 2013 data, 100% of MCOs would be able to meet a MLR of 85%.

It is likely that Massachusetts will require MCOs to provide MassHealth and the federal government with rebates if the MCO does not meet the established MLR standard.  Massachusetts currently requires commercial insurance plans to provide rebates to consumers.

Contract standards for prescription drugs This proposed standard is unlikely to substantively change MCO contracts in Massachusetts.  Currently, the MassHealth Drug Utilization Review Board and Program requires that prescriptions be appropriate, medically necessary, and unlikely to result in adverse medication-related problems.

Like the Proposed Rules, Massachusetts requires a MCO to respond to a dispensation request within 24 hours for covered outpatient drugs and to provide a 72 hour supply for covered outpatient drugs in emergency situations.

Dual Eligible The Proposed Rules are likely to create substantial changes in Massachusetts because, currently, Medicare beneficiaries are not eligible to participate in MassHealth’s MCO program.
IMD Exception This Proposed Rule should increase the availability of mental health and substance abuse services for those MassHealth MCO members. The proposed IMD exception would allow MassHealth MCOs to cover up to 15 days, per month, as an inpatient at an IMD.
Enrollment and Disenrollment Protections CMS proposes to limit the time period in which an enrollee can request disenrollment to the first 90 days of an enrollee’s initial enrollment into any MCO.  Therefore under the Proposed Rule, an enrollee is only permitted one 90 day “without cause” disenrollment per enrollment period.  In terms of notice required for disenrollment, the Proposed Rule clarifies that states have the flexibility to accept disenrollment requests either orally, in written form, or both if the state so desires.

Massachusetts MassHealth MCO beneficiaries have enjoyed the flexibility of being able to transfer to or from an available managed care provider at any time without cause, so MassHealth MCO beneficiaries will certainly feel the impact of this change.

Grievances and Appeals While appeal rights of MCO members will not undergo significant changes, the timing of filing and hearing such appeals will.  The Proposed Rules shorten the amount of time a MCO has to make a decision on an internal appeal from 45 days to 30 days.  Additionally, in certain circumstances, MassHealth MCO members will have more time to request an external review of a grievance. Depending on the circumstances of the determination, MassHealth currently allows an external review request to be made within 30 to 120 days of a final adverse determination.
Continuation of coverage during appeals and care transitions The Proposed Rules will mean few changes for Massachusetts.  Currently Massachusetts allows for the continuation of coverage for beneficiaries when an appealable action involves the reduction, suspension, termination, or restriction of assistance.  MassHealth also, as required by the Proposed Rules, has a care transition plan which allows beneficiaries, depending on the acuteness of their condition, to switch from one delivery system to another within the Commonwealth’s Medicaid program.


[1] In 1992, 2.4 million Medicaid beneficiaries (or 8% of all Medicaid beneficiaries) accessed part or all of their Medicaid benefits through capitated health plans; by 1998, that number had increased fivefold to 12.6 million (or 41% of all Medicaid beneficiaries). In fiscal year 2011, at least 39 million people (or 58% of all Medicaid beneficiaries) in 39 states and the District of Columbia accessed part or all of their Medicaid benefits through such capitated health plans.  Medicaid and CHIP Payment and Access Commission, Report to Congress on Medicaid and CHIP (June 2014), tables 11 and 14 at pgs. 106 and 120.  In addition, since 2002, Congress has passed the Medicare Improvement for Patients and Providers Act (“MIPPA”)(Pub. L. 110-275); the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)(sections 511 and 512 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008); the Children’s Health Insurance Program Reauthorization Act (“CHIPRA”)(Pub. L. 111-3); and the Affordable Care Act (“ACA”)(Pub. L. 111-148).

[2] At the time of publication, the comment period for the Proposed Rule has closed but the final rule has not been published.

[3] 80 Fed. Reg. 31102

[4] 80 Fed. Reg. 31107

[5] 80 Fed. Reg. 31119

[6] 80 Fed. Reg. 31257.

