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Presenting a live 90-minute webinar with interactive Q&A

Modernizing Medicaid Managed Care:

Navigating CMS’ Long-Awaited and

Overhauled Proposed Regulations Calculating Medical Loss Ratio, Complying with Network

Adequacy Standards, Setting Capitation Rates, and More

Today’s faculty features:

TUESDAY, JULY 21, 2015

J. Peter Rich, Partner, McDermott Will & Emery, Los Angeles

Ariane Tschumi, McDermott Will & Emery, Washington, D.C.

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

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J. Peter Rich Ariane Tschumi McDermott Will & Emery, LLP McDermott Will & Emery, LLP 2049 Century Park East, 38th Floor 500 North Capitol St NW Los Angeles, California 90067 Washington, DC 20001 (310) 551-9310 (202) 756-8795 jprich@mwe.com atschumi@mwe.com

Modernizing Medicaid Managed Care:

Navigating CMS’ Proposed Regulations

Strafford Webinar - July 21, 2015

Road Map:

Key Aspects of Proposed Rule

1. Medicaid MLR

2. Actuarial Soundness

3. Incentive and Withhold Arrangements

4. Program Integrity

5. State Oversight

6. Network Adequacy

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Road Map:

Key Aspects of Proposed Rule

7. Beneficiary Protections

8. Quality

9. Care Coordination

10.MLTSS

11.State-Led Payment and Delivery System Reform

12.Care in Alternate Settings / IMD

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Key Themes

First substantive revisions to the Medicaid managed care

program since 2002.

Thematic goals:

– Align Medicaid managed care, where feasible, with commercial

markets, QHPs, and MA and Part D Programs.

– Preserve role of the state in Medicaid federal-state partnership (e.g.,

through establishing minimum standards and deferring to states on

how best to implement or oversee the proposed policy).

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Background: Medicaid Managed Care

Penetration by State, October 2010

Background: Medicaid Enrollment in

Managed Care, October 2010

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Background: Over Half of States Have

Adopted Medicaid Expansion

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1. Overview of MLR Proposals

Establishes a national Medicaid MLR standard for Medicaid

and CHIP managed care programs

States may elect to:

– Establish minimum MLR threshold with a repayment requirement

– Solely implement mandatory Medicaid MLR reporting

CMS would require a projected Medicaid MLR of at least

85% for state capitation rates to be viewed as “actuarially

sound.”

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Calculating the MLR

Goals of MLRs:

– Incentivize spending on patient care and QI activities

– Limit spending on administrative expenses and profit

The MLR equals:

(Incurred medical claims) + (Expenses to improve quality)

(Premium revenue) – (Federal and state taxes and

licensing or regulatory fees)

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Classifying Expenses

Aligns expense classifications with existing commercial MLR

requirements (45 C.F.R. § 158.221)

Medicaid-specific classifications:

– Medicaid External Quality Review Organizations

– Medicaid-specific program integrity requirements (subject to a cap of

0.5 percent of premium revenue)

– Activities related to service coordination, case management, and

activities supporting community integration of individuals with more

complex needs (via Preamble)

Classifying Expenses

Exclusions from Medicaid MLR numerator:

– Payments to third-party vendors for administrative fees, network

development, claims processing and utilization management

Unclear whether CMS-issued FAQs on commercial market

MLR standards, including third-party vendor reporting,

clinical risk-bearing entity payments, and other issues apply

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Minimum Medicaid MLR Standards

Option to mandate a minimum Medicaid MLR or solely to

require Plan sponsor reporting

– If adopt minimum MLR, must be 85% or higher

State discretion to require repayment for failure to achieve

imposed MLR requirement

– Federal government must receive its share of any remittances that are

returned by Plan sponsors (False Claims Act liability)

MLR and Actuarial Soundness

CMS to consider whether “Plan sponsors” would “reasonably

achieve” MLR of at least 85% when evaluating actuarial

soundness of state capitation rates

– Declines to extend maximum Medicaid MLR

States must “take into account” Plan sponsors’ past and

projected MLRs when developing future rates.

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Minimum MLRs Requirements for

Medicaid MCOs, October 2010

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2. Actuarial Soundness

Challenges identified (see, e.g., GAO-10-810):

– Adequacy of Plan sponsor rates; capitation methodologies; CMS

oversight

Existing legal standard:

– “Actuarially sound” according to GAAP, certification by qualified

actuary, appropriateness for populations and services covered

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Actuarial Soundness

Proposals:

– Adopt standard that a rate is actuarially sound “if for business for

which the certification is being prepared and for the period covered by

the certification, projected capitation rates and other revenue sources

provide for all reasonable, appropriate, and attainable costs.”

