DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
 
SMD # 18-005 
   
RE: CMS-2392-F Mechanized 
Claims Processing and 
Information Retrieval Systems  
Reuse  
April 18, 2018 
   
Dear State Medicaid Director: 
 
The Centers for Medicare & Medicaid Services (CMS) is issuing this fourth in a series of letters 
to provide sub-regulatory guidance to supplement CMS-2392-F, Mechanized Claims Processing 
and Information Retrieval Systems (90/10), which became effective January 1, 2016.1 This 
letter reaffirms the requirement for reuse in 42 CFR Part 433, Subpart C - Mechanized Claims 
Processing and Information Retrieval Systems.  
 
In reviewing the responses to our Request for Comments in our Notice of Proposed Rulemaking 
(CMS-2392-P), published on April 16, 2015 (80 FR 20455), we determined there is a need to 
develop supporting policy and sub-regulatory guidance. In developing sub-regulatory guidance, 
CMS is engaging our partners and stakeholders in recognition of their valuable experience and 
unique perspectives on this final rule.  
 
Each of the letters in this series addresses discrete subject areas impacted by the final rule.2 This 
letter elaborates the guidance for reuse, a key aspect of the Advanced Planning Document 
(APD), as required under 42 CFR  433.112(b)(13), and an essential characteristic of economical 
and risk-reduced development, implementation, maintenance, and operations of business 
processes and systems. Over the long run, reuse is expected to lower implementation and 
operational costs compared to custom or one-off solutions. This letter consolidates and reinforces 
guidance and information previously provided to the states. 
 
Enhanced Funding Requirements 
CMS provides, under 42 CFR 433.112(a), 90 percent enhanced federal financial participation 
(FFP) for Medicaid technology investments funded through an approved APD.  One of the 22 
conditions that the APD must satisfy for the state to receive enhanced funding, as specified in 42 
CFR  433.112(b), requires states to [p]romote sharing, leverage, and reuse of Medicaid 
technologies and systems within and among States. From an intellectual property standpoint, 
reuse is supported further by the general grant conditions for FFP under 45 CFR  95.617, which 
requires states to include a clause in all procurement instruments that provides that the State or 
                                                 
1 80 FR 75817 (Dec. 4, 2015). 
2  Previous letters in this series are State Medicaid Director Letter (SMDL) #16-004, SMDL #16-009, and SMDL 
#16-010, which may be found at https://www.medicaid.gov/federal-policy-guidance/federal-policy-guidance.html.   Page 2  State Medicaid Director 
 
local government will have all ownership rights in software or modifications thereof and 
associated documentation designed, developed or installed with Federal financial participation 
under this subpart. 
 
CMS expects states receiving FFP to make available to other states for leverage and reuse all 
their project artifacts, documents, and other related materials, along with systems components 
and code. CMS is providing for states a reuse repository for this purpose. 
 
Meeting the Requirement for Reuse 
 
In evaluating options for building a state Medicaid Enterprise System (MES), the state should 
select solutions that maximize reuse opportunities. Reuse can be accomplished through sharing 
or acquiring: 
  An entire set of business services or systems, including shared hosting of a system or 
shared acquisition and management of a turnkey service 
  A complete business service or a stand-alone system module 
  Subcomponents such as code segments, rule bases, configurations, customizations, and 
other parts of a system or module that are designed for reuse.  
 
States have two paths for achieving reuse: (1) they can adapt existing capabilities within the 
state, capabilities in use by another state, or those available from the vendor community with 
minimal customization, or (2) they can incorporate reuse into the design of new capabilities. 
Examples of how a state can facilitate reuse in new development include:  
  Hosting software in a cloud, and making it available for other states to use 
  Developing open source, license-free MES modules that are sharable with other states 
  Sharing specific customizations or configurations to a commercial off-the-shelf (COTS) 
software product with other states 
  Further developing software or systems created for the Health Information Technology 
for Economic and Clinical Health (HITECH) Act per SMDL# 16-003 to support other 
business processes in the Medicaid Enterprise or connected to the Medicaid Enterprise. 
 
