DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, Maryland 21244-1850 
 
 
CMCS Informational Bulletin 
 
DATE:  May 24, 2023 
 
FROM:  Daniel Tsai, Deputy Administrator and Director 
    Center for Medicaid and CHIP Services 
 
SUBJECT:  Medicaid Enterprise Systems Compliance and Reapproval Process for State 
Systems with Operational Costs Claimed at the 75 Percent Federal Match Rate 
 
Introduction 
 
This CMCS Informational Bulletin (CIB) provides guidance specific to state compliance with 
regulatory requirements for Medicaid Enterprise System (MES) modules and solutions for which 
states are claiming a 75 percent Federal match rate for ongoing operational costs, pursuant to 
section 1903(a)(3)(B) of the Social Security Act (the Act) and 42 CFR  433.116. Regulations at 
42 CFR  433.119 note CMS may periodically review and reapprove each operational system to 
validate all federal requirements continue to be met, and thereby requalify the MES module for 
the 75 percent Federal match rate for system operations.  
 
This informational bulletin outlines CMSs reapproval process for MES modules, state 
development of corrective action plans for systems CMS determines non-compliant, penalties for 
ongoing system non-compliance, and state submission of a reapproval request following 
resolution of outstanding MES issues. 
 
Background 
 
In accordance with section 1903(a)(3)(B) of the Act and 42 CFR  433.116, Federal matching 
funds are available at a rate of 75 percent for state expenditures for operation of an MES module 
or component approved by CMS. 
 
States obtain CMS approval for an MES module following the streamlined modular certification 
process described in State Medicaid Director Letter (SMDL) #22-0011 and the supporting 
Streamlined Modular Certification (SMC) for MES Guidance (Certification Guidance) 
document,2 which provides a detailed description of the certification process and the regulatory 
citations for all certification requirements. The SMC process for MES is structured around the 
three elements:  
                                                      
1 https://www.medicaid.gov/federal-policy-guidance/downloads/smd22001.pdf  
2 https://www.medicaid.gov/medicaid/data-and-systems/downloads/smc-certification-guidance.pdf   CMCS Informational Bulletin  Page 2 
 
 
  Conditions for Enhanced Funding  As a condition of receiving the enhanced federal 
matching rate for state expenditures on MES operations, states must ensure the system 
complies with federal Medicaid conditions for enhanced funding for design, 
development, and installation (DDI) as provided in 42 CFR  433.112(b)(1) through (22), 
and the system remains compliant with federal Medicaid conditions for the enhanced 
federal matching rate specific to operations as provided in 42 CFR  433.116. 
 
  Outcomes  Outcomes describe the measurable improvements to a states Medicaid 
program resulting from the delivery of a new module or enhancement to an existing 
module. Outcomes should support Medicaid program priorities, be directly enabled by 
the states IT project, and be clearly stated in the Advance Planning Document (APD) as 
required under 45 CFR part 95, subpart F.  
 
  Metrics  Metrics provide evidence confirming whether the intended outcomes are 
achieved through the delivery of a new module or enhancement to an existing module. 
States must submit operational reports to CMS containing metrics in support of a states 
annual Operational Advanced Planning Document (OAPD) request for an MES module 
or solution.3 CMS may determine states must report some metrics more frequently.4,5 In 
accordance with 42 CFR  433.112(b)(15) and 433.116(b), (c), and (i), states must be 
capable of producing data, reports, and performance information from and about their 
MES modules to facilitate evaluation, continuous improvement in business operations, 
and transparency and accountability, as a condition for receiving enhanced federal 
matching for MES expenditures. Reporting metrics enhances transparency and 
accountability of IT solutions, helping ensure the MES and its modules are meeting 
statutory and regulatory requirements, as well as the states program goals. State 
reporting also gives states and CMS early and ongoing insight into program evaluation 
and opportunities for continuous improvement. 
 
