New CMS rule could reshape Medicaid managed care

It's not yet clear whether the CMS' sweeping proposed rule governing Medicaid managed care will resolve the coverage and access problems facing the growing number of low-income adults and children enrolled in private Medicaid plans. But it's likely that there will be political jockeying over many of its provisions.

Health plans, state Medicaid officials, consumer groups and policy experts are poring through the 653-page rule released last week, which would create the biggest changes in Medicaid managed-care regulations in more than a decade. It would cap insurer profits, require states to more rigorously supervise the adequacy of plans' provider networks, encourage states to establish quality rating systems for plans, allow more behavioral healthcare in institutional settings and encourage the growth of managed long-term care. A fight looms over the rule's limits on how much plans can allocate for administration and profits. Public comments are due by July 27.

Thirty-nine states and the District of Columbia outsource their Medicaid programs by paying fixed, monthly sums to private managed-care plans, yielding $115 billion in revenue for insurers and $2.4 billion in operating profits last year, according to data compiled by Mark Farrah Associates and analyzed by Kaiser Health News. About 46 million people, or 73% of all regular Medicaid beneficiaries, are in managed-care plans, and that figure will continue to rise through the Affordable Care Act's expansion of Medicaid to low-income adults, according to consulting firm Avalere Health. Millions of kids in the Children's Health Insurance Program also are in managed care and would be covered by the proposed rule.

States have turned to Medicaid managed-care plans hoping to reduce costs and get more budget predictability. Insurers, however, have faced criticism for offering inadequate provider networks and denying needed care to pad their bottom lines. Because of the wide variations in how states run their Medicaid managed-care programs, there have been “inconsistencies” and “less-than-optimal results,” the CMS said. Some experts have questioned whether contracting out Medicaid to private plans has really saved states money.

Last year, HHS' Office of the Inspector General reported that states were not enforcing their own rules to ensure Medicaid patients had enough providers to care for them. One managed-care enrollee reportedly had no access to an in-network urologist within 75 miles, and the health plan did not explain how the patient could receive care, the OIG found.

Rules for maintaining adequate provider networks were included in last week's proposed rule. But the CMS mostly punted the task to states, despite the states' previous lackluster enforcement. “The state has the primary responsibility for administering and monitoring the Medicaid managed-care program,” the CMS said. It's unclear how financially strapped state Medicaid programs will respond.

At a minimum, Medicaid plans' provider networks must have time and distance standards for certain types of providers, including hospitals, primary-care physicians and OB-GYNs, according to the proposed rule. The CMS said time and distance more accurately capture whether beneficiaries have adequate access to care than provider-to-enrollee ratios. States must also consider whether plans offer an adequate number of providers who speak languages other than English.

The CMS encouraged states to include pediatric primary, specialty and dental providers in their network rules because of the large number of children covered under Medicaid and CHIP.

The shortage of specialists has made it challenging to establish adequate networks, particularly in rural areas, insurers say. Meg Murray, CEO of the Association for Community Affiliated Plans, said her group's 59 not-for-profit safety net plans have been proactively trying to address that issue through telemedicine and electronic consults. “They are doing a lot of work to expand their networks,” she said.

Andrea Callow, a senior policy analyst with consumer advocacy group Families USA, said the CMS rule overall is a positive development that will improve access to care and beneficiary protections. While her group was pleased with the time and distance network-adequacy requirements, it would like to see standards set for appointment wait times, she said.

The CMS rule also sets a medical-loss ratio (MLR) of 85%, meaning at least 85 cents of every premium dollar must be used for medical care. The remainder can go toward administration, marketing and profit. Plans would not be penalized if they don't meet the ratio, but states could adjust future payments downward if plans don't meet the minimum MLR.

Although the health-plan industry has lobbied against inclusions of a minimum MLR, observers say the new Medicaid requirement would not have much effect on large national insurers. About three-quarters of states with Medicaid managed care already require average MLRs of at least 85%, according to the Kaiser Family Foundation.

“I can't say we're surprised by this language,” said Dr. J. Mario Molina, CEO of Molina Healthcare, a for-profit insurer that posted a Medicaid MLR of 88.7% in the first quarter this year. His company already has some type of MLR provision in many of its state Medicaid contracts.

Minimum MLRs already are in place for Medicare, employer and exchange plans. “You could see this coming from years away,” said Mandy Pellegrin, a regulatory analyst at Obsidian Research Group.

Wall Street analysts heralded the rule as good news for publicly traded insurers because the proposed MLR rule was in line with expectations. But the minimum ratio could have a bigger impact on smaller regional plans, including safety net plans run by public and not-for-profit hospitals. Their finances fluctuate because they are more susceptible to outlier events, such as a bad flu season. A surplus in one year may be needed to offset losses from another.

“If times are tough in that state, they can't just say, 'I'll stop providing services in that state,' ” said Kathryn Kuhmerker, vice president for Medicaid policy at the Association for Community Affiliated Plans and a former New York Medicaid director. “Our safety net health plans often suffer more when times are tough.”

There is likely to be a regulatory battle over how to define the numerator in calculating the MLR. Plans will argue that they should be allowed to include administrative costs related to care management as medical costs, which they say is essential to delivering value-based care to patients with chronic conditions.

The proposed CMS rule also could significantly affect access to behavioral healthcare for Medicaid beneficiaries. Since the creation of Medicaid 50 years ago, there has been a coverage exclusion for behavioral and substance-abuse treatment at inpatient facilities with more than 16 beds. The new proposed rule, however, would allow states to pay plans for behavioral care to beneficiaries who have a stay of no more than 15 days in a so-called institution for mental disease (IMD).

The IMD exclusion has created difficulties in treating Medicaid beneficiaries suffering from mental illness, said Mark Covall, president and CEO of the National Association of Psychiatric Health Systems. Patients often endure long stays in hospital emergency departments and are transferred from one general hospital to another, sometimes far from a patient's home, because of bed shortages.

When these patients are referred to stand-alone psychiatric facilities, the facilities can't deny admission, but they don't receive Medicaid payment because of the IMD exclusion. As a result, Medicaid patients may get lower quality of care and be discharged prematurely. The proposed rule “will improve the care of these patients, there is no question,” Covall said.

But the National Association of State Mental Health Program Directors said the 15-day stay limit was too restrictive. Colorado, Massachusetts, North Carolina, Oregon, Tennessee and Wisconsin already have their managed-care companies cover inpatient psychiatric stays via waivers, and there are no day limits, said Stuart Gordon, director of policy and healthcare reform for the association.

With long-term care, health plans have concerns about a provision in the proposed CMS rule that would allow managed-care patients receiving LTC services to switch to fee-for-service if their provider is not in-network. Patient advocates had pushed for this provision as a safeguard. As of 2014, 26 states were using managed long-term care, up from eight in 2004, according to the CMS.

But Jeff Myers, CEO of Medicaid Health Plans of America, said this provision could be a disincentive for LTC providers to negotiate contracts with plans if they know they can continue to see patients under fee-for-service or another plan.

On the other hand, the LTC provider industry likes that provision. “Many home-care providers have expressed that the plans have refused to negotiate and operate under a take-it-or-leave-it approach,” said William Dombi, executive director of the National Council on Medicaid Home Care, a provider advocacy group. “This proposed rule may bring some better balance into any negotiations.”

The CMS' proposed rule suggests that states establish a quality rating system for Medicaid plans to help beneficiaries select plans. The CMS already has a star rating system for Medicare plans. But the agency said it would defer to the states on this issue.