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TRANSFORMING MEDICAID TO NEW
LEVELS OF QUALITY, SERVICES,
AND FINANCIAL PERFORMANCE
A DST White Paper: October 2016
By Richard Popper, Director of Medicaid Business Strategy, DST Health Solutions
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Introduction
This year, the Centers for Medicare & Medicaid Services (CMS) finalized the first overhaul of Medicaid and the
Children’s Health Insurance Program (CHIP) regulations in more than a decade. The new Medicaid managed
care rule revises the program’s regulatory framework with extensive impacts for managed Medicaid plans
across the United States. The provisions of this new rule, titled Medicaid and Children’s Health Insurance
Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related
to Third Party Liability (CMS-2390-F), will be implemented in phases over three years, starting July 1, 2017.¹
Almost two-thirds of the 72 million Medicaid beneficiaries are enrolled in managed care plans.² The extent and
impact will differ state by state. Some states are already achieving certain standards the new rule now requires
– such as quality of care measurement and reporting standards and the 85% medical loss ratio (MLR) – while
others are not. The goal of the regulation is to modernize and standardize key Medicaid regulations by aligning
them with national Medicare and Health Insurance Marketplace standards. This increased uniformity makes
sense, considering many consumers transition between Medicaid and Marketplace plans as their incomes rise
and fall or family circumstances change. Also, some families have members enrolled in different programs –
adults covered by Marketplace plans and children covered by CHIP or Medicaid.
The new Medicaid rule advances CMS efforts to transform the healthcare system to support better care,
improve health, and lower costs. The rule additionally applies most of these new Medicaid requirements to
the CHIP program and aligns other existing CHIP requirements with Medicaid standards. Both states and
managed Medicaid plans are now assessing if they have the people, processes, and technology necessary
to meet the new requirements. For some provisions, plans will need to wait for additional CMS guidance and
state implementation decisions. Plans will then need to adjust business processes to come up to par to meet
standards they are not yet achieving.
This white paper explores some of the key provisions in this extensive regulation that will create new
administrative challenges for managed Medicaid plans and help plans begin identifying the steps they need to
take to meet the complexity in the new requirements as they are phased in.
Highlighted provisions include:
• Quality-of-care measurement and monitoring
• Plan payment and expenditures
• Outpatient drug standards
• Medical necessity and standardized appeal
While this paper touches on these major changes, there are numerous other provisions that are not included
in this paper. We discuss new regulations that we believe will have substantial administrative impact on most
states and managed Medicaid and CHIP plans as they operationalize these new requirements.
Both states and managed Medicaid plans are now assessing if they have the people,
processes, and technology necessary to meet the new requirements.
• Encounter submissions
• Value and alternative payment arrangements
• Managed long-term services and supports
(MLTSS)
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Payments
and Spending
Drugs
Coverage
Data
Increases MLR to minimum of 85%
Expands standards for capitation rates
paid by states to plans
Sets outpatient drug standards
Codifies definition of “medical necessity”
Sets a single review for all appeals
Reduces decision period for appeals
from 45 to 30 days
Requires states to validate encounter
data through audits
Contracts starting or after July 2017
Contracts starting or after July 2019
Contracts starting or after July 2017
Contracts starting or after July 2017
Contracts starting or after July 2017
The New Rule:
Timing: When does CMS
Require Compliance?
Value
Allows states to pursue value-based
purchasing gradually or promptly
Contracts starting or after July 2017
Long-Term
Care for
Elderly and
Disabled
Requires plans to comprehensively and
routinely assess member care needs
Allows states to require that MLTSS
plans automate provider payments
for dual-eligible Medicare deductibles
and copays
Contracts starting or after July 2017
Quality
Standardizes quality-of-care
measurement and monitoring
May 2019: Adopt CMS quality
measurement system or receive
approval of alternative system
Over the next 3 to 5 years: Quality
measures will be refined by CMS
THE 2016 MEDICAID MANAGED CARE RULE HIGHLIGHTED PROVISIONS
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Quality-of-Care Measurement
and Monitoring
Over the past 10 years, CMS has launched an expanding
range of health plan quality rating requirements designed to
support higher quality care and educate consumers about the
performance and effectiveness of their health plan options.
Examples include the Medicare Advantage 5-Star Rating
System and a newly established quality-rating system for the
federal and state-based Marketplaces. Both rating systems
provide national standards for consumers to evaluate
satisfaction when choosing plan sponsors.