Support for Reuse 
 
States are expected to participate in workgroups such as the MMIS Cohort, State Technical 
Advisory Group (S-TAG), and any other relevant state groups to facilitate knowledge sharing, 
partnerships, and collaboration. Recognizing that states will need adequate infrastructure for 
successful reuse, CMS is providing the following targeted support and guidance to states: 
 
  Web Resources and Repository - CMS has established a Medicaid Enterprise Reuse page 
on Medicaid.gov, https://www.medicaid.gov/medicaid/data-and-systems/reuse. The page 
includes link to the MES reuse repository which is designed to facilitate knowledge 
sharing and IT asset reuse among the states. This repository is a resource for states 
wishing to contribute to the reuse effort and for those wishing to access IT assets 
available for reuse. The repository is also a central location for states to share information 
and lessons learned about open source, COTS, and other modules or solutions that are 
suitable for reuse, including those that already have been certified and are operational.  Page 3  State Medicaid Director 
 
 
The MES reuse repository includes areas for software or code, documentation, discussion 
forums, and specific interest groups. There is also an area for APDs and Requests for 
Proposals (RFPs). 
 
  State Cohort Meetings - CMS sponsors a multistate Medicaid cohort that allows states to 
collaborate and share knowledge. Cohort members often discuss the topic of solution 
reuse. CMS participates in the cohort to help disseminate information about reuse, 
modularity, and interoperability. CMS works with the cohort to establish a focal point for 
discussion of reuse and to develop common approaches, norms, and standards for those 
efforts. Already, many states have participated in cohort discussion and have shared reuse 
case studies. 
 
  APD Review - CMS will look for a reuse plan when reviewing state funding requests, 
and will expedite approval for applications that clearly give evidence of reuse. CMS will 
assist states with identifying reuse opportunities during APD development, project 
planning, and other life-cycle activities.  
 
  Cooperative Purchasing - As one path to sharing resources and solutions, states are 
encouraged to participate in cooperative purchasing programs, either internally through 
statewide sharing of services, or through multistate collaboration. States can also leverage 
cooperative purchasing through federal acquisition vehicles, including those available at 
GSA.gov. Cooperative purchasing can reduce acquisition lead time and administrative 
costs, and facilitate reuse and other leverage. For example, a group of states could 
cooperate on a single multistate acquisition, which could encompass a range of existing 
capabilities and solutions e.g., COTS products, hosted applications, or shared services. 
State purchasing is then simplified by ordering from the combined schedule of available 
options under the established agreement. 
 
  Acquisition Reviews - CMS will review reuse provisions in states RFPs and in resulting 
contracts to ensure that APD plans are being fulfilled. 
 
  Life Cycle and Certification Support - When considering potential reuse, states should 
choose solutions that meet the Medicaid Enterprise Certification Toolkit (MECT) or the 
Medicaid Eligibility and Enrollment Toolkit (MEET) criteria applicable to MMIS or 
E&E systems, respectively, available at https://www.medicaid.gov/medicaid/data-and-
systems. 
 
  Design - All MES designs must describe how the solution will lend itself to future reuse, 
including open interfaces and other architectural features to allow for integration into 
other solutions. CMS Medicaid Information Technology Architecture (MITA), located 
at https://www.medicaid.gov/medicaid/data-and-systems/mita, the MECT, and the MEET 
provide a basis for architectural decisions that promote reuse. For example, when states 
and vendors choose to partition their systems according to CMS guidance on modules, 
the likelihood of reuse is increased. Designs should separate business rules from code, 
and core functionality from state-specific functionality.  Implementation of the solution  Page 4  State Medicaid Director 
 
as designed will be confirmed through MECT or MEET milestone reviews. MES 
components must meet all standards and conditions for Medicaid IT at the point of 
certification or other approval.  
 
States should not select solutions that require extensive customization; COTS products 
that require heavy modification; or solutions that cannot be integrated with other systems 
using industry standard methods such as open application programming interfaces and 
data interchange standards. 
 
  Documentation - Comprehensive documentation of solutions that a state is making 
available to other states is critical to the success of reuse. As a condition for 90 percent 
FFP, CMS now requires that states obtain and maintain adequate documentation for the 
solution to allow for the operation of the solution by the state, or another state or 
contractor. Documentation should be shared with states through the MES reuse 
repository. 
 
Specific information on CMS guidance, support, documentation requirements, and the Reuse 
Repository is available under the Medicaid State Resource Center at 
https://www.medicaid.gov/medicaid/data-and-systems/index.html. 
 
