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On April 22, 2024, the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) issued a Final Rule (CMS-2439-F), effective July 9, 2024, aimed at advancing healthcare access, quality of care, and health equity for Medicaid and Children’s Health Insurance Program (CHIP) managed care enrollees. Managed care serves as the predominant delivery system in these programs, where healthcare services are organized through networks of providers overseen by managed care organizations (MCOs). These organizations employ strategies such as utilization review and case management to manage costs and ensure quality care, with the overarching goal of streamlining service provision while controlling expenses. Currently, over 70% of Medicaid and CHIP beneficiaries receive care through a managed care plan.

While Medicaid and CHIP managed care systems vary across states, recent efforts by CMS and state authorities have focused on enhancing access to high-quality care, ensuring fair payment for providers, and strengthening program oversight. Beginning with a Request for Information in early 2022, CMS sought insights into challenges and strategies related to eligibility, data usage, equitable access, and payment alignment, culminating in the issuance of several rules, including the Final Rule. This comprehensive regulation addresses standards for timely care access, enhances monitoring and enforcement efforts, reduces administrative burdens for state-directed payments, introduces new standards for the use of In Lieu of Services and Settings (ILOSs), specifies requirements for Medical Loss Ratios (MLRs), and establishes a Quality Rating System (QRS) for Medicaid and CHIP managed care plans.

Strengthening Timely Care Access Standards, Monitoring and Enforcement

The Final Rule strengthens access to timely care by instituting maximum appointment wait time standards, setting a limit of 15 business days for routine primary care and obstetric/gynecological services, and ten business days for outpatient mental health and substance use disorder services. States are also mandated to establish wait time standards for a service of their choosing. Additionally, access is promoted through the requirement for states to maintain a user-friendly web page containing transparent information accessible to the public.

To enhance the monitoring of timely care access, the Final Rule mandates states to commission an independent entity for conducting annual secret shopper surveys. These surveys validate managed care plans’ compliance with appointment wait time maximums and the accuracy of provider directories. Furthermore, states must conduct annual enrollee experience surveys for each managed care plan. The Final Rule also requires states to submit an annual payment analysis comparing managed care plans’ payment rates for specific services against Medicare’s payment rate and, for certain home- and community-based services, the state’s Medicaid state plan payment rate. These measures are reinforced by the requirement for states to implement a remedy plan for any managed care plan failing to meet the required access standards.

Enhancing Quality, Fiscal, and Program Integrity Standards for State Directed Payments (SDPs)

The Final Rule enhances SDP standards by removing barriers for states to use SDPs in value-based purchasing and include non-network providers, eliminating prior approval requirements based on Medicare rates, and imposing strict payment guidelines to prevent exceeding commercial rates for hospital and professional services. It aligns fee schedule-based SDPs with service timelines, allows performance-based payments up to a year prior, prohibits post-payment reconciliation, and mandates inclusion in actuarially sound capitation rates. Submission timeframes are established for payment preprints and rate certifications, with provider-level expenditure reporting required. Evaluation plans are clarified, with reports mandated if costs exceed 1.5% of total capitation payments. An appeals process for SDP disapprovals is established, ensuring compliance with federal funding laws and requiring provider attestation of non-participation in tax-related arrangements, with CMS discretion for existing tax programs until 2028.

Specifying Scope of In Lieu of Services and Settings (ILOSs) to Address Health-Related Social Needs (HRSNs)

The Final Rule introduces several provisions aimed at enhancing the utilization and oversight of ILOSs within Medicaid programs. First, it specifies that ILOSs can be used as immediate or longer-term substitutes for covered services or settings under the state plan, particularly to address HRSNs such as housing and nutritional supports. In addition, the Final Rule mandates that an ILOS must be considered approvable as a service or setting through the Medicaid state plan or a Medicaid section 1915(c) waiver, ensuring formal recognition and compliance with program guidelines. Furthermore, specific information regarding each ILOS must be documented in managed care plan contracts, enhancing transparency and accountability. The Final Rule also requires states to provide additional documentation on their processes for determining the medical appropriateness and cost-effectiveness of ILOSs if their costs exceed 1.5% of total capitation payments, imposing a limit of 5% on total ILOS costs as a percentage of total capitation payments for each program. Ongoing monitoring and evaluation of each ILOS are mandated, with an evaluation required after five years if costs exceed the specified threshold. Last, states are required to develop transition plans to ensure timely provision of state plan services and settings if an ILOS is terminated, ensuring continuity of care for beneficiaries.

Specifying Medical Loss Ratio (MLR) Requirements

The Final Rule promotes transparency and accountability within Medicaid managed care plans. It mandates that these plans submit actual expenditures and revenues for state-directed payments as part of their MLR reports to states, ensuring a clearer understanding of financial flows. Additionally, the Final Rule specifies that states must provide MLRs for each managed care plan, further enhancing oversight and comparability. Moreover, technical revisions have been made for quality improvement expenditures, provider incentive payments, and expense allocation reporting to align with recent regulatory changes for Marketplace plans, promoting consistency and coherence across different healthcare programs. Furthermore, managed care plans are now required to report any identified or recovered overpayments to states within t 30 calendar days, facilitating timely resolution of financial discrepancies. Finally, the Final Rule outlines contractual requirements for provider incentive payments, establishing clear guidelines for the management of these financial arrangements. Overall, these provisions work together to bolster transparency, accountability, and efficiency within Medicaid managed care programs.

Establishment of a Quality Evaluation Systems 

The Final Rule introduces significant enhancements to the Quality Strategy and External Quality Review (EQR) framework for Medicaid managed care plans. These changes aim to foster greater public engagement by increasing transparency around states’ quality strategies and streamlining the EQR process. Specifically, the Final Rule eliminates EQR requirements for primary care case management entities, making it simpler for states to utilize accreditation reviews for EQR purposes. It also establishes consistent 12-month review periods for annual EQR activities, ensuring that reports contain the most up-to-date information and requiring more comprehensive data inclusion for improved analysis.

Additionally, the Final Rule introduces the Medicaid and CHIP Quality Rating System (MAC QRS), which serves as a comprehensive resource for beneficiaries to evaluate managed care plans. This initiative aims to empower beneficiaries by providing a centralized platform where they can access information about eligibility, compare plan quality and key features like drug formularies and provider networks, and make informed decisions. The Final Rule outlines the framework and state requirements for the MAC QRS, including initial mandatory quality measures and a process for future updates. It also establishes the methodology for calculating quality ratings and offers states flexibility to implement alternative QRS frameworks, ensuring a tailored approach to meet diverse state needs.

Conclusion In conclusion, the Final Rule underscores a commitment to transparency, accountability, and efficiency within Medicaid and CHIP managed care programs. By addressing access, finance, and quality, it represents a comprehensive effort to enhance care delivery and outcomes, aligning with broader objectives of promoting equitable healthcare access and improving health outcomes for all enrollees. For further information on the Final Rule, see CMS’s 2439-F Fact Sheet.