DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
CMCS Informational Bulletin 
 
DATE:   July 01, 2016 
 
FROM:   Vikki Wachino, Director 
    Center for Medicaid and CHIP Services (CMCS) 
 
SUBJECT:   Addendum to 2016 Medicaid Managed Care Rate Development Guide 
 
In September 2015, the Centers for Medicare & Medicaid Services published the 2016 Medicaid 
Managed Care Rate Development Guide for use in setting capitation rates for rating periods starting 
in calendar year 2016. This guide can be found at:  
https://www.medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/managed-
care/downloads/2016-medicaid-rate-guide.pdf  
 
Due to the publication of the Medicaid and Childrens Health Insurance Program (CHIP) Managed 
Care Final Rule (CMS-2390-F, 81 FR 27498) on May 6, 2016 (final rule), CMS is releasing a 
revision to the 2016 Medicaid Managed Care Rate Development Guide outlined in this informational 
bulletin to detail the provisions of the final rule that take effect July 5, 2016.  The revised 2016 
Medicaid Managed Care Rate Development Guide is in effect as of publication of this bulletin. 
 
This informational bulletin discusses: 
  The provisions of the final rule that take effect 60 days after publication; and 
  Inclusion of new managed care requirements within states 2016 rate development 
 
Provisions of the final rule that take effect July 5, 2016 
The provisions of the Medicaid and Childrens Health Insurance Program (CHIP) Managed Care 
Final Rule (CMS-2390-F, 81 FR 27498), published on May 6, 2016, that take effect on July 5, 2016 
related to the managed care rate development process are listed in Attachment A of this Informational 
Bulletin.    
 
Inclusion of new managed care requirements within states 2016 rate development 
States must comply with all provisions of the final rule that take effect on July 5, 2016, including the 
rate development requirements listed in Attachment A.1 States should work with their actuaries to 
assure that rate development for rating periods beginning in 2016 comply with these applicable 
provisions effective July 5, 2016. CMS will not require additional documentation as part of states 
rate submission(s) to CMS; however, CMS may ask clarifying questions as part of our review process 
as deemed necessary to assure compliance with federal requirements. 
 
                                                 
1 An exhaustive list of all provisions of the Medicaid and Childrens Health Insurance Program (CHIP) Managed Care 
Final Rule (CMS-2390-F, 81 FR 27498) that take effect July 5, 2016 is available at: https://www.medicaid.gov/medicaid-
chip-program-information/by-topics/delivery-systems/managed-care/downloads/implementation-dates.pdf.  The 
provisions that take effect on July 5, 2016, related to the definitions and requirements for actuarially sound capitation 
rates, are substantially similar to existing requirements for actuarially sound capitation rates in 42 CFR 438.6 of the 2002 
rule.   CMCS Informational Bulletin  Page 2 
 
CMS acknowledges that some States already have approved capitation rates for 2016 and that other 
States have completed their rate development process prior to the publication of the final rule.  In 
light of the mid-year effective and compliance dates of the final rule and these specific provisions, 
CMS intends to use its enforcement discretion to provide States with a reasonable opportunity to 
come into compliance with these requirements.  CMS does not intend to review and assess already 
approved rates for compliance with the new final rule rate setting requirements that become effective 
on July 5, 2016.  States with already approved 2016 capitation rates will be expected to be in full 
compliance by their next rating period. 
 
Similarly, for States that have already developed their Medicaid managed care capitation rates for 
rating periods starting before October 1, 2016, CMS does not intend to require States to redevelop 
their capitation rates solely to comply with the new final rule rate setting requirements which become 
effective on July 5, 2016.  For States that otherwise comply with the 2016 Medicaid Managed Care 
Rate Development Guide, but are not fully compliant with the new regulations, CMS intends to place 
States on a corrective action plan that requires States to be in full compliance by their next rating 
period. 
 
Finally, States with rating periods beginning on or after October 1, 2016, that have not yet had 
contracts and rates for that period reviewed and approved by CMS, will be expected to fully comply 
with the new final rule rate setting requirements that become effective on July 5, 2016. 
 
Technical Assistance 
For questions related to the 2016 Medicaid Managed Care Rate Development Guide or this 
addendum, please contact MMCratesetting@cms.hhs.gov.  For questions related to the final rule, 
please contact ManagedCareRule@cms.hhs.gov.   
  CMCS Informational Bulletin  Page 3 
 
Attachment A 
 
Citation  Description 
438.2  Definitions (generally applicable to 42 CFR part 438) 
438.3(c)  Payment for services:  capitation rates must be reflected in the contract submitted for 
CMS review and approval; based on covered services and services required under Part 
438, subpart K; and for Medicaid-eligible enrollees. 
438.3(e)  Services that may be covered by an MCO, PIHP, or PAHP 
438.4(a)  Actuarial soundness; Actuarially sound capitation rates defined 
438.4(b)(1)  Actuarial soundness; CMS review and approval of actuarially sound capitation rates  
developed in accordance with 438.5 and differences among capitation rates must be 
based on valid rating factors 
438.4(b)(2)  Actuarial soundness; CMS review and approval of actuarially sound capitation rates  
appropriate for populations covered and services furnished under the contract 
438.4(b)(5)  Actuarial soundness; CMS review and approval of actuarially sound capitation rates  
payments from any rate cell must not cross-subsidize or be cross-subsidized by payments 
from any other rate cell 
438.4(b)(6)  Actuarial soundness; CMS review and approval of actuarially sound capitation rates  
certified by actuary as meeting requirements of this part 
438.5(a)  Rate development standards - definitions 
438.5(g)  Rate development standards  risk adjustment is developed in a budget neutral manner 
and consistent with generally accepted actuarial principles and practices 
438.6(a)  Special contract provisions related to payment - definitions 
438.6(b)(1)  Special contract provisions related to payment - Basic requirements, risk sharing 
mechanisms must be described in the contract, developed consistent with 438.4 and 
438.5), and consistent with generally accepted actuarial principles and practices 
438.6(b)(2)  Special contract provisions related to payment - Incentive arrangements, limits and 
conditions 
438.6(e)  Payments to MCOs and PIHPs for enrollees that are a patient in an institution for mental 
disease 
438.7(a)  CMS review and approval of the rate certification 
438.7(d)  Provision of additional information