On May 25, 2015, the Centers for Medicare and Medicaid Services (“CMS”) published a newly proposed rule that would change the way the agency regulates Medicaid managed care plans, the first regulation of its kind since 2002.  The proposed rule seeks to address issues related to the healthcare experience of Medicaid and Children’s Health Insurance Program beneficiaries, including quality of care and program administration, as well as improve program integrity, efficiency, and alignment.  Specifically, the following areas are covered by the proposed rule:

• Aligning With Other Health Coverage Programs (including regulation of marketing, appeals and grievances, and medical loss ratio)

• Standardizing Contract Provisions (including provisions related to sound capitation rates, performance standards, categories of protected individuals, financial reporting, and outpatient drugs)

• Setting Actuarially Sound Capitation Rates for Medicaid Managed Care Programs

• Implementing Beneficiary Protections (including enrollment and disenrollment process guidance and standardization, beneficiary access to support systems, continued benefits during appeals, coordination of care continuity, and advancement of health information exchanges)

• Modernizing Regulatory Requirements (including standards for network adequacy, and rating quality care)

• Implementing Statutory Provisions

The proposed rule seeks to achieve its goals through modifications to enrollment procedures, care coordination, availability and accessibility of covered services, and communications between beneficiaries and state and managed care plans.  States would be required to establish a quality strategy for their Medicaid managed care programs.  Furthermore, one key proposal which is designed to ensure that high quality healthcare services are available to all beneficiaries, would establish a managed care quality-rating system aligned with existing Medicare Advantage and other marketplace rating systems.

The proposed changes also seek to make the Medicare and Medicaid systems more efficient and aligned with Medicare Advantage and private plans by implementing best practices of existing managed long-term services and support programs and clarifying actuarial soundness requirements.

One specific provision, currently receiving a lot of attention, would implement a medical loss ratio (“MLR”) of 85% for Medicaid managed care plans, meaning that plans would have to assume, for the purpose of rate setting, that at least 85% of revenue will be spent on medical care.  However, unlike other health plans, Medicaid managed care plans would not be required to rebate the difference if they spend less than the 85% MLR threshold.  The onus would be on individual states to use the differences between threshold MLR (the standard MLR percentage that plans are required to meet) and actual MLR (the medical loss ratio for money actually spent on health care) in setting new rates.   Currently, Medicaid and the Children’s Health Insurance Program do not have a federally set minimum MLR for managed care plans.  The standards for MLR are currently set by states on an individual basis.  The MLR proposed under the CMS rule would not be a mandate, but it could affect the MLR that individual states choose to adopt.

CMS is seeking comments on the proposed rule, which are due by July 27, 2015.  Full text of the proposed rule can be found here.