CMS gives states more flexibility in setting Medicaid managed care capitation rates

The Trump administration finalized a rule Monday that aims to increase flexibility for Medicaid managed care plans and overturn a 2016 regulation states deemed too prescriptive and burdensome.

The rule, issued Monday by the Centers for Medicare & Medicaid Services (CMS), gives states more power to determine the appropriate payment rates for Medicaid and Children’s Health Insurance Program services. It also gives more flexibility for how states can set capitation rates for managed care plans, a sector of growing interest for the insurance industry.

States have complained that the 2016 regulations were too burdensome and hampered growth in the managed care markets.

“This rule represents a concerted effort to transform Medicaid to improve quality and access for its beneficiaries,” CMS Administrator Seema Verma said in a statement Monday.

One of the biggest changes is how states can set capitation rates, which pay managed care plans a set amount each month based on the number of beneficiaries in the plan. Managed care plans are paid primarily via capitation.

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The 2016 rule required states to get CMS approval for specific rates for each covered Medicaid population.

However, the final rule would allow states to set a range of rates for each population up to 5%. The goal is to address minor program changes that could occur during a rating period without the need to submit a revised rate certification to CMS.

This provision will take effect July 1.

The rule also says that the differences in the “assumptions, methodologies, or factors used to develop capitation rates for covered populations must be based on valid rate development states that represent actual cost differences in providing covered services to the covered population," according to a CMS fact sheet.

The rule would allow states transferring patients from fee-for-service to managed care plans to adopt new pass-through payments during a three-year period. The 2016 rule moved to phase out the pass-through payments.

Another other major departure from the 2016 rule is removing the requirement for states to set time and distance standards when evaluating a managed care plan’s network adequacy. The final rule instead allows a state to pick any quantitative standard.

It clarifies that states can define “specialist” in “whatever way they deem most appropriate for their programs,” the fact sheet said. The rule also eliminates a requirement for enrollees to submit a written, signaled appeal for a coverage decision after an oral appeal is submitted.

Some parts of the final rule are likely to draw plaudits from the insurance industry. America’s Health Insurance Plans (AHIP), the top insurance lobbying group, wrote in comments in 2019 to the proposed rule that the changes on pass-through payments and network standards will help create a more balanced regulatory approach to managed care.

But AHIP was concerned with the rate range proposal.

“A return to rate ranges would undermine the transparency and integrity of the rate-setting process,” AHIP commented. “The change is also unnecessary; rules give states flexibility to make small rate adjustments without additional CMS approval.”