[7] 80 Fed. Reg. 31119.

[8] 80 Fed. Reg. 31256

[9] 80 Fed. Reg. 31107

[10] For non-Medicaid plans, Massachusetts requires an MLR of either 85% or 90% depending on the market in which the health plan is offered.

[11] Center for Health Information and Analysis, Annual Report Series 2015: Performance of Massachusetts health Care System, Massachusetts Medical Loss Ratios, Publication No.: 15-316-CHIA-01 available at

[12] 80 Fed. Reg. 31107

[13] For instance, most MCO programs, including Massachusetts, require MCOs that have taken on less risk (i.e., have healthier enrollees), to make risk payments to the state.  These payments are in turn distributed to those MCOs that have taken on more risk.  Amounts paid by a state to a MCO with a riskier (i.e., sicker) member population must be subtracted from incurred claims.  Additionally, if the state operates a Medicaid specific solvency or trust fund and requires the MCO to pay into those funds, such payments will be added to incurred claims.  Payments made to conduct anti-fraud activities can be added to the numerator of the MLR calculation; however this amount is capped at .5% of the MCO’s total premium revenues.  If a MCO intends to add the salary paid to an employee conducting anti-fraud activities, such employee must be essential to and directly carry out the anti-fraud activity.  Similar to private plan rules, taxes, licensing and regulatory fees are subtracted from premium revenues, the denominator.  However, fines and penalties are not deducted from premium revenues and must be considered non-claims costs.

[14] 80 Fed. Reg. 31111

[15] 80 Fed. Reg. 31112-13

[16] 80 Fed. Reg. 31113

[17] 80 Fed. Reg. 31257

[18] 80 Fed. Reg. 31116; Massachusetts already complies with this requirement.  See 130 CMR 410.466.

[19] 80 Fed. Reg. 31157

[20]  130 CMR 508.004.

[21] 80 Fed. Reg. 31116

[22]  80 FR 31116.

[23]  Id.

[24]  Id.

[25]  See Alexandra Gates, el al., Coverage of Preventative Services for Adults in Medicaid, Kaiser Family Foundation, (Nov. 13, 2014)(noting that only 8 states have taken advantage of the ACAs 1% Medicaid match rate increase for preventive services provided with no cost sharing).

[26] 80 Fed. Reg. 31107

[27] 80 FR 31102

[28] 80 Fed. Reg. 31133

[29] Id.

[30] 80 Fed. Reg. 31135

[31] 80 Fed. Reg. 31133

[32] 130 C.M.R. 508.002(E).

[33] 130 C.M.R. 508.002(G)

[34] 80 Fed. Reg. 31102

[35]  130 C.M.R. 508.009

[36]  130 CMR 610.015 Which allows 30 days to appeal after an applicant or member receives written notice from MassHealth.  The regulation also allows 120 days where MassHealth fails to act on the application, request for appeal, to send timely notice, and in instances where the member failed to file for appeal because they reasonably believed the problem was being resolved and the appeal was made in good faith.

[37] 80 Fed. Reg. 31137

[38] 80 Fed. Reg. 31138

[39]  130 CMR 610.036.

[40] 80 Fed. Reg. 31139

[41] 80 Fed. Reg. 31139 “[r]equire that states have a transition of care policy in place for individuals moving to managed care from FFS, or from one MCO, PIHP, PAHP, PCCM …” Id.

[42]  Executive Office of Health and Human Services, Important Information about MassHealth Coverage Changes Effective January 1, (Jan. 2014) available at

[43] 80 Fed. Reg. 31142

[44] 80 Fed. Reg. 31141

[45] 80 Fed. Reg. 31144

[46] 80 Fed. Reg. 31147

[47]  130 CMR 508.002

[48] 80 Fed. Reg. 31159

[49] 80 Fed. Reg. 31148

[50] S. Rosenbaum (citing 80 Fed. Reg. 31153)

[51] 31175

Leave a Reply

Your email address will not be published. Required fields are marked *