DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland 21244-1850 
 
Center for Medicaid and State Operations 
                      SHO #09-013 
                      CHIPRA #8   
 
October 21, 2009               
               
 
Dear State Health Official: 
 
The Childrens Health Insurance Program Reauthorization Act of 2009 (CHIPRA) reauthorized 
the Childrens Health Insurance Program (CHIP) under title XXI of the Social Security Act (the 
Act).  CHIPRA ensures that States are able to continue their existing programs and expand health 
insurance coverage to additional low-income, uninsured children.  On August 31, 2009 (SHO   
#09-008), the Centers for Medicare & Medicaid Services (CMS)  provided general information on 
the implementation of section 403 of CHIPRA, which applied specific Medicaid managed care 
requirements in section 1932 of the Act to State CHIP managed care programs.  The purpose of this 
letter is to follow-up and provide more specific guidance on the application of section 1932(c) of 
the Act (Quality Assurance Standards) to State CHIP managed care programs.   
 
All States that contract with managed care organizations (MCOs) for the delivery of care in their 
Medicaid programs are already required to have a system-wide quality program for MCOs.  
Regulations at 42 CFR, Part 438, Subparts D and E show how section 1932(c) of the Act is applied in 
Medicaid managed care.  Due to the Medicaid requirement, States that provide CHIP benefits through 
an MCO under a title XIX expansion program already have such a quality program in place.  Effective 
July 1, 2009, States contracting with MCOs for delivery of care under separate CHIP programs must 
institute such a program for their CHIP-contracting MCOs.   As a result, these States may need to 
modify their managed care quality system.  Note that CHIP managed care contracts effective on or 
after July 1, 2009 must also include references to the quality program, as necessary.  Only States using 
MCOs are affected by this provision.  Many State CHIP programs have already developed their own 
systems that can be used to meet these requirements.  States that were not in full compliance by the 
effective date should review the CMS compliance policy discussed later in this letter. 
 
Specific Requirements for a Systemic Quality Program under section 1932(c ) 
 
1932(c)(1)  Quality Strategy 
 
This section requires each State CHIP program that contracts with MCOs to develop and implement a 
Quality Assessment and Improvement Strategy.  The strategy must address access to care standards, 
and other measures of care and service related to quality, such as grievance procedures, marketing 
information standards, monitoring procedures, and a process for periodic revision of the strategy.   
Federal regulations do not preempt State standards that are more stringent than the Federal 
regulations.  Page 2  State Health Official 
 
 
1932(c)(2)  External Quality Review (EQR) 
 
This section requires that a contract between an MCO and a State CHIP program include a mandatory 
annual external review of the quality of care provided by the MCO.  This review must be conducted 
by a qualified and independent external quality review organization (EQRO), which means that the 
EQRO may not have a financial relationship with the MCO under review.   The results of these 
reviews must be made public upon request, and must be conducted in accordance with protocols 
developed by CMS.  The State must ensure that the EQRO produces a detailed technical report that 
describes the manner in which the data from all activities were aggregated and analyzed, and 
conclusions drawn as to the quality, timeliness, and access to the care furnished by the MCO. 
 
EQR reviews shall include, at a minimum, three specific quality improvement activities for each 
MCO EQR:  (1) validation of performance measures (PMs) reported by the MCO; (2) validation of 
performance improvement projects (PIPs) conducted by the MCO; and (3) overall assessment of 
compliance by the MCO with the quality standards outlined in the States quality strategy.    
 
There are also five optional EQR activities: (1) validation of MCO Encounter data; (2) administration 
of State-run patient satisfaction surveys; (3) calculation of State-established performance measures; 
(4) management of State-directed PIPs; and (5) administration of focused studies.  
 
