Updated as of 6/26/24
Below is a compilation of questions and preliminary responses, organized by key State Directed Payment (SDP) provisions in the Managed Care Final Rule published by CMS on May 10, 2024. Please check back often for more updates. If you haven’t already, check out our exclusive summary, analysis, and webinar, on the Final Managed Care Rule by clicking here!
FFS/UPL programs and GME programs (whether based on FFS or managed care utilization) are not directly impacted by the provisions in the Managed Care Final Rule.
Effective the first rating period beginning on or after July 9, 2026, all required documentation for program approval, including preprint and ACR calculation, will be due to CMS prior to the program effective date as noted on the preprint form. If a preprint is not submitted before the program’s effective date, it will be considered ineligible for approval by CMS. While CMS generally encourages states to submit preprints as early as possible prior to the start of the program to allow time for approval. States must receive CMS approval for state directed payment programs prior to payments beginning to flow to providers or they risk losing the anticipated federal share of the payments if the program is not approved by CMS.
CMS will no longer require prior written approval for programs that pay 100% Medicare rates to providers (as of July 9, 2024). However, the Managed Care Final Rule does specify that these programs must:
It appears that such approaches are NOT prohibited based on the following language in rule: “States can also consider further specifics such as market and geography so long as the payment data are still specific to the State.”
The ACR is formally noted as the upper limit for the four areas noted. However, CMS states that in practice, it will apply the ACR as the fiscal benchmark for all SDPs submitted for approval.
As noted, the provisions in the new rule relating to attestations will become applicable starting the first rating period beginning on or after January 1, 2028. Consequently, we think it is unlikely that CMS will require states to collect attestations before 2028. However, in addition to the attestation requirements, CMS also included a separate provision in the final rule specifying that, as a condition of approval of an SDP, states must demonstrate that their SDPs comply with legal requirements for financing the non-federal share of the SDP payments. This provision applies as of July 9,2024, the effective date of the final rule. CMS included the separate financing provision in the final rule to make clear that CMS may disapprove an SDP based on a state’s failure to demonstrate compliance with financing requirements or “where it appears [to CMS] that the SDP arrangement is supported by impermissible non-Federal share financing arrangements.” This financing provision, along with the attestation requirements, appears aimed at curbing providers’ use of private redistribution practices, which CMS views as impermissible hold harmless arrangements under federal law. While CMS may not require states to collect or produce attestations prior to 2028 to demonstrate compliance, it is possible CMS will ask states to explain what measures they are currently taking to ensure that their SDPs comply with applicable financing requirements. States may independently require providers to submit attestations to preemptively demonstrate compliance.
On the same day the final rule was published, CMS also issued an Informational Bulletin (“CIB”) advising states that, prior to January 1, 2028, CMS would not enforce federal hold harmless prohibitions for health care related tax programs with existing private redistribution arrangements in effect as of April 24, 2024. CMS explained that this would allow states and providers time to modify existing programs and arrangements to come into compliance and also avoid significant Medicaid program disruptions. CMS cautioned states that they should not develop new provider tax programs that involve provider redistribution arrangements or encourage providers to develop new redistribution arrangements for existing tax programs.
We anticipate that CMS will issue additional sub regulatory guidance in the coming months that may provide additional insight into attestation and financing compliance requirements for both new and existing programs. In addition, CMS interpretation of the hold harmless requirements is currently being challenged in federal court and the outcome of that litigation that may affect the validity of these provisions of the new rule.
The Managed Care Final Rule creates new baseline and performance improvement targets, especially for SDPs. Per the final rule, CMS requires states to demonstrate improvement over baseline quality targets described in their evaluation plans. If an SDP does not meet described targets or show improvement over submitted baseline measures, CMS may disapprove the program (this has historically been true but is explicitly stated in the final rule). While additional sub-regulatory guidance is expected, CMS asserts in the rule that if no improvement is shown in the first program evaluation report, States will need to describe an improvement plan. If a state continues to report underperformance on quality metrics the following program year, CMS may not approve the SDP’s renewal package.
The Managed Care Final Rule does not address hybrid programs. The language regarding multi-year approval for value-based programs assumes that all of the program payments are at risk.
Yes. CMS requires the evaluation to be completed, regardless of whether it is submitted for review or not. Each State remains responsible for ensuring that the program is achieving performance goals; however, programs that are below the 1.5% SDP cost percentage calculation do not need to submit the findings to CMS.
In the final rule, CMS defines SDP cost percentage as “the portion of the total capitation payments that is attributable to the SDP” divided by “the actual total capitation payments (which includes all SDP payments, pass-through payments, and SDPs in a separate payment term arrangement)”. Effective as of the first rating period on or after July 9, 2027, the SDP cost percentage must be calculated only if a state is seeking to forego submitting an evaluation report to CMS (i.e. applicable to programs with an SDP cost percentage below 1.5%).
States do not need to proactively submit this information with the preprint unless the above scenario applies. If a State’s SDP cost percentage is greater than 1.5%, the State must submit an evaluation plan as part of the preprint documentation due prior to program effective date.
Generally, a separate payment term refers to predetermined and separate funding made from States to plans for SDP program payments to eligible providers. Separate payment terms are not part of any capitated rates paid from the State to MCOs. Under the new rule, separate payment terms will be prohibited effective the first rating period on or after July 9, 2027. Lump sum payments refer to payments that can flow from MCOs to providers as a sum or total of SDP add-ons for the current rating period. The new rule does not prohibit MCOs from making lump sum SDP payments to providers.
Utilization reconciliation: Utilization reconciliation is a process wherein interim payments are made based on historical utilization in a different rating period and are adjusted at the end of the rating period based on actual utilization during the current rating period. Historical utilization reconciliation is prohibited effective the first rating period on or after July 9, 2027.
Retrospective payments: Retrospective payments are payments that are made based on actual utilization during the rating period but paid retrospectively. Retrospective payments are permitted so long as they are based on actual utilization, including to allow for claims runout after the end of the rate year (e.g. can pay SDP payment in April based on actual utilization from Jan.-Mar. of the current rating period).
A medical loss ratio is a tool or CMS and states to use to assess that Medicaid managed care
capitation funds are appropriately set and spent on claims and quality improvement activities rather than administrative expenses. In the Managed Care Final Rule, CMS makes the following adjustments to the definition of the MLR ratio calculation: