Medicaid Final Rules Add to HHS Regulatory Flurry

This week, CMS posted two major Medicaid final rules that are scheduled to be published in the Federal Register on Friday, May 10, 2024. The final rules generally seek to improve Medicaid beneficiaries’ access to affordable, high-quality health care through changes to the Medicaid fee-for-service (FFS) and managed care delivery systems, the combination of which represented over 77 million beneficiaries as of December 2023.¹ The changes finalized in these rules will have significant and varying impacts on states, managed care organizations, providers, beneficiaries, caregivers, and other organizations involved in Medicaid and CHIP.    

These rules are part of a flurry of activity within CMS and HHS to finalize regulatory priorities prior to the Congressional Review Act’s 60-day lookback window, which could occur as early as mid-May.² For example, within the last month HHS and CMS have released final rules that:

• Scale-back the length of short-term, limited duration insurance plans,

• Establish minimum staffing standards for nursing homes,

• Prohibit the disclosure of PHI under HIPAA related to lawful reproductive health care,

• Streamline ACA marketplace enrollment and expand essential health benefits, and

• Standardize Medicaid and CHIP enrollment and renewal processes, to name a few.

Stakeholders should expect more final rules over the next several weeks.      

The following provides a brief overview of the two new Medicaid final rules — (1) the Medicaid and CHIP Managed Care Access, Finance, and Quality Final Rule (Fact Sheet available here) and (2) the Ensuring Access to Medicaid Services Final Rule (Fact Sheet available here), and some analysis that interested parties can use to begin unpacking how best to comply with the new requirements included in the final rules. Note that both rules are long and have numerous facets. The below is not intended to be a comprehensive summary.

Medicaid and CHIP Managed Care Access, Finance, and Quality Final Rule

After the proposed rule was issued last year, Dentons published an in-depth memorandum summarizing CMS’s proposed changes, many of which are unchanged in the final rule. The following provides a brief overview and analysis of changes within broad categories of the final rule, including: State Directed Payments, Access, Medical Loss Ratio, In Lieu of Service and Setting, and Quality.    

State Directed Payments (SDPs). In the final rule, CMS highlights the growth of SDPs and formalizes many of its current practices within 42 C.F.R. § 438.6(c), the regulation that specifies the parameters for how and when states may direct the expenditures of their Medicaid managed care plans and the associated requirements and prohibitions on such arrangements. Notable finalized changes include:

• Limiting SDP provider payment rates for inpatient and outpatient hospital services, nursing facility services, and qualified practitioner services at academic medical centers to the average commercial rate (ACR), defined as “the average rate paid for services by the highest claiming third-party payers for specific services as measured by claims volume.”³ This change will be applicable in the first rating period on or after the effective date of the final rule.

• Prohibiting the use of (1) interim payments based on historical utilization and reconciliation based on actual utilization,⁴ and (2) separate payment terms.⁵ CMS’s decision to prohibit separate payment terms represents a shift in the agency’s approach compared to the proposed rule, and this shift could require a significant number of states to revisit and revise previously approved SDPs with separate payment terms. States will be required to come into compliance no later than the first rating period on or after three years of the final rule’s effective date.

• Streamlining approval for SDPs that are minimum fee schedules set at the Medicare payment rate by eliminating written prior approval requirements. This change will be applicable on the effective date of the final rule.

• Requiring providers to submit certain attestations regarding the financing of the non-federal share of SDP payments.⁶ This change will be applicable for the first rating period on or after January 1, 2028.⁷

• Permitting disputes regarding disapproval of written approval by CMS of SDPs to be heard by the Departmental Appeals Board.⁸

Access. The final rule includes new standards to improve state monitoring of access to care by requiring the establishment of maximum appointment wait time standards for certain routine primary care and obstetric/gynecological services, as well as outpatient mental health and substance use disorder services. It also implements managed care plan validation measures, including annual secret shopper surveys that confirm plan compliance with the appointment wait time standards and assess the accuracy of provider directories. The final rule establishes the process for states to implement a remedy plan, as needed, that addresses the required access standards.

In addition, states will be required to (1) conduct annual enrollee experience surveys for each managed care plan and (2) submit an annual payment analysis that compares managed care plans’ payment rates as a proportion of Medicare’s payment rate.