Each of these eight activities, together with assessment of information systems, must have a governing 
protocol as required by 1932(c)(2)(a)(iii), which are used by EQROs for the external quality review of 
MCOs serving Medicaid beneficiaries.  These protocols are available at: 
http://www.cms.hhs.gov/MedicaidCHIPQualPrac/07_Tools_Tips_and_Protocols.asp#TopOfPage.  
Although CMS intends to modify the protocols over the next year to reflect their application to CHIP 
MCOs, they remain a useful reference tool for State CHIP programs. 
 
The CMS plans to publish a Notice of Proposed Rulemaking on all of the managed care provisions 
that now apply to CHIP.  This will contain further guidance on these provisions, including how they 
apply to prepaid health plans providing services in CHIP programs. 
 
It should be noted that Section 401(c)(1) of CHIPRA requires each State to complete an annual report 
on its child health quality measures and other State-specific information, including information 
collected through EQRs.  Beginning in 2010, the Secretary will analyze and publish information from 
these annual reports.  In addition to the inclusion of EQR information in CHIP annual reports, EQR 
information will be part of the Secretarys annual report to Congress on childrens health care quality 
issues. 
 
Compliance 
 
While there are many ways to meet these requirements, the easiest approach might be for State CHIP 
and Medicaid programs to integrate, to the extent possible, their managed care quality compliance and 
oversight activities.  For example, a State might want to submit a joint Medicaid-CHIP quality 
strategy to CMS to meet the requirements of section 1932(c)(1) for both programs.  Another possible 
coordination opportunity is for State CHIP programs to incorporate in their EQR contracts some of the  Page 3  State Health Official 
 
contract language being used by State Medicaid Agencies in their EQR contracts.  Finally, it might be 
worthwhile to consider whether the EQRO used by the Medicaid program to conduct EQRs could 
also conduct the CHIP EQRs. 
 
States will need to review their State laws and regulations to see if there are barriers to 
compliance with these requirements for a system-wide quality program.  States must comply 
with these requirements with respect to CHIP managed care programs beginning July 1, 2009.  
However, section 3(b) of CHIPRA provides that the Secretary may extend the date by which a 
State must implement any provision if the Secretary determines that State legislation is required 
in order for a States CHIP plan to comply with the provision.  If your State requires such 
legislation, please submit to my attention a letter to that effect as soon as possible.  The letter 
should include the provision in question, the reason that State legislation is required for 
compliance, and the date the State will be implementing the provision.   
 
For States with annual legislative sessions, this date must be no later than the first day of the first 
calendar quarter beginning after the close of the first regular session of the State legislature that 
begins after February 4, 2009 (the date of enactment of CHIPRA).  For States that have a 2-year 
legislative session, each year of the session is considered to be a separate regular session for this 
purpose.   
 
In addition, section 3(d)(2) of CHIPRA provides that Federal financial participation (FFP) shall 
not be denied to a State which makes a good faith effort to comply with the requirements in this 
Act prior to the issuance of any regulations implementing the provisions in question.  In 
situations where a State may still have difficulty coming into compliance, CMS will develop a 
corrective action plan with actions and target dates for State compliance.  FFP will not be denied 
as long as a State makes a good faith effort to comply and implements any corrective action plan 
required.  Examples of a good faith effort by a State would include deciding on appropriate 
performance measures and planning the review process.  We will also be considering this policy 
further as we develop the regulations implementing this provision.   
 
If you have any questions regarding this guidance, please contact Ms. Maria Reed, Deputy 
Director, Family and Childrens Health Programs Group, who may be reached at 410-786-5647.  
We look forward to working with the States to implement these important provisions. 
 
            Sincerely,  
 
            /s/ 
 
 
            Cindy Mann 
            Director  
 
cc: 
 
CMS Regional Administrators 
  Page 4  State Health Official 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
 
Ann C. Kohler          
NASMD Executive Director 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Christine Evans, M.P.H 
Director, Government Relations 
Association of State and Territorial Health Officials 
 
Alan R. Weil, J.D., M.P.P 
Executive Director  
National Academy for State Health Policy