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Vorys Health Care Advisors

CMS to Study States’ Compliance With Medicaid Managed Care Actuarial Soundness Requirements; Early Reports “Troubling”

Posted in Managed Care, Medicaid

As recently reported in Modern Healthcare, the Centers for Medicare & Medicaid Services (CMS) have announced two initiatives that are likely to impact reimbursement to and operations of Medicaid managed care plans (MCPs).

The first initiative is a study of the adequacy of how states set reimbursement rates for Medicaid MCPs.  Federal regulations require that Medicaid MCPs’ rates be “actuarially sound”.  State Medicaid departments must work with actuaries who evaluate rate information and provide an “independent” certification as to the adequacy of the rates.   

According to the Balanced Budget Act of 1997, actuarially sound rates are payments that are adequate to cover medical costs, administration, taxes, and fees.  In 2002, CMS issued regulations defining actuarially sound rates as those that are:

  • Developed in accordance with generally accepted actuarial principles and practices;
  • Appropriate for the populations to be covered and the services to be furnished; and
  • Certified as meeting applicable regulatory requirements by qualified actuaries.

The CMS analysis will aim to determine whether the rates are adequate to cover all anticipated medical and administrative costs, as well as taxes and fees, but not overpayments. 

The adequacy of managed care plans’ rates impacts the adequacy of payments to providers with which the MCPs contract.  However, while MCPs’ rates are to be adequate to cover their costs, there is no downstream requirement that rates paid to providers be adequate to cover the providers’ costs.  Each state specifies requirements for provider access and networks, and the MCP is free to pay more or less than the state’s existing Medicaid fee-for-service rates, but adequate access must be assured.

CMS intends to release the results of the study this summer, although a CMS official reports that early findings are troubling.  Criticism of CMS in the recent past has ranged from approval of rates that are too high or too low, inconsistency in reviewing rates for compliance with the actuarial soundness requirement, and approving rates that had not been certified by an actuary at all (according to the Modern Healthcare article, a 2010 GAO report found that Tennessee received approximately $5 billion a year in federal funds for rates that had not been certified by an actuary).

The second initiative is a new rule that will update Medicaid managed care regulations.  The current regulations have been in existence for 16 years, and a lot has happened in the Medicaid managed care arena since then.  Namely, significant expansion in participation in managed care.  As of May 2011, 23 million people – about 40% of the Medicaid population – were enrolled in risk based managed care and another 13 million, or 22%, were enrolled in primary care case management programs (a non-risk based form of managed care).  As of October 2010, only three states (Alaska, New Hampshire, and Wyoming) reported that they did not have any Medicaid managed care.

The regulations will include stronger beneficiary protections and account for major federal legislation that has been passed since the 1998 regulations were instituted.