Evidence from metrics the state collects and reports are continually evaluated by CMS to 
determine whether the system is achieving the identified outcomes. To ascertain the continued 
success and compliance of MES solutions, CMS will coordinate with states to use existing data 
sources and reporting systems, such as Transformed Medicaid Statistical Information System (T-
                                                      
3 Per 42 CFR  433.116(i), Federal financial participation (FFP) is available at 75 percent of state expenditures for 
operation of an MES module if the system meets conditions required at 42 CFR  433.112(b)(10) through (b)(16), 
including production of transaction data, reports, and performance information that would contribute to program 
evaluation, continuous improvement in business operations, and transparency and accountability pursuant to 42 CFR 
 433.112(b)(15), and as further described in SMDL # 22-001 and the associated Certification Guidance document. 
4 In accordance with 45 CFR  95.615, the state must allow the Department of Health and Human Services (DHHS) 
access to the system in all of its aspects, including operational records at such intervals as are deemed necessary by 
the Department to determine whether the conditions for approval are being met and to determine the efficiency, 
economy and effectiveness of the system. 
5 For example, CMS could require a state to submit monthly or quarterly metrics to demonstrate compliance with 
timely claims processing requirements at 42 CFR  447.45, or timely eligibility determinations per 42 CFR  
435.911, if other evidence calls into question the states ability to perform these key Medicaid program 
administrative functions within the time limits specified by regulation. 
  CMCS Informational Bulletin  Page 3 
 
MSIS) and Medicaid and Childrens Health Insurance Program (CHIP) Performance Indicators,6 
to avoid redundancy and minimize administrative burden whenever possible. 
 
CMS Periodic Review and Reapproval of State Systems  
 
Per regulations at 42 CFR  433.119, CMS periodically reviews and reapproves each system 
initially approved under 42 CFR  433.114 for 75 percent Federal financial participation (FFP) 
in state expenditures for the systems ongoing operations. CMS may review a states entire MES, 
focus on a particular module or solution, or examine other specific, discrete components of a 
system. However, at a minimum, CMS reviews under 42 CFR  433.119 will look to validate the 
system is operating in alignment with all pertinent federal requirements, and may give particular 
attention to regulatory reapproval conditions for which the system or module demonstrated 
weakness in previous reviews. Furthermore, CMS may prioritize for reapproval review those 
MES modules that state operational reporting and metrics indicate may not be meeting 
applicable federal and state requirements, including the conditions for enhanced federal matching 
rates and continuous achievement of outcomes. In general, the reapproval process will be 
consistent with the Streamlined Modular Certification (SMC) process outlined in SMDL # 22-
001. 
 
Operational Reporting and Metrics as Evidence of System Success 
 
To effectively demonstrate ongoing, successful system operations, states must submit operational 
reports to CMS4 containing metric data3, verification of compliance with the conditions for 
enhanced federal matching rates required under 42 CFR  433.112 and 433.116 (i.e., the 
conditions for enhanced funding, per SMC guidance), and other evidence MES modules meet all 
applicable requirements for the states claimed federal matching funds, in accordance with 
regulations at 45 CFR  95.615 allowing CMS access to a states Medicaid system in all aspects, 
including operations records, and 42 CFR  433.116(i), which incorporates the reporting 
condition (42 CFR  433.112(b)(15)) an MES module must meet for the state to claim 75 percent 
FFP for associated operational expenditures. The operational reporting requirement is further 
described in SMDL # 22-001 and the Certification Guidance document. State operational 
reporting enables monitoring of system performance and functionality, and provides ongoing 
demonstration of continuous achievement of required outcomes. States must meet all other 
federal reporting requirements, such as T-MSIS7 and Performance Indicator8 data, and must 
                                                      
6 See the CMCS Informational Bulletin dated January 24, 2013, for information on Performance Indicators for 
Medicaid and CHIP Business Functions, available at: https://www.medicaid.gov/Federal-Policy-
Guidance/downloads/CIB-01-24-13.pdf. 
7 Section 4735 of the Balanced Budget Act of 1997 amended section 1903(r) of the Social Security Act to include a 
statutory requirement for states to submit claims data, enrollee encounter data, and supporting information. Section 
6504 of the Affordable Care Act strengthened this provision by requiring states to include data elements the 
Secretary of DHHS determines necessary for program integrity, program oversight, and administration. CMS has 
operationalized these statutory state reporting requirements as the T-MSIS initiative. 
8 CMS noted in two final rules that it would collect business process performance indicators for all Medicaid and 
CHIP programs in association with the development of new information technology systems: Federal Funding for 
Medicaid Eligibility Determination and Enrollment Activities (75 FR 21950) and Eligibility Changes under the 
Affordable Care Act of 2010 (77 FR 17144). Final rule requirements specific to state production of performance 
indicator data are found in regulation at 42 CFR  433.112(b)(15) and 42 CFR  435.912(c)(2)(iii). 
  CMCS Informational Bulletin  Page 4 
 
continuously meet T-MSIS data quality standards9 outlined by CMS for reporting of this data.  
 