Medical Loss Ratio (MLR) Standards. The final rule adopts separate MLR reporting requirements for SDPs. It requires states to provide MLRs for each managed care plan. Managed care plan contracts for Medicaid and CHIP also will be required to include a provision that requires the prompt (newly defined as within 30 calendar days) reporting of all overpayments identified or recovered by the plan.⁹

In Lieu of Service and Setting (ILOS). The final rule further supports states’ ongoing use of ILOS to address social determinants of health and health related social needs through Medicaid and CHIP managed care plans. In the final rule, CMS explains that “ILOS can be used . . . as immediate or longer-term substitutes for State plan-covered services and settings” and “may also offset potential future acute and institutional care, and improve quality, health outcomes, and enrollee experience.”¹⁰ The final rule adopts provisions included in the proposed rule essentially as proposed, including a new definition of ILOS,¹¹ and certain documentation, evaluation, and oversight requirements.

Quality. The final rule continues CMS’s focus on improving quality, adding public comment, transparency, and review requirements for state managed care quality strategies, and establishing 12-month review periods for External Quality Review activities. It also requires states to establish a Medicaid and CHIP Quality Rating System, similar to the star rating system established in Medicare Advantage, where beneficiaries will be able to compare Medicaid and CHIP managed care plans based on a number of quality factors.

Ensuring Access to Medicaid Services Final Rule

In general, this final rule focuses on improving access to services for Medicaid beneficiaries by increasing FFS payment rate transparency, standardizing reporting for Home and Community-Based Services (HCBS), and enhancing opportunities for Medicaid beneficiaries to engage with state Medicaid agencies and provide feedback on the program and services it provides.

FFS Payment Rate Transparency. The final rule seeks to improve transparency of Medicaid FFS payment rates by requiring states to make certain payment rate disclosures by July 1, 2026 (with disclosures updated within 30 days of a payment rate change) on a publicly available and accessible website. States will also be required to conduct and publish an analysis comparing Medicaid FFS payment rates for certain services to Medicare FFS payment rates for the same services. Further, states will be required to publish average hourly rates for certain HCBS workers, including personal care professionals, home health aides, homemaker rates, and habilitation services. The final rule also changes the way CMS will evaluate state plan amendments that reduce rates or restructure certain services, requiring the state to demonstrate an analysis showing that the changes will maintain sufficient access to the services.

Home and Community-Based Services. HCBS programs vary by state and can include a combination of medical and non-medical services. Such programs serve a wide variety of targeted population groups, and provide those groups opportunities to receive services in their own homes and communities rather than in institutional settings. The HCBS requirements included in the final rule ultimately are intended to promote transparency related to the administration of HCBS programs and include provisions that focus on improving access to care, the quality of care, health and quality of life outcomes, and also establish certain safeguards for beneficiaries who receive HCBS through the Medicaid FFS delivery system.

Medicaid Advisory Committees. States are already required to have a Medical Care Advisory Committee (MCAC) intended to advise state Medicaid agencies about health and medical services. The final rule renames MCACs as Medicaid Advisory Committees (MACs) that are authorized to advise states on an expanded range of issues. In addition to the MACs, states also will be required to establish Beneficiary Advisory Councils (BACs) comprised of Medicaid beneficiaries, their families, and caregivers. BACs are intended to enhance Medicaid beneficiary engagement with state Medicaid agencies. The final rule establishes certain minimum requirements for MAC membership, including a minimum requirement that 25% of the MAC members be drawn from the BAC. MAC and BAC organizational documents and activities will be made public by the state, and the public will also be able to attend and comment during at least two MAC meetings per year.

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1. CMS, December 2023 Medicaid and CHIP Enrollment Trends Snapshot, at 3, available at https://www.medicaid.gov/media/174636. ↩︎
2. The lookback period is established under the Congressional Review Act to prevent administrations from issuing rules at the end of a session of Congress, thereby denying the House and Senate adequate time to review the rule. ↩︎
3. See 42 C.F.R. § 438.6(c)(2)(iii) (establishing the ACR as a limit for inpatient, outpatient, nursing, and professional services at academic medical centers); see also id. § 438.6(a) (defining “Average commercial rate”) (Managed care final rule at 831 and 826 respectively). ↩︎
4. 42 C.F.R. § 438.6(c)(2)(vii)(B). ↩︎
5. Id. § 436.6(c)(6). ↩︎
6. Id. § 438.6(c)(2)(ii)(H). ↩︎
7. CMS also issued a new Informational Bulletin noting that it was exercising enforcement discretion to not enforce certain policies that it says are implicated by the attestation until after January 1, 2028. ↩︎
8. 42 C.F.R. § 430.3(e). ↩︎
9. Id. § 438.608(a)(2) and (d)(3). ↩︎
10. Access final rule preamble, at 448-49. ↩︎
11. 42 C.F.R. § 438.2. ↩︎