CMS Release Final Managed Care Rule
Loren Anthes, Fellow, Center for Medicaid Policy
April 26, 2016 

On April 25th, the Centers for Medicare and Medicaid Services (CMS) released the much anticipated final rule significantly updating regulations pertaining to managed care organizations (MCOs) participating in Medicaid and the Children’s Health Insurance Program or (CHIP). MCOs are private insurance companies that provide, or arrange the provision of, services for Medicaid enrollees in exchange for a set amount of money. Ohio has been a “managed care state” since the late 1970s and has increasingly used the model, with Ohio’s five plans covering 93 percent of the total Medicaid population as of March. As such, this rule has a significant impact on how Medicaid service is delivered and how providers are reimbursed.

SOME INITIAL HIGHLIGHTS

Medical Loss Ratio
In order to align standards between Medicare Advantage plans and MCOs in Medicaid, the rule requires MCOs to calculate and report a Medical Loss Ratio (MLR). In private insurance, MLR is a measurement, usually expressed as a percentage, showing how much of their premium income insurance companies are spending on services versus administrative activities (including marketing and quality improvement). In the case of this rule, rates for MCOs will need to be developed in a manner that achieves at least 85 percent, though states have some flexibility with the policy. It should also be interesting to see how such a rule would interact with the Healthy Ohio proposal, adding to our long list of questions about the waiver’s consequences.

Institutions for Mental Disease
As John Corlett has written previously, the Medicaid reimbursement exclusion for Institutions for Mental Disease (IMDs) has been blamed for limiting treatment options for persons with substance use disorders (SUD) and the seriously mentally ill (SMI). The new rule would allow for some reimbursement of inpatient behavioral health services for IMDs as long as services provided are no longer than 15 days in any given month. While this would not achieve the same broad access as a costly IMD waiver, it could provide a pathway to more treatment at a time when overdose deaths have surpassed that of motor vehicle accidents.

Supplemental Payments
In order to close the gap between Medicaid and Medicare rates, States have the ability to establish Upper Payment Limit (UPL) programs. These programs, which often rely on funding from providers and have traditionally focused on safety net providers, have been identified as an area of policy scrutiny by CMS. In this rule, providers, such as hospitals, nursing homes, and physicians, will no longer be able to receive supplemental payments through managed care plans. Ohio’s hospital UPL program is valued over $1 billion and currently distributes some of this funding to hospitals via MCOs through its Medicaid Managed Care Inpatient Incentive Program. While this significant change will be phased in overtime, it will likely be the source of much conversation between the industry, the Ohio Department of Medicaid, and the legislature.

In addition to these specific issues, the rule has a number of guidelines regarding quality, provider networks, beneficiary protections, transparency, and delivery reform incentives. Given the breadth and depth of these changes, most of which will be effective within 60 days of the announcement, CCS staff will continue to monitor information as it is released. Moreover, we will work with organizations and individuals who are impacted on the governmental, organizational, and patient levels and welcome any insights people may have on how this mega-rule affects the Medicaid program.