Design Alternatives 
 
Design alternatives available to states for modules and systems include: 
 
  Software as a Service (SaaS) - CMS is encouraging SaaS as an alternative for use in the 
MES. When applied with appropriate technical features and licensing and when in use by 
more than one state, SaaS can exhibit a high degree of reuse as a shared business service 
or module. Data rights are an important consideration for using SaaS. The agreement 
between the state and the vendor should ensure that the state retains full data rights as 
required by the State Medicaid Manual 2083.5, and that the vendor offers the capability 
to provide the state with a full download of all data, in a readily accessible format, should 
the state opt to discontinue use of the service, as required by 42 CFR 434.10. Since the 
state actually owns the program data, the contract between the SaaS vendor and the state 
should require that the data be made readily accessible for inclusion into the states other 
systems or modules, such as a data warehouse, through extract, application program 
interface (API), or other means for interoperability. 
 
  Open Source - The open source community has been effective in developing high-quality 
systems in many business domains. CMS supports states in using open source software 
that meets federal requirements, CMS conditions and standards, and MITA. Open source 
software should also adhere to industry best practices, including practices for 
documentation. CMS will support licensing of open source products in accordance with 
industry best practices, so long as such agreements do not restrict reuse among the states 
of any software funded with FFP. Furthermore, to facilitate a multistate implementation 
through open source software, it is important that the state-specific objects or code can be 
separated from other software components so that the core software is portable from state  Page 5  State Medicaid Director 
 
to state. This portability should facilitate platform independence, which enables states to 
run the software in many environments and connect to many different systems.  
 
States that develop new custom open source software should require that development 
happen in a fully open source manner from the beginning. They should also take 
proactive steps to demonstrate that the software is truly useable and deployable by third 
parties, i.e., that it is not, in practice, locked in to the original vendor despite being 
nominally open source. Formal independent verification and validation is one way to 
accomplish this. 
 
  Proprietary Software - Proprietary products may be a component of a Medicaid solution 
under certain conditions. For proprietary software products to adhere to MITA 3.0 
principles of architecture and design, it is required that contract agreements for that 
software do not create obstacles to reuse for other Medicaid programs due to the 
proprietary nature of the software and/or their related interfaces, i.e., the software should 
be available to other states through similar licensing and pricing agreements. If states 
choose proprietary software as part of their MES solution, they should use modules that 
are loosely coupled3 to avoid vendor lock-in.  
 
No FFP is available for the development or enhancement of proprietary software products 
that are protected by copyright or patent. 
 
Summary 
 
The CMS goals for reuse are to reduce costs, accelerate development and implementation, and 
improve the overall quality and maturity of Medicaid enterprise systems. CMS understands the 
challenges that states face for reuse that may stem from state-specific regulations and operational 
conditions, currently active vendor agreements and implementations, incomplete or unspecified 
interface standards, or limited resources. Reuse is a key step to promote modularity with 
standardized interfaces, and to help remove the limitations from using proprietary software. 
Reuse also facilitates collaboration among the states by sharing artifacts and software. States also 
can share experiences to avoid pitfalls and to find best practices and shortcuts, especially from 
states and vendors that have well-defined and well-executed processes that have led to successful 
implementation.  
 
CMS welcomes state participation in identifying and implementing innovations for achieving the 
goals for reuse. CMS is committed to ongoing collaboration with states and stakeholders around 
standards, governance, and information sharing to support reuse.  
 
Where conflicts exist, this SMDL supersedes previous guidance in the State Medicaid Manual 
Chapter 11 (https://www.cms.gov/Regulations-and-Guidance/guidance/Manuals/Paper-Based-
Manuals-Items/CMS021927.html). Supplemental information is available in the MECT, the 
                                                 
3 Coupling refers to the degree that components are directly dependent upon one another.  Loosely coupled 
components typically interact through well-defined, published messaging methods or application programming 
interfaces that limit the necessity of direct control and knowledge of the internal operations of one component by the 
other.  Page 6  State Medicaid Director 
 
MEET, and in a series of responses to frequently asked questions (FAQs) maintained at 
https://questions.medicaid.gov. 
 
If you have questions not answered in the FAQs, please contact Martin Rice at 410-786-2417 or 
at martin.rice1@cms.hhs.gov. We look forward to working with states to facilitate state system 
builds, to ensure compliance with 42 CFR 433.112(b), and to provide assistance implementing 
these requirements. 
 
 
Sincerely, 
 
/s/ 
 
Timothy Hill 
Acting Director 
 
cc: 
 
National Association of Medicaid Directors 
National Academy for State Health Policy 
National Governors Association 
American Public Human Services Association 
Association of State Territorial Health Officials 
Council of State Governments