CMS has previously required states that contract with
Medicaid managed care organizations (MCOs) to establish
a quality measurement program that includes an annual
external quality review. CMS encouraged voluntary use and
reporting of core quality measures by states, using standard
measures from measure developers such as the National
Committee for Quality Assurance (NCQA) for the Healthcare
Effectiveness Data and Information Set (HEDIS®
) and
Consumer Assessment of Healthcare Providers and Systems
(CAHPS) measures; the Joint Commission; the Pharmacy
Quality Alliance; and others.³ However, as with many facets of
Medicaid, prior to the new regulation CMS provided significant
flexibility for states to develop the quality metrics and surveys
and then utilize and disseminate the MCO quality results.
The Medicaid managed care regulation reflects a significant
deviation from CMS’s past flexibility. Medicaid MCO quality
ratings will become more standardized with requirements all
states must meet in developing, implementing, and publishing
their ratings.
The Medicaid quality measurement in the new managed
care regulation will have major impacts over the next three
to five years.
Plans will be required to establish a more
comprehensive rating system.
The standardized Medicaid quality rating system will have
the same criteria as Marketplace Qualified Health Plans in the
following categories:
• Clinical quality management, calculated by select
HEDIS measures
• Member experience with their health plans and
providers, reflected in CAHPS member survey scores
• Plan efficiency, affordability, and management,
reflected in appropriate treatment measures
The Medicaid quality measures for all states will be
determined and refined by CMS over the next three to
five years through a robust public engagement process.
State Medicaid programs must either adopt this quality
measurement program or propose an alternative system that
must be approved by CMS by May 2019.
States will be required to display the results
of their Medicaid quality rating system(s)
prominently online.
Displaying quality results publically will help ensure that
consumers and other stakeholders have access to the quality
ratings to assist them in choosing a health plan.
Managed Medicaid plan quality ratings
will become more standardized with
requirements all states must meet
in developing, implementing, and
publishing their ratings.
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States will be required to establish a separate
managed care monitoring system for all
Medicaid plans.
This new MCO oversight requirement compels states to have
formal, ongoing, data-driven monitoring activities that track
results on a plan-specific basis for each of the following:
• Administration and management
• Appeal and grievance systems
• Claims management
• Enrollee materials and customer services
• Finance, including MLR reporting
• Information systems, including encounter
data reporting
• Long-term services and supports
• Marketing
• Medical management, including
utilization management
• Program integrity
• Provider network management
• Availability and access of services
• Quality improvement
• Provider network adequacy
• Beneficiary support, including plan selection
guidance and managed care education
States must provide an annual assessment covering all of
these aspects of managed care operational activities. While
state Medicaid managed care programs already monitor
a variety of activities, few formally monitor all 15 of these
required categories and publish an annual assessment
report. CMS’s goal in establishing these requirements
for state Medicaid monitoring is to enhance the level and
consistency of health plan evaluation and ultimately to
improve plan performance.
While all states with managed Medicaid monitor plan quality
and performance, the level of effort, measurement, data
collection, and transparency are not equivalent. The
new monitoring standards will require some states to
dramatically augment their activities, which in turn will
increase reporting and monitoring efforts for Medicaid plans
in those states. Alternatively, other states that already have
significant measurement and monitoring programs will need
to modify their activities to align with the new and evolving
federal standards.
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Plan Payment and Expenditures
The federal rule specifies expanded requirements regarding
how states calculate capitation rates paid to MCOs for
the risk of covering Medicaid beneficiaries. It also sets a
minimum level that plans must spend on member clinical and
quality improvement.
State Payment to Plans
As required under federal law, the regulation asserts the
existing legal requirement that payments to MCOs be
actuarially sound for services included in their contract with
the state. Beginning with contracts effective July 1, 2018, the
CMS rule for states expands prior requirements by mandating
adequate capitation rates. The rates must be sufficient to
ensure plans can meet their requirements regarding the
availability of services, adequate networks and capacity,
and coordination and continuity of care provided to enrollees.
Payment rates under one Medicaid group rate cell must
not subsidize the payment rate under any other. To enforce
these requirements, states would be required to obtain both
actuarial certification that the rates are sound, followed by
CMS approval of the rate certification. Thus, the rule intends
to move Medicaid managed care towards a sounder rate-
setting foundation. The goal is to assure adequate payment
for covered care and quality. Medicaid plan payment rates
are frequently subject to the pressures of state budget
constraints. The way in which CMS implements and enforces
these additional financial standards in the next few years
will be of interest to Medicaid plans, providers, and other
program stakeholders.
