Almost a year after it was initially announced in draft form by the Centers for Medicare and Medicaid Services (CMS), the massive Medicaid restructuring and accountability overhaul is now nearly official. The final rule – 1425 pages long – will be published in the Federal Register in early May, capping a thorough vetting by CMS of the proposals to remake Medicaid. The regulation, now being referred to as the ‘Medicaid Uber Rule’ for its length and vast implications, should roll out over the next few years and will mean a much more sophisticated compliance and quality regime for state Medicaid programs and the managed care plans they contract with. The regulations also reshape and coordinate the federal State Child Health Insurance Program (CHIP or SCHIP) with its Medicaid sister.
With Medicaid now roughly 70 million in membership and about $500 billion per year, it was about time for the changes. About two-thirds of Medicaid healthcare is now delivered by private plans and it has been about a decade since the last major reforms were put in place. Buoyed by its major success on both the compliance and quality front in Medicare, CMS knew it had to act on what almost everyone agreed was the abysmal failure in Medicaid in terms of cost control and quality outcomes nationally. More importantly, as we have said in the past, CMS is fashioning a national healthcare accountability model where all lines of business – Medicare, Medicaid, and Exchange – will look very much alike. This is one important step in that process.
In truth, Medicaid reform has been in place to some degree for the past many years.
- Sophisticated states, such as New York, California and a handful of others, have long practiced fairly robust oversight of Medicaid managed care. The New York quality program (Quality Assurance Reporting Requirements or QARR) shines as a solid example of regulatory investment in quality at the state level.
- In the last few years, some of the traditionally lackadaisical states, driven by bleeding state budgets and ever-increasing Medicaid fee-for-service costs, have begun to remake Medicaid and press for accountability and quality. For example, Florida recently reprocured its Medicaid managed care program by forcing almost all populations in managed care and dictating severe (some would argue punitive) contractual provisions related to quality and compliance.
- In the past several years, CMS has remade the Medicare Advantage Special Needs Plans (SNPs) with a massive overhaul of the required Model of Care and more closely tying Medicaid services and funding to SNPs for the many dual eligibles who gravitate to these plans.
- As well, CMS has endorsed the rollout of the dual demonstration projects and worked with individual states to fashion Medicare-Medicaid Plans (MMP) that look and feel like their SNP cousins. These include integrated medical only plans as well as those that combine medical and long-term care services.
- CMS has been running its own incubator for Medicaid reform over the last decade by using the power of both the pen and the pocketbook. States in need of continuing certain funding and reimbursement streams and/or re-upping 1915(b) and (c) and 1115 waivers were granted approval by CMS but only with certain restrictions and enhancements to the state’s system of care. A few examples of this include adding network adequacy standards, implementing quality incentive programs, and levying monetary penalties and liquidated damage provisions.
Despite some of the reform experimentation above, the Medicaid Uber Rule will have far more dramatic implications. Some states are in for a rude awakening moving forward, as they have invested little in accountability and oversight infrastructure.
In earlier blogs this year, we outlined some of the major provisions, some of which remain in the final regulation and others of which were stripped away for any number of reasons (e.g., complexity and legitimate fears of further plan and provider participation erosion if included in the final regulation). The regulation builds on achievements in the individual states and seeks to establish uniform policy approaches to the most challenging issues over the past few decades. While some of the provisions constitute explicit dictates, others provide for some state flexibility in implementation.
Here are some key features of the rule:
- Minimum Medical Loss Ratio (MLR) Provisions. These are already present in Medicare and Exchange and will now be formalized nationally in Medicaid. At least 85% of all dollars received by plans must be spent on medical expenses.
- MLR Standard in Rate-Setting. In a related move, CMS now is having the actuarial standard for medical expense be set at 85% of revenue. If plans are concerned about the mandate to achieve 85% in medical expense spending, they should be happier with this proposal. In the past, plans have complained that states had loose actuarial soundness processes in setting rates, and the discipline of this new standard should provide for more predictable rate-setting and recognition of costs. (Note, we said “more predictable” – we are not foolish enough to believe state budgetary politics is finished.)