(American Academy of Actuaries)

– Proposes parameters around appropriate data sources for rate setting,

trend factors, adjustments, non-benefit costs, risk adjustment, etc

– Broad effort to shift from “process-based” framework to “substantive

review” of assumptions and methodologies underlying rate

development

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3. Incentive and Withhold Arrangements

Under the “actuarially sound” standard, incentives and withholds

tied to performance would count toward actuarial soundness only if

their attainment is reasonable and attainable.

Existing regulatory requirements:

– Incentive arrangements must be

• (i) time limited;

• (ii) not renewed automatically;

• (iii) made available to both public and private contractors;

• (iv) not conditioned on intergovernmental transfer agreements;

• (v) necessary for the specified activities and targets; and

• (vi) limited to 5% of the certified capitation rate.

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Incentive and Withhold Arrangements

Proposals:

– Requirement that incentive arrangements be designed to support

program initiatives tied to meaningful quality goals and performance

measure outcomes

– Withhold arrangements must meet above incentive arrangements

requirements (with the exception of the 5% upper limit); there are

additional documentation and certification requirements for withholds.

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4. Program Integrity

Goals:

– Strengthen program integrity requirements through mandates similar

to those for MAO and PDP Sponsors

– Note: Would extend provisions to health care and administrative

service providers

Proposals:

– All healthcare providers that participate in a Plan sponsor’s network

(and are not enrolled in FFS Medicaid) must enroll with State

Medicaid.

– Plan sponsors must certify accuracy, completeness and truthfulness of

data and information submitted to State.

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Program Integrity

Proposals:

– Plan sponsors must implement fraud, waste and abuse procedures

providing “for the prompt referral of any potential fraud, waste, or

abuse that the [Plan sponsor] identifies to the State Medicaid program

integrity unit or any potential fraud directly to the State Medicaid Fraud

Control Unit.”

– Plan sponsors must implement new compliance program requirements

and incorporate standards in downstream subcontracting

relationships.

– Plan sponsors must suspend payment to network provider following a

state’s determination of a “credible allegation of fraud.”

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Program Integrity

Proposals:

– States must audit Plan sponsors’ encounter and financial data at least

every three years.

– Codifies ACA’s 60-day overpayment provisions

• Contracts must contain a provision to “ensure” that the Plan sponsor

reports when it has “identified the capitation payments or other payments

in excess of the amounts specified in the contract.”

• Provision applies to any overpayment (i.e., not solely capitation amount)

• No information as to what constitutes “identification” of payments “in

excess” of contract amount

5. State Monitoring Requirements

States must implement a Medicaid managed care monitoring strategy. Minimum areas include:

– administration and management, appeal and grievance systems, claims management,

– enrollee materials and customer services,

– finance and medical loss ratios,

– information systems and encounter reporting,

– marketing, medical management and utilization management,

– program integrity and provider network management,

– quality improvement, LTSS delivery,

– “other items of the contract as appropriate”

Readiness reviews of Medicaid managed care plans prior to effective start date (required submission to CMS prior to contract approval)

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6. Network Adequacy

Challenges identified (see, e.g., OIG, OEI-02-13-00670):

– Ensure access to health care providers

Existing standard:

– Each Plan sponsor must maintain a provider network “sufficient to

provide adequate access to all services.”

– Plan sponsor must consider (i) anticipated enrollment, (ii) expected

utilization, (iii) numbers and types of providers required to furnish the

contracted services, (iv) number of contracted providers accepting (or

not accepting) new patients, and (v) the geographic location of

providers and enrollees.

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Network Adequacy

Proposals:

– Establish minimum standards for network adequacy

– States must establish and publish on their websites time and distance standards for select provider types:

• Hospitals

• Primary care (adult and pediatric)

• Specialists (adult and pediatric)

• Behavioral health (adult and pediatric)

• Obstetrics/gynecologists

• Pharmacy

• Pediatric dental

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Network Adequacy

Proposals (cont’d):

– States must consider specified “elements” when developing network

adequacy standards (e.g., anticipated Medicaid enrollment, number of

professionals needed to provide the contracted services, number of

network providers not accepting new Medicaid patients, geographic

location of network professionals and Medicaid patients).

• Time and distance standards may vary by provider type and geographic

area (i.e., states may vary standards to accommodate numbers of

providers practicing in a defined geographic area).

• States must consider the ability of health care professionals to

communicate with limited English proficient enrollees in their preferred

language.

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7. Beneficiary Protections

QHPs may market to Medicaid enrollees, including when

QHP is also a Medicaid managed care plan.

Required 14-day FFS coverage during which potential

Medicaid enrollee may choose his or her Medicaid managed

care plan

Required provision of choice counseling by state (with

independent, COI-compliant brokers)

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8. Quality

Standardized set of performance measures and performance improvement projects to be developed through rulemaking, alongside state-specific measures

States must develop and update at least once every three years a comprehensive quality strategy across Medicaid programs.

No less than once every three years, states must review and reissue approval of plans on the basis of plan performance standards.

