Proposed Medicaid rule: 7 things health execs should know

The Centers for Medicare & Medicaid Services (CMS) proposed to modernize Medicaid and Children’s Health Insurance Program (CHIP) managed care regulations to update the programs’ rules and strengthen the delivery of quality care for beneficiaries. This proposed rule is the first major update to Medicaid and CHIP managed care regulations in more than 10 years.

“CMS is proposing rules that would bring Medicaid plans more in line with the rules governing Medicare Advantage and commercial health insurance markets following tremendous growth for more than two decades,” says Ash Shehata, U.S. Health Plans Advisory Leader at KPMG LLP. “That may slow some of the investment by health plans in this market or may lead to some plans to consolidate to gain scale to address constraints on profit margins.”

An overarching theme to this proposal, among others that have come from CMS, is a push toward value-based payments in healthcare, according to Shehata.

Related:Updating the U.S. healthcare playbook

These new rules are intended to address a number of issues that have built up over time in Medicaid managed care, according to Managed Healthcare Executive Editorial Advisor Don Hall, former health plan CEO and currently principal, DeltaSigma, LLC, in Littleton, Colorado.

“The growth in Medicaid managed care members has soared with the implementation of [the Affordable Care Act] and has pushed CMS to take a hard look at how to best address member and plan concerns,” Hall says. “These new rules will put a great deal of pressure on health plan executives to deliver measurably better outcomes in quality, member experience and efficiency. It will also require state Medicaid agencies to be much more transparent in rate setting.” 

NEXT: Seven things healthcare execs should know

Here are seven things healthcare executives should know about the newly proposed Medicaid rule:

#1 Most efficient plans hit harder.

The proposal will hit the most efficient health plans harder than those with medical loss ratios (MLR) higher than 85%, but it could make the landscape less competitive in certain states. The proposed cap on margins will influence Medicaid plans to be more judicious about where they will compete for future contracts, focusing largely on markets where they have well-established provider networks.

“An MLR of 85% established for Medicaid managed care plans is proposed to become effective in 2017,” according to Hall.

Related:The risks and rewards of medical loss ratio come to managed care

One safe haven for health plans has been Medicaid managed care. Health plans have not been subjected to a MLR limit, until now, according to John Santilli, partner, Access Market Intelligence, in Trumbull, Connecticut.

“This will change significantly for health plans as a result of the CMS proposed Medicaid rules. [The] 85% MLR threshold for Medicaid managed-care plans…will have a dramatic impact on the profitability of these plans,” Santilli says.

#2. Considerable feedback to the proposal is expected.

CMS is making a proposal about private Medicaid plans, but there will be considerable feedback from the industry and advocacy groups about the rule change between now and July 27 (the comment deadline). For example, CMS had proposed Medicare Advantage reimbursement rates for next year that were lower than the rates actually established.

#3. The rule would continue to shift reimbursement toward value.

CMS is expanding its approach toward value-based payment models, such as pay-for-performance, bundled payments or other quality/value measures to be incorporated in reimbursement.

This could be tied to members getting prenatal care, children receiving immunizations, treatment compliance, etc. Payments would be based on meeting these measures.

#4. Opt-out options would be available

Members of Medicaid managed long-term care plans will be able to opt out of the plan if their primary care provider is not in the plan's provider network.

#5. Health plans could be affected by cost caps.

Health plans will need to develop a cost-containment strategy on services offered in order to maintain profitability. MLR is intended to require insurers to spend most of their money on actual healthcare, not administrative costs or profits. A cap on administrative costs may affect a number of services that impact health outcomes such as social services and others.  

#6. Adequate provider networks will be key.

Managed care plans will need to determine if they provide adequate provider networks required by the proposed rule, including following tougher standards for pediatric, OB/GYN and dental care. CMS has proposed states adopt distance and time standards for behavioral health, ob-gyns and dentists.

#7. Greater transparency will be needed.

States will have to provide greater transparency in rate determination under the proposed rule and will have greater flexibility to reform delivery systems or establish performance improvement initiatives.