States should submit operational reports in support of the annual OAPD submission required by 
regulation at 45 CFR  95.610. However, CMS may require more frequent reporting for key 
operational metrics,3,4 such as those measuring state compliance with regulatory requirements 
specific to timely eligibility determinations or claims payment, wherein early detection for 
noncompliance is critical.  
 
As state operational reports provide recurring insight into system performance, they will inform 
CMSs selection and prioritization of MES modules for reapproval review. In conjunction with 
other evidence (e.g., Independent Verification and Validation [IV&V] contractor reports) and 
state-reported data (including T-MSIS), operational reporting facilitates CMSs monitoring of 
state MES compliance with the conditions for enhanced federal matching rates, metrics 
corresponding to the agreed-upon outcomes listed in the APD for the MES module, and other 
requirements.  
 
CMS will not approve state OAPDs requesting 75 percent FFP for system operational 
expenditures if the state does not submit the required operational reporting, metric data, and/or 
other evidence demonstrating successful system performance,10 ongoing attainment of 
outcomes,11 and compliance with federal and state requirements.12 
 
For previously certified systems, those operating as a system of record, and/or those for which 
the state is claiming enhanced federal matching rates for DDI or operations, the state should 
work with their CMS State Officer to plan and coordinate submissions of operational reports 
with their next annual OAPDs.  
 
Corrective Action Plan Requirements for System Issues Identified in Operational Reporting 
and/or a Reapproval Review 
 
Following a reapproval review per 42 CFR  433.119, if CMS determines a states MES module 
                                                      
9 https://www.medicaid.gov/federal-policy-guidance/downloads/cib031819.pdf 
10 Per 42 CFR  433.116(c), FFP is available at 75 percent of state expenditures for operation of an MES module if 
the system meets conditions required under 42 CFR  433.112(b)(1) through (b)(22), including supporting accurate 
and timely processing and adjudications/eligibility determinations and effective communications with providers, 
beneficiaries, and the public per 42 CFR  433.112(b)(14). and supporting seamless coordination and integration 
with the Marketplace, the Federal Data Services Hub, and allowing interoperability with health information 
exchanges, public health agencies, human services programs, and community organizations providing outreach and 
enrollment assistance as applicable, pursuant to 42 CFR  433.112(b)(16). 
11 Per 42 CFR  433.116(c), FFP is available at 75 percent of state expenditures for operation of an MES module if 
the system meets conditions required under 42 CFR  433.112(b)(1) through (b)(22), including that the system is 
likely to provide more efficient, economical, and effective administration of the State plan pursuant to 42 CFR  
433.112(b)(1). 
12 Per 42 CFR  433.116(c), FFP is available at 75 percent of state expenditures for operation of an MES module if 
the system meets conditions required under 42 CFR  433.112(b)(1) through (b)(22), including production of 
transaction data, reports, and performance information that would contribute to program evaluation, continuous 
improvement in business operations, and transparency and accountability pursuant to 42 CFR  433.112(b)(15). 
  CMCS Informational Bulletin  Page 5 
 
or solution is no longer compliant with the conditions of enhanced matching,13 CMS will issue a 
letter requiring the state to submit a corrective action plan within 30 days of the date of the letter. 
The states corrective action plan must identify the issue(s) preventing the system from attaining 
compliance with applicable federal requirements, as well as the states plan and proposed 
timeline for meeting the conditions of reapproval. The state will coordinate with their CMS State 
Officer as necessary during development of the corrective action plan and timeline for 
remediation of the MES module. Upon finalizing the corrective action plan, the state will submit 
it to the Director of the Division of State Systems (DSS) as an APD-Update via the correct CMS 
APD mailbox. 
 
If needed, the state can request 90 percent FFP for system modifications and enhancements via 
the APD process to bring the MES module into alignment with the conditions for enhanced 
matching for system operations, and to facilitate achievement of outcomes. The state should 
provide their CMS State Officer with ongoing monthly status updates on the work to resolve 
outstanding issues with the system, allowing the State Officer to monitor project progress against 
the corrective action plan schedule. The states progress on implementing the corrective action 
plan should be tracked in monthly project status reports submitted to the State Officer. 
 