In the past, CMS has been less than aggressive in challenging actuarial soundness issues in states when plans raised issues. It actually attempted to go a step further in the regulation and withhold federal funds to states that did not follow actuarial soundness. It backed away from that after it determined it did not have the legal authority to do so.
- Quality or Star Program. The rule directs states to create quality incentive programs for plans or adopt the one CMS intends to announce in the future (mimicking the Medicare 5-Star program). The quality incentive program will have to be in place within three years. Dictates include publication of the program and quality ratings of plans. Again, states will have the ability to fashion the specifics of such plans if they choose; but, at base, plans are expected to be rewarded additional revenue based on exemplary performance in a series of clinical, survey and administrative measures. States may also mandate that plans create quality incentive programs for providers. Various other aspects of the Medicaid quality regime were strengthened as well, including the alphabet soup of QIP, PIP and EQRO.
- Compliance Dictates. In its effort to remake Medicaid processes, the final rule codifies stricter national minimum guidelines and processes for authorizations, appeals, and grievances. One level of internal appeal is established. Included are Medicare-like communication requirements that describe the decision and the nature of appeal and other rights. Beneficiaries will continue to have access to a State Fair Hearings, and states may also set up additional Medical External Review procedures that members can opt into after plan appeal rights are exhausted. If plans miss notice and timeliness requirements, a member can go right to an external mechanism. Continuation of benefits may also apply throughout these processes.
Taken together with existing requirements, plans will now be required to adhere to the following:
- Standard Medical Authorization – As expeditiously as the health of the member demands, but no more than 14 days
- Expedited Medical Authorization – As expeditiously as the health of the member demands, but no more than 72 hours
- Pharmacy Authorization – 24 hours, with a 72-hour supply for emergency situations This provision already exists and is in some ways stricter than Medicare
- Appeals – filed within 60 days of adverse decision and decided within 30 days
- Expedited Appeals – 72 hours
- Authorization and Appeal extension timeframes – up to 14 days
- Grievance – filed anytime and decision within 90 days
- Clinical Dictates. The rule also establishes a policy regarding consistent use of evidenced-based criteria. Similar to Medicare, CMS is looking for valid criteria to be used in the processes but also that the criteria is used for all members in a non-discriminatory way. In addition, greater focus is placed on ensuring that clinicians with the requisite experience and credentials (e.g., medical specialty, behavioral health, and long term care) are making authorization and appeal decisions.
- Care Coordination. To deal with growing costs and poor quality, CMS has been experimenting for a number of years now with enhancing care coordination techniques for government programs. The SNP Model of Care, Value Based Insurance Design (VBID), and MMP pilots are great examples of this. Ultimately, CMS would like to establish a care coordination, clinical intervention and stratification framework across all lines of business. Based on severity and acuity, different elements of clinical intervention would be practiced, with the greatest engagement for the highly co-morbid and complex.
CMS continues its push in this arena with a dual proposal on assessment and coordination. Plans must use best efforts to deliver an initial Health Risk Assessment to all recipients within 90 days of enrollment. Providers and plans would also need to collaborate on sharing and establishing a health record for each member. But, those with special needs or in need of long-term care services will need an additional comprehensive assessment, formulation of treatment plans (similar to Interdisciplinary Care Teams), and ongoing reassessments and interventions. The rule also requires that plans actually authorize services that are included in any long-term care member’s treatment plan.
- Provider Network Adequacy. Time and distance standards for provider networks were somewhat watered down from the draft, but states will still have to adopt state-specific requirements to ensure beneficiary access. This was a bit of a bow to plans who complained that rigorous standards could not be met if providers did not want to serve Medicaid recipients. This could have led plans to rethink participation in some states. Individual states will now tackle how to ensure a more general policy dictate in this area and have to come to accommodations with plans. Similarly, worried about plan participation in the Exchanges, time and distance was pulled back at the last minute in the Affordable Care Act plans.