Plan Expenditure Requirements – the 85% MLR
Since the Medicaid rule adds additional requirements for
states to provide payment rates that accurately reflect the
cost of efficient covered health services to beneficiaries, CMS
additionally mandates that plans allocate an appropriate
amount of their revenue to healthcare and related costs.
The regulation provides for this by establishing that at least
85% of payments received by the plan must be spent on
healthcare claims or on quality improvement expenses.
Starting in 2012, the Affordable Care Act (ACA) mandated
that Medicare, individual, small group, and large group market
insurers spend a minimum percentage (80% for individual
and small group, 85% for large group and Medicare) of their
premium revenue on health claims or quality improvement
expenses. This is referred to as a medical loss ratio. The MLR
has the practical effect of limiting the amount that insurers
can allocate to administrative costs and profits.
The Medicaid rule expands the application of MLR to
Medicaid beginning in plan year July 1, 2017. It sets the MLR
at 85% which is equivalent to the requirement for Medicare
and large group plans. The rule also allows states to set
higher medical loss ratios. If Medicaid plans do not meet
the 85% MLR standard, states can take that into account in
setting plan payment rates in the subsequent years and can
also require plans to remit back payments to the state and
federal governments.
The new rule sets the MLR at 85%,
which is equivalent to the requirement
for Medicare and large group plans.
The rule also allows states to set higher
medical loss ratios.
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A Medical Loss Ratio of 85% requires plans to spend at least 85% of their premium revenue on clinical services and quality
improvement. This graphic displays in the denominator the major types of health plan income that are included in total revenue
for the calculation of the Medicaid plan loss ratio. The items in the numerator reflect major plan expense types that can be
included as losses to meet the 85% ratio. All other types of expenses are categorized as administrative costs. These costs plus
earnings cannot exceed 15% of plan revenue.
• Claims
• State solvency fund payments
• Provider withholds & bonus
• Health quality activities
• Rx rebates received and accrued
• Fraud prevention
• Incurred but not reported
• Change in reserves
• Fraud recoveries
• Total premiums/capitation, less
tax/license fees & community
benefit contributions
• State withhold payments
• State "kick" payments
• Unbilled member cost share
• Change in premium reserve
• Net of risk sharing receipts/
payment
Expense categories
included as losses
when calculating MLR
Income categories
included in total revenue
when calculating MLR
85% MEDICAID MLR REQUIREMENT
.85
1.00
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Outpatient Drug Standards
The regulation includes a few measures affecting Medicaid
MCO’s coverage of prescription drugs, which are effective
July 1, 2017:
• MCOs are now required to report drug utilization
data necessary for the state to bill for manufacturer
rebates within 45 calendar days after the end of
each quarterly rebate period. This data must include
information on the total number of units of each
dosage, strength, and package size for each covered
outpatient drug dispensed or covered by the plan.
MCOs are required to have procedures to exclude
utilization data for drugs subject to discounts under
the 340B Drug Pricing Program, if the state requires
plans to omit such drugs from plan reports, in order to
avoid duplicate discounts.
• Federal requirements regarding outpatient drugs that
apply to state-run Medicaid drug coverage will also
apply to MCO plan contracts. The rule allows MCOs
to continue to maintain their own drug formularies.
However, when there is a medical need for an
outpatient drug that is not on a plan formulary – but
is within the scope of the contract – the plan must
cover the drug under a prior authorization process.
Alternatively, the state could cover such outpatient
drugs directly on a fee-for-service basis.
• MCOs covering outpatient drugs must operate a
drug utilization review program to assure that
prescription are:
1. Appropriate
2. Medically necessary
3. Not likely to result in adverse medical results
Plans must provide an annual, detailed
description of its utilization program to
the state. Plans must also conduct prior
authorization processes for covered drugs by
telephone or other communication device within
24 hours of the request and dispense a 72-
hour supply of a covered outpatient drug in an
emergency situation.
Medical Necessity and Standardized
Appeals
To support the goal of aligning requirements for Medicaid
with Medicare and commercial plan requirements, the new
rule includes higher national Medicaid standards for medical
necessity, emergency care, and appeals and grievances.