– Participation review process must be “at least as stringent” as private accreditation standards

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Quality

Medicaid managed care quality rating system

– Consistent in format and scope to QHP system

– 3-5 year development process with “robust public engagement”

– Must use summary indicators of clinical quality management, member

experience, and plan efficiency, affordability, management

Requirement for quality improvement strategy would apply to

all state Medicaid programs as a state plan administration

requirement, i.e., not specific to use of managed care by

state.

9. Care Coordination

Expand care coordination definition beyond medical care to

include a range of community-based social support services

Establish standards for care coordination, assessment and

treatment plans

– Plan sponsors must coordinate care transitions

– Best effort requirement to complete initial HRAs for new enrollees

within 90 days of enrollment

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Care Coordination

States must have transition of care policies governing

movement of Medicaid enrollees between Medicaid FFS and

managed care, or between managed care plans.

– Required transition period in which an enrollee changing plans may

continue to receive services from current providers

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10. Managed Long-Term Services and

Supports

LTSS as defined in Proposed Rule:

– “services and supports provided to beneficiaries of all ages who have

functional limitations and/or chronic illnesses that have the primary

purpose of supporting the ability to live or work in the setting of their

choice, which may include the individual’s home, a provider-owned or

controlled residential setting, a nursing facility, or other institutional

setting.”

Considerable state flexibility to use Medicaid funding to

provide LTSS (state plan services, waivers, other programs)

– Annual Medicaid Expenditure: $150+ billion (KCMU, 2013)

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Medicaid LTSS Spending, 2010

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Growth in Medicaid LTSS Expenditures,

2002 - 2011

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Managed Long-Term Services and

Supports

Codifies managed long-term services and supports

standards and best practices, including:

– State-developed time and distance standards

– Comprehensive enrollee assessment and regular updates of treatment

plans

– Assurances that authorization standards do not disadvantage

enrollees with chronic conditions or long-term support needs

– Sponsor may not discontinue coverage pending an appeal

If the provider of a Medicaid enrollee receiving MLTSS is not

in-network, enrollee may switch to FFS Medicaid.

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11. State-Led Payment and Delivery

System Reform: Value-Based Purchasing

Existing law:

– 42 CFR §438.6(c)(4): Capitation rate paid to Plan sponsors is limited

to the cost of covered services under the contract and associated

administrative expense.

– 42 CFR §438.60: State must ensure that no payment is made to a

provider for a service covered under the contract other than payment

to the Plan sponsor, with certain limited exceptions).

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State-Led Payment and Delivery System

Reform: Value-Based Purchasing

Proposals:

– CMS formalizes policy that states may require Plan sponsors to:

• adopt value-based purchasing for provider reimbursement (e.g., pay for

performance, bundled payments, and other service payment models

rewarding value and outcomes over the volume); and/or

• participate in multi-payer delivery system reforms or performance

improvement initiatives (e.g., patient-centered medical homes, provider

health information exchanges); and/or

• adopt a minimum fee schedule or provide a uniform dollar or percentage

increase for all providers that provide a particular service under the

contract.

– State must receive prior approval from CMS before imposing any

contractual arrangement that directs Plan sponsor expenditures.

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12. Care in Alternate Settings, Including

Institutions for Mental Disease

Clarifies “in lieu” of standard:

– Plan sponsors have flexibility to provide alternative services or

services in alternative settings in lieu of covered services or settings if

(i) cost-effective, (ii) on an optional basis, and (iii) to the extent

enrollee agrees would offer medically appropriate care.

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Care in Alternate Settings, Including

Institutions for Mental Disease

Existing law:

– No Federal Financial Participation for the cost of services for adult

beneficiaries ages 21-64 during the period that the beneficiary is a

resident of an IMD

Proposals:

– States may provide Plan sponsors with monthly capitation payments

for an enrollee receiving inpatient treatment in an IMD, as long as stay

is no more than 15 days.

– Would partially overturn exclusion for institutions for mental disease

Concluding Themes

Most significant proposals for Medicaid managed care

program in 10+ years

Potential to address issues such as:

– Reported coverage and access challenges;

– Disruptions from churn (through improved care coordination);

– Quality of care

Aligns Medicaid managed care, where feasible, with other

sources of coverage (↑ consistency, ↓ administrative burden)

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Concluding Themes

Competing interests of beneficiary advocates, providers and

Plan sponsors (e.g., network adequacy, payment rates)

Costs

– States

– Plan sponsors

Tension between increased federal oversight (and

administration) of Medicaid managed care plans and

deference to state agencies

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Questions?

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J. Peter Rich Ariane Tschumi McDermott Will & Emery, LLP McDermott Will & Emery, LLP 2049 Century Park East, 38th Floor 500 North Capitol St NW Los Angeles, California 90067 Washington, DC 20001 (310) 551-9310 (202) 756-8795 jprich@mwe.com atschumi@mwe.com