(Story updated at 7:18 p.m. ET)
The CMS has finalized a long-awaited rule that will overhaul managed Medicaid, which has not been updated in a decade.
The sweeping 1,425-page rule, which was proposed last May, caps insurer profits, requires states to more rigorously supervise the adequacy of plans' provider networks, encourages states to establish quality rating systems for plans, allows more behavioral healthcare in institutional settings and promotes the growth of managed long-term care. But the CMS deferred to state control for several issues.
States have turned to Medicaid managed-care plans to cut costs and gain more budget predictability. But some charge that leads managed Medicaid insurers to offer inadequate provider networks and deny needed care to pad their bottom lines. Connecticut has actually reverted back to traditional fee-for-service Medicaid, saying it abandoned the managed-care version because it did not save money or improve care.
Thirty-nine states and the District of Columbia outsource their Medicaid programs by paying monthly fixed, per-member sums to private insurers, according to HHS. Approximately 46 million low-income people were enrolled in a managed Medicaid plan in 2015, consulting firm Avalere Health reports, and that number continues to rise. The Affordable Care Act's Medicaid expansion has also funneled more beneficiaries in managed-care plans.
One of the linchpin components of the rule is a federal medical-loss ratio, or MLR. The CMS finalized it at 85%, meaning all insurers must spend at least 85% of their Medicaid revenue on medical care and other activities that improve quality. The remaining 15% can be spent on employee salaries, marketing, profits and other administrative tasks. Plans that don't meet the 85% standard will have their state rates lowered in the future.
The health insurance industry is somewhat divided over the Medicaid MLR. Many states already require MLRs of 85% or more, and several insurers already work within the 85% limit. Industry groups oppose the MLR, calling it unnecessary, but some individual insurers have advocated for the ratio as a way to standardize the varying state rules.
Medicaid plans that fall below the 85% threshold would be dinged financially, but that would also potentially save taxpayer money. The CMS estimated the federal government would collect $7 billion to $9 billion from 2018 to 2020 based on plans that didn't meet the MLR, according to the final rule, and state governments would recoup another $4 billion to $5 billion over the same time span.
Jeff Myers, CEO of Medicaid Health Plans of America, a Washington-based lobbying group for Medicaid insurers, was one of the most vocal opponents of the MLR because he argued nearly every Medicaid contractor has to abide by a benefits ratio when an agreement is signed.
"We don't believe it's going to result in any new money to states," Myers said. But, sending the CMS was going through with the 85% limit, he said, "We'll manage it the best we can."
The CMS eliminated quantitative time and distance standards for provider network adequacy, a major change from the proposed rule. The CMS originally wanted Medicaid plans' provider networks to have time and distance standards for certain types of providers, including hospitals, primary-care physicians and OB-GYNs. Ultimately, the agency deferred to individual state decisions in the final rule.
HHS' Office of the Inspector General found a clear need for better provider networks in Medicaid programs, saying in a harsh 2014 report that states were not ensuring Medicaid patients had enough hospitals and doctors 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 said.
The Obama administration's about-face on networks parallels exactly with its February decision to drop quantitative network standards in the ACA's individual insurance marketplaces. Now it's up to states to establish robust provider network parameters, but it's unclear how quickly states will do so.
"We believe that states should be allowed to set appropriate and meaningful quantitative standards for their respective programs," the CMS said. "We also believe that states are in the best position to set specific quantitative standards that reflect the scope of their programs, the populations served and the unique demographics and characteristics of each state."
Provider networks and a federal MLR were only the tip of the Medicaid rule iceberg, though. The CMS followed through with a proposal that will allow states to require Medicaid plans to lay out “value-based” payment models for hospitals and doctors, such as patient-centered medical homes and those that tie payment to better quality outcomes. The federal government has made explicit goals to move Medicare toward alternative payment models and away from fee-for-service medical claims, and the final rule will incentivize states and health plans to do the same for Medicaid.
The federal government, however, will not mandate Medicaid plans to move to those types of models; it will again give flexibility to the states.
The federal agency backed off several ideas, including an enforcement proposal to ensure that payments to managed-care plans are actuarially sound—meaning that they cover all medical and administrative costs, taxes and fees for which the health plan is responsible. The CMS had proposed to withhold federal funding if a state submitted a contract and found the agreement didn't ensure actuarial soundness, but backed off after commenters noted the agency didn't have the legal authority to do so.
It is also not finalizing a proposal that would have required states to provide potential Medicaid enrollees with at least 14 days of fee-for-service coverage during which they can make an active enrollment choice. Some states had complained they no longer had a fee-for-service program for Medicaid enrollees, making it hard for them to comply with this section. MHPA had aggressively fought that proposal and was pleased with the CMS' reversal, Myers said.
The rule also could significantly affect access to behavioral health 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 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.
With long-term care, the CMS has finalized a controversial proposal 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. Plans had 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.
The rule will be officially published on May 6.