Reduction in FFP for Ongoing Operations of a Non-Compliant System  
 
At the end of the agreed-upon corrective action plan schedule (e.g., six months), if the states 
MES module has still not attained compliance with the conditions for enhanced federal matching 
as noted in the states corrective action plan, CMS will determine the states corrective actions 
did not enable the system to meet the conditions for reapproval in 42 CFR  433.119,14 and will 
issue a letter reducing FFP from 75 percent to 50 percent for expenditures related to the 
operations of non-compliant functionality or system components, pursuant to 42 CFR  433.120. 
The compliance letter will include: 
 
1)  CMS's decision to reduce FFP for system operations from 75 percent to 50 percent of 
expenditures, beginning with the first day of the first calendar quarter after CMS issues 
the written notice to the state.15 The FFP reduction will be effectuated through an 
adjustment to the modules Medicaid Detailed Budget Table (MDBT), which will be 
included as an attachment to the compliance letter. 
2)  The findings of fact upon which the determination was made. 
3)  A statement that state claims in excess of the reduced FFP rate will lead to a deferral 
action and/or a disallowance action, and that any such disallowance action will be 
appealable to the HHS Departmental Appeals Board. 
4)  A description of the process by which the state can request reapproval of the MES 
module once the documented issues have been resolved.  
 
                                                      
13 A state must ensure its MES module complies with all of the conditions for enhanced funding as provided in 42 
CFR  433.112(b)(1) through (b)(22), and that the system remains compliant with federal Medicaid requirements for 
enhanced operations matching once it is in operation per 42 CFR  433.116. 
14 42 CFR  433.119 Conditions for reapproval; notice of decision  available at https://www.ecfr.gov/current/title-
42/chapter-IV/subchapter-C/part-433/subpart-C. 
15 Per 42 CFR  433.120(b), CMS may reduce FFP from 75 to 50 percent for expenditures related to the operations 
of non-compliant functionality or system components.  CMCS Informational Bulletin  Page 6 
 
Returning to Compliance and Requesting Reapproval 
 
Upon correcting the system deficiencies identified in CMSs compliance letter, the state can 
initiate a reapproval request. To do so, the state must submit a reapproval request letter to CMS, 
including:  
 
1)  The date the state remediated outstanding issues and the system once again meets 
the conditions for reapproval; 
2)  An operational report and any other applicable data demonstrating system 
compliance with the reapproval conditions for enhanced federal matching required 
under 42 CFR  433.119, as well as metrics and related evidence demonstrating 
achievement of outcomes;16,17 and 
3)  A proposed timeframe for the reapproval review. 
 
The states reapproval request letter, metrics, and underlying data and explanatory or contextual 
information should be sent to the CMS State Officer and to MES@cms.hhs.gov. The state and 
CMS State Officer will agree upon a schedule for the review. The reapproval review will focus 
on metrics and other evidence (such as a system demonstration) establishing the MES module 
meets the conditions for reapproval.  
 
Following the review in which CMS determines the state has resolved previously identified 
issues and the MES module now meets the conditions for reapproval, CMS will issue a letter 
confirming the system now complies with the conditions for enhanced federal matching. 
Pursuant to regulation at 42 CFR  433.122(a), the CMS approval letter will verify the state is 
eligible for 75 percent FFP in expenditures for system operations beginning with the calendar 
quarter following CMS review determination that the MES module again meets the conditions 
of reapproval. The state can then submit an OAPD to request the 75 percent federal match for 
operations of the MES module retroactively from that quarter forward. 
 
Per 42 CFR  433.122(b), CMS may retroactively waive a reduction of FFP in expenditures for 
system operations if CMS determines that the waiver could improve the administration of the 
State Medicaid plan. However, CMS cannot waive this reduction for any quarter before the 
fourth quarter immediately preceding the quarter in which CMS issues the determination (as part 
of the review process) stating that the system is reapproved. 
 