Medical Necessity
Each state’s current MCO contract lists or refers to specific
covered services and can include a state-specific definition of
“medical necessity.” The Medicaid rule increases uniformity
by codifying a federal medical necessity standard, specifying
services that plans must cover. These required services
include prevention, diagnosis, and treatment of any medical
condition that:
• Results in impairment or disability
• Prevents someone from achieving age-appropriate
growth and development or functional capacity
Also, if members are eligible for coverage of long-term
services and supports, plans must cover those services that
will allow them to experience the benefits of community living.
Plan coverage determinations pertaining to specific benefits
and the above necessity standard must be made in 14
calendar days, with expedited decisions to be made in 72
hours if the member’s life, health, or function necessitates a
quicker decision.
The Medicaid rule increases uniformity
by codifying a federal medical necessity
standard, specifying services that plans
must cover.
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Standardized Appeals
To increase Medicaid’s uniformity with Medicare and private
insurance, the approved rule modifies several requirements
regarding the process and timeliness of plan grievances and
appeals. Starting July 1, 2017, plans are only allowed one level
of internal appeal for adverse benefit determinations.
About timing:
• The rule sets a standard period of 60 calendar days
by which a plan member can file an appeal (grievances
for plan service-related complaints can be filed at
any time).
• Once members complete the appeal, they can seek
an external State Fair Hearing if requested within
120 days.
• The rule narrows the period by which a plan must
render a decision from 45 to 30 calendar days, with
72 hours for expedited appeals, where a delay could
seriously jeopardize the enrollee’s life, health, or ability
for maximum function.
Encounter Submissions
The 2010 ACA included a requirement that states collect plan
encounter data as a condition for receiving federal Medicaid
matching payments. In the Medicaid managed care rule, CMS
adds specificity to this statutory provision with requirements
for how plan systems must generate the data. It also
specifies how states use the data for monitoring plan rates
and finances, independently validate it, and provide collected
encounter data to CMS.
All three major CMS health coverage programs (Medicaid,
Medicare, and Health Insurance Marketplace) require
contracted health plans to provide encounter data, using
different approaches. In the preamble of the recent Medicaid
rule, CMS states that “encounter data are the basis for any
number of required activities, including rate setting, risk
adjustment, quality measurement, value-based purchasing,
program integrity, and policy development.” The rule requires
that plan encounter data be submitted to states for rate
setting and enforcement of the new 85% MLR standard. Thus,
encounter submissions are much more than a contract-
required report. They are a financial monitoring tool. CMS
expects states to analyze encounter submission data and
then pass it on to federal program managers. Under the
regulation, plans must have health information systems
capable of collecting and reporting encounter data. The
requirements apply to both traditional Medicaid plan coverage
of children and adults, as well as to Medicaid long-term
services and supports plans.
The Medicaid rule further requires states to validate received
encounter data by conducting independent audits of the
accuracy, truthfulness, and completeness of plans’ encounter
and financial data submitted no less than once every three
years. While some of these encounter data requirements
from the Medicaid managed care rule are already applied in
certain states, all states must enforce them on plan contracts
starting on or after July 1, 2017.
Value and Alternative Payment
Arrangements
A wide variety of stakeholders, including employers,
commercial carriers, the US Congress, and many state
Medicaid programs are encouraging the development of
alternative payment or value-based reimbursement of
providers to modify or even supplant the traditional fee-for-
service system.
Some state Medicaid programs have embraced dramatic,
system-wide healthcare delivery reform in this area, which
typically requires a Section 1115 waiver of federal law. Other
states are not pursuing broad system reforms. The Medicaid
managed care regulation allows states to implement more
gradual innovations in provider payment and incentives
without seeking complex federal waivers. This can be
accomplished through plan pass-through payments and
targeted delivery system payments. The rule also permits
states to require plans to participate in actuarially sound
multi-payer reform efforts, as well as alternative payment
structures, in order to implement value-based purchasing
models. States and plans are allowed to target these
innovative approaches to a class of providers. CMS does
set some parameters, such as a requirement that payments
under incentive arrangements may not exceed 105% of the
approved capitation rate “since such total payments will not
be considered to be actuarially sound.” These rule changes
further open the door to state payment innovations, either
gradual or more ambitious.
Plans must have health information
systems capable of collecting and
reporting encounter data. This data is
essential since it is used for a variety
of purposes, such as rate setting, risk
adjustment, and quality measurement.
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Managed Long-Term Services
and Supports
A major trend in Medicaid during the past 15 years is the
increasing number of states utilizing MLTSS care plans.
