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:   June 30, 2017 
 
FROM:  Brian Neale, Director 
Center for Medicaid and CHIP Services 
 
SUBJECT:   Medicaid Managed Care Regulations with July 1, 2017 Compliance Dates 
 
The Centers for Medicare & Medicaid Services (CMS) Medicaid managed care final rule1 
includes several provisions that have a compliance date beginning with the rating period for 
managed care contracts that start on or after July 1, 2017.  States and managed care plans are 
required to comply with these provisions; however, as states have noted, there can be 
administrative challenges associated with updating states managed care contracts and 
operational procedures.  These challenges can prevent timely compliance with the new July 1, 
2017 requirements. 
 
Health and Human Services Secretary Thomas E. Price, M.D. and CMS Administrator Seema 
Verma, MPH, issued a letter to the nations Governors on March 14, 20172, affirming the 
continued HHS and CMS commitment to partnership with states in the administration of the 
Medicaid program and noting key areas where we will improve collaboration with states and 
move towards more effective program management.  In that letter, CMS committed to a review 
of the managed care regulations in order to prioritize beneficiary outcomes and state priorities.  
Any modifications or changes to the Medicaid managed care final rule will generally necessitate 
rulemaking as required by the Administrative Procedure Act3 (APA).  However, while we 
conduct this thorough review, CMS intends to use our enforcement discretion to focus on 
working with states to achieve compliance with the managed care regulations when states are 
unable to implement new and potentially burdensome requirements of the final rule by the 
required compliance date, particularly provisions with a compliance deadline of contracts 
beginning on or after July 1, 2017.  This use of enforcement discretion will be applied based on 
state-specific facts and circumstances and focused on states specific needs. 
 
To implement this targeted enforcement discretion, states will need to identify for CMS those 
regulations of the final rule that they are unable to implement by the required compliance date.  
States should work through their normal regional office processes to identify the specific 
regulations.  CMS will work with states on assessing compliance with the specific regulation, 
including (1) the specific goals and intent for the regulation; (2) compliance with regulatory 
standards that were in effect prior to the Medicaid managed care rule publication in 2016; (3) 
alternatives the state could consider in moving toward compliance and strategies for how states 
                                                 
1 Medicaid and Childrens Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered 
in Managed Care, and Revisions Related to Third Party Liability; Final Rule, 81 Fed. Reg. 27498 (May 6, 2016)  
2 Letter to the nations Governors on March 14, 2017 
3 Guide to the Rule Making Process
  CMCS Informational Bulletin  Page 2 
 
 
can best mitigate specific risks and concerns with non-compliance; and (4) developing a timeline 
for future compliance with the regulatory requirement. 
 
Notwithstanding this guidance, CMS is unable to permit flexibility for all provisions of the final 
rule for which compliance is required for contracts beginning on or after July 1, 2017.  
Specifically, we cannot permit flexibility for: 
 
1.  The actuarial soundness and payment provisions found in  438.4, 438.5, 438.6, and 
438.7; 
 
2.  The pass-through payment provisions found in 438.6(d); and 
 
3.  The medical loss ratio (MLR) provisions found in  438.8 and 438.74. 
 
These provisions in the final rule have significant federal fiscal implications for the Medicaid 
program and CMS will require compliance by the specified date in the final rule.  Additionally, 
the pass-through payment regulations in 438.6(d) and the MLR regulations in 438.8 have the 
July 1, 2017 compliance date incorporated into the regulatory text. 
  
We note for clarity that the MLR provisions for managed care contracts that start with rating 
periods for contracts beginning on or after July 1, 2017 require that states include requirements 
for managed care plans to calculate and report an MLR and the underlying data as described in 
438.8(k).  This provision is different than the requirement that capitation rates be developed in 
such a way that the managed care plan would reasonably achieve an MLR of at least 85 percent 
as described in 438.4(b)(9).  That specific provision is applicable for the managed care contract 
rating period that begins on or after July 1, 2019. 
 
To assist states in meeting the pass-through payment provisions in 438.6(d), there are 
mechanisms to build in the amounts currently provided through pass-through payments in 
approvable ways, such as approaches consistent with 438.6(c) that tie managed care payments 
to services and utilization covered under the managed care contract that are in compliance with 
the final rule.  
 
Technical Assistance 
 
CMS remains committed to providing technical assistance to states and other stakeholders in 
understanding the Medicaid managed care regulatory provisions and developing implementation 
approaches that maximize the provision of Medicaid services in a manner compliant with 
program requirements.  If you have questions or would like to request technical assistance 
related to the guidance in this informational bulletin, please send an email to 
ManagedCareRule@cms.hhs.gov.  We look forward to continuing our partnership to deliver on 
our shared goals of providing high quality, sustainable healthcare to those who need it most.