 
 
 
 
                                                      
16 In accordance with 45 CFR  95.615, the state must allow the Department of Health and Human Services access 
to the system in all of its aspects, including operational records at such intervals as are deemed necessary by the 
Department to determine whether the conditions for approval are being met and to determine the efficiency, 
economy and effectiveness of the system. 
17 Evidence demonstrating achievement of outcomes can include testing results and/or demonstrations of system 
functionality verifying that the previously-identified system issues have been resolved and the MES module again 
meets federal requirements. 
  CMCS Informational Bulletin  Page 7 
 
Applying the Compliance Process: T-MSIS Example 
 
On August 10, 2018, CMS issued State Health Official (SHO) Letter # 18-008,18 outlining T-
MSIS data reporting requirements for state Medicaid and CHIP programs. Per the SHO Letter, 
ongoing access to enhanced federal matching for MES operational expenditures is contingent 
upon the states continued ability to meet T-MSIS requirements of complete, accurate, and 
timely data reporting. As addressed in the CMCS Informational Bulletin (CIB) dated March 18, 
201919 and subsequent T-MSIS guidance, states are required to maintain monthly production 
submissions of T-MSIS data files and continue to resolve T-MSIS data issues. To support this 
work, in each APD approval letter responding to a states request for enhanced FFP for system 
development or operations, CMS provides a T-MSIS data submission currency report and data 
quality assessment for the state, based upon the most recent T-MSIS reporting period. 
 
However, if CMS determines a states MES module is no longer compliant with T-MSIS 
reporting or data quality requirements per the conditions for enhanced funding at 42 CFR  
433.112(b)(15) and 433.116(b), (c), and (i), CMS can require the state to submit a corrective 
action plan within 30 days of the date of the corresponding APD approval letter.20 In line with 
the previously-described compliance process, the state must then submit a corrective action plan 
identifying the issue(s) preventing the system from meeting T-MSIS reporting or data quality 
requirements, as well as the states plan and timeline for correcting the identified T-MSIS issues.  
 
At the end of the agreed-upon corrective action plan schedule, if the state still has not resolved 
the system defects preventing the MES module from meeting T-MSIS reporting and data quality 
requirements, then CMS will follow the process detailed above and issue a written notice to the 
state reducing FFP for system operations from 75 percent to 50 percent of expenditures, 
beginning with the first day of the first calendar quarter after CMS issues the letter establishing 
the FFP reduction. As previously noted, once the state has remedied the outstanding T-MSIS 
reporting and/or data quality issues, it can initiate a reapproval request for FFP at the 75 percent 
rate for system operations. 
 
If states have questions about this informational bulletin or need technical assistance regarding 
MES reporting related to system operational expenditure federal matching, please contact 
Edward L. Dolly, Director of the Division of State Systems at Edward.Dolly@cms.hhs.gov. 
 
 
 
 
 
 
 
 
 
                                                      
18 https://www.medicaid.gov/federal-policy-guidance/downloads/sho18008.pdf 
19 https://www.medicaid.gov/federal-policy-guidance/downloads/cib031819.pdf 
20 CMS is not initiating FFP reductions due to state T-MSIS data quality issues for up to 14 months from the month 
states begin their redetermination process per SHO Letter # 23-002, which is available at 
https://www.medicaid.gov/federal-policy-guidance/downloads/sho23002.pdf  CMCS Informational Bulletin  Page 8 
 
 
MES Compliance and Reapproval Process  Frequently Asked Questions 
 
Q1: If CMS determines after the reapproval review the system no longer meets the conditions 
for reapproval, CMS will reduce FFP for related expenditures for system operations. What does 
CMS mean by related operational expenditures? Is there a predefined list, or is this determined 
on a case-by-case basis? 
 
A1: CMS will assess on a case-by-case basis the extent to which the state's system is non-
compliant and will target reduction of FFP for specific system operation costs, which might 
include one or more module(s). 
 
Q2: States are prioritizing funds and resources to ensure successful unwinding efforts. Will CMS 
extend any flexibility on enforcement of compliance during the unwinding period? 
 
A2: CMS understands that states must devote significant resources to the unwinding effort 
from the public health emergency for COVID-19 and generally expects to adopt a flexible 
enforcement policy for up to 14 months from the month states begin their COVID-19 unwinding-
related redetermination process. In general, we would not expect to prioritize reductions in the 
federal matching rate for MES operational expenditures during this time of increased strain on 
state administrative resources.