A growing number of states are moving low income or
disabled elderly individuals who are eligible for add-on
community-based services for their daily living activities into
MLTSS plans. This managed care strategy is one of the few
approaches available to states to try to constrain the growth
in Medicaid spending for long-term care.
The Medicaid managed care rule, for the first time, provides
regulations specific to MLTSS. The new requirements reflect
best-practice strategies that CMS has already implemented
in its financial alignment demonstration for those dually
eligible for Medicare and Medicaid. This CMS demonstration
was rolled out in 12 states through integrated Medicare-
Medicaid Plans. The MLTSS provisions in the new regulation
require plans to comprehensively assess beneficiaries upon
enrollment and routinely thereafter through reassessments.
Care plans, through which plans authorize member service
levels, must be person-centered and must be created in
consultation with the member, their family, and providers. In
addition, the regulation’s quality of care measurement and
monitoring provisions, described earlier, also apply specific
measures to MLTSS coverage. Most of these provisions
took effect in July 2016, 60 days after the final regulation
was published.
Additionally, the regulation gives states the authority to
require Medicaid MLTSS plans that cover dual eligibles to
automatically process payments to providers for Medicaid’s
coverage of Medicare copays and deductibles. In most states,
providers currently must separately bill both Medicare for
the base claim and the Medicaid agency or MLTSS plan to
cover the Medicare deductibles and copays that duals are
not responsible for. If states exercise new authority under
the CMS regulation, MLTSS plans would receive weekly data
feeds of Medicare coverage transactions from the CMS
Benefit and Coordination Recovery Center. Then the Medicaid
plan would adjudicate against these data feeds to cover
Medicare deductibles and copays.
Conclusion
Key provisions in this large-scale Medicaid regulation create
new complexities, which will continue to evolve as CMS
and states release implementation guidance for managed
Medicaid plans in the coming months and years. While this
paper touches on many of the major changes contained in
the rule, there are other provisions, such as those effecting
provider networks and directories and enrollment and
marketing, which are not included in this paper. The need for
additional support with people, processes, and technology
will vary across states since they differ significantly in their
approach to the delivery of healthcare and are at different
points in coming up to par with these new standards. While
adjusting various processes to comply with new Medicaid
rules, plans have an opportunity to find new ways to create
a strategic advantage with higher levels of quality care,
consumer experience, program integrity, and efficiency.
Contributors:
Rayvelle A. Stallings, MD
Vice President of Government Programs
Argus Health Systems
David Baker, PharmD
Director, Pharmacy Government Contracting
Argus Health Systems
Eric Mueller
Director of Medicaid and HIM Programs
Argus Health Systems
The Medicaid managed care rule, for
the first time, provides regulations
specific to managed long-term services
and supports.
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MEDICAID MANAGED CARE
REGULATION REQUIREMENT
MEDICAID MANAGED CARE REGULATION REQUIREMENT
Quality of Care Measurement and
Monitoring
CareAnalyzer®
measures and reports quality standards with NCQA-approved
HEDIS methodology and identifies patient risk gaps while providing
recommendations for better care.
Medical Loss Ratio
Business Process Outsourcing services provide cost-effective administrative
solutions to help meet the 85% MLR.
Outpatient Prescription Drugs
Prescription drug solutions include drug formulary and prior authorization
services, supplemental Medicaid rebates, and medical-benefit drug
management including HCPCS to NDC-11 translation.
Medical Necessity Standardizations
CareConnectTM
contains a full suite of care and medical management
administrative tools.
Appeals and Grievance Standardization
and Timeliness
AWD Grievance & AppealsTM
solution can track all member appeals and can
be configured for state-specific requirements and processes.
Encounter Reporting
Claims platforms and Business Process Outsourcing services generate
encounters for multiple states and programs, including Medicaid, CHIP,
Marketplace, Medicare, and dual eligibles.
Value and Alternative Payment
Arrangements
Our Quality Performance Suite Modules can link quality performance data
with claims platforms to produce
• Pay-for-performance and alternative payment metrics
• Actionable feedback and peer performance reports for providers.
Medicaid Managed Long-Term Services
and Supports
Our claims platforms can administer non-traditional benefits, including
home attendant services, adult day care, non-ER transport, and home
modifications.
How We Can Help
DST has enterprise-wide solutions and resources to assist health plans with the implementation of many of these new
Medicaid managed care requirements. We are actively assessing these and other evolving requirements to update and
expand our services to help health plans meet these requirements. Our solutions are designed to help plans achieve
new levels of quality, service, and financial performance.