- Sanctions Galore. CMS has meted out record numbers of sanctions and enrollment suspensions since 2014 in Medicare. It has sent a powerful message to plans to take rules seriously. In the same vein, the Medicaid rule dictates policies that states will now follow for civil monetary penalties, enrollment suspensions, and payment suspensions
- Other Notable Provisions and Changes:
- Significant expansion of member material and notification requirements, including posting of member materials, beneficiary protections, benefits notification, alternative language requirements, and provider directory and formulary disclosure
- Enrollment dictates, including the ability to have upfront member choice enrollment or passive enrollment, with requirements for one 90-day disenrollment period unless other circumstances apply
- Expansion of behavioral health coverage in certain facilities
- Allowing managed long-term care members to go back to the fee-for-service environment if their provider is not in network with their plan. This could create issues for plans seeking to assemble networks.
- CMS abandoned the initial proposal to have a 14-day period where newly enrolled beneficiaries have access to the Medicaid fee-for-service environment. The proposal was contrary to the efforts to build accountable managed care and would have been costly for states.
- Significant reform to drug pricing and the rebate program
- Major focus on delegated oversight of downstream vendors of the plan
- Further strengthening of the encounter data collections process for rate-setting and quality assessment
- States can establish minimum fees paid by plans to providers in various service areas.
Similar to the other lines of business, certain quality spend will count toward medical expense and will not be counted as administrative costs. In addition, external quality review, certain technology and meaningful use costs will be included as well. And, in an expansion of the quality definition, service coordination, case management, and activities supporting state goals for community integration of individuals will count. This is extremely important in promoting CMS’ desire to rein in the huge long-term care costs of Medicaid and better manage it. Some fraud prevention activities would also be accrued to medical expense. This is in recognition of the real problem of Medicaid fraud across the nation.
Some plans have argued that a shared-savings approach (where an escalating percentage of profits are yielded back to the state over a set profit threshold) is a more flexible way to ensure adequate spend without unduly impacting plan viability. Interestingly, CMS is pricing the minimum MLR at $11B to $14B from 2018 to 2020, which seems to belie the idea that plans get too few dollars.
We won’t know for years whether Medicaid outcomes improve because of the imposition of these new rules. No one doubts the need to reform the system, given the crippling cost curve and aging of America. At the same time, it must be noted that Medicaid as we know it today is much different from Medicare. Medicare rates for providers, financing to plans, and provider participation are sufficiently robust (notwithstanding some complaints from the provider community). This allows both plans and providers to more easily adapt to new rules and even make investments that will mean potential growth and revenue in the future. CMS has seen success with Medicare because of this. It is all about risk and reward.
On the other hand, in its current form and construct, Medicaid is an ‘under-funded’ system. It is not to say that there isn’t enough money. Rather, the money is misallocated today, and changing that fact will take years – perhaps decades – to fully flesh out. Perverse incentives abound. Except for the temporary Medicare-level reimbursement for Primary Care Physicians (PCPs) and some sweetheart hospital deals in certain states (born of aggressive lobbying that keeps people in the most expensive form of care), Medicaid reimbursement is abysmally low across most states. Provider participation is extremely low in many states and attracting hospitals and physicians is often difficult. In some ways, managed care plans have been the savior by leveraging their Medicare and commercial clout to cobble together sufficient Medicaid plan networks.
The biggest dilemma for plans is that states today set Medicaid margins at well less than 5% and some as low as 2%. Medicare margins are usually much higher on a percentage basis and the per-member-per-month (PMPM) reimbursement is many folds higher. Factor in errant rate-setting in states (deliberate or not), and it is easy to lose money in Medicaid.
The key question is: Will plans and providers with low margins and reimbursement, be able to shoulder the burden of increased regulation even if the reforms are fundamentally good ones? Will the system remain sound enough for a sufficient amount of time to see the benefits and the reapportionment of poorly distributed resources? What will the true administrative burden be, especially since by and large the Medicaid Uber rule sets minimum requirements and sometimes broad standards that states will build their new compliance programs upon? While the Medicaid compliance regime will be much more harmonized, plans will still battle with up to 50 plus different ways of handling given regulatory requirements.
In the end, though, there is really no turning back because without fundamental change, Medicaid would certainly have imploded in due time anyway. To provide for success, CMS, state regulators, and state lawmakers need to provide enough flexibility to shift the paradigm and enough resources for plans and providers to see a light at the end of the Medicaid reform tunnel.