DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
                                                                                                                                                                         
Medicaid and CHIP Managed Care Final Rule (CMS-2390-F) 
Frequently Asked Questions (FAQs)  
November 10, 2016 
 
This FAQ document addresses common questions related to the Medicaid and CHIP Managed 
Care Final Rule (CMS-2390-F) (hereinafter Final Rule).  We encourage states, managed care 
plans, and other stakeholders to submit questions to ManagedCareRule@cms.hhs.gov to 
inform future guidance and FAQs.  In addition, presentations from past webinars and additional 
guidance documents are available on Medicaid.gov at 
https://www.medicaid.gov/medicaid/managed-care/guidance/final-rule/index.html.  
 
Note that references to pages in the Final Rule below are to the version published in the 
Federal Register on May 6, 2016, available at https://www.gpo.gov/fdsys/pkg/FR-2016-05-
06/pdf/2016-09581.pdf. 
 
Q1.  A number of provisions in the Final Rule were not subject to substantive changes but 
were redesignated in a new section in 42 CFR part 438 and have an implementation 
date of July 5, 2016.  Will states be required to amend regulatory citations in approved 
contracts or contracts currently under CMS review? 
 
A1.  CMS understands that many managed care contracts include a general provision that 
incorporates changes in federal law during the course of the contract term.  
Amendments to approved contracts, or contracts under CMS review, for the purpose of 
updating regulatory citations is not necessary.  However, the citations will need to be 
updated for the next contract year.  Outdated regulatory citations in contracts without 
such a general provision will need to be updated for the next contract year. 
 
Q2.  Will states need to modify already approved contracts to add the final capitation rates 
to the contract to comply with 438.3(c), which requires that the payment term be 
included in the contract?   
 
A2.  Yes.  We remind states that the requirement that the final capitation rate be specified in 
the contract is not a new requirement, see 438.6(c)(2)(ii) of the 2002 final rule.  The 
amount of payment for performancein this context, the final capitation rateis a 
primary component of any contract and must be included for purposes of verifying 
claims for Federal Financial Participation (FFP) on the CMS-64.  In the Final Rule at page 
27595, in the context of risk adjustment, CMS suggested that the payment terms under 
the contract could be identified in an appendix, or additional supporting 
documentation, to the contract for ease of updating the information when risk 
adjustment is applied.  The state must submit a formal contract amendment when the 
final capitation rates differ from the payment terms in an approved contract.     
Q3.  Do all states need to submit contracts and rate certifications to CMS 90 days prior to 
the effective date of the contract pursuant to 438.3(a)? 
 
A3.  No.  If a state does not have a state law or policy that requires CMS approval of the 
contract and capitation rates prior to the effective date of the contract, the 90 day 
timeframe is not applicable.  However, as a general matter, states should submit the 
contracts and rates 90 days prior to the start of the contract term.  CMS intends to 
provide future guidance on the prior approval requirements as a condition of claiming 
FFP in 438.806, which are distinct from the requirements at 438.3(a). 
 
Q4.  It appears that 438.210(a)(2), which addresses the amount, duration, and scope of 
Early and Periodic Screening, Diagnostic, and Treatment services (EPSDT) under 
managed care, incorrectly cross-references subpart B of part 440 rather than 
subpart B of part 441.  In addition, the Omnibus Budget Reconciliation Act of 1989 
broadened the statutory requirements for EPSDT beyond those reflected in 42 CFR 
part 441.  Please clarify how this error will be addressed.  
 
A4.  There is a technical error in 438.210(a)(2) as the cross-reference should have 
incorporated subpart B of part 441 rather than subpart B of part 440.  All Medicaid 
beneficiaries under age 21 are entitled to EPSDT services, whether they are enrolled in a 
managed care plan or they are in fee-for-service.  Under section 1905(r) of the Social 
Security Act (the Act), EPSDT services must include [s]uch other necessary health care, 
diagnostic services, treatment, and other measures described in section 1905(a) to 
correct or ameliorate defects and physical and mental illness and conditions discovered 
by the screening services, whether or not such services are covered under the State 
plan.  CMS intends to issue a regulatory correction to address this error.  We also want 
to remind readers that sections 1902(a)(43) and 1905(r)(5) of the Act are applicable to 
the provision of EPSDT, despite not being expressly incorporated in part 441.  Detailed 
guidance on EPSDT can be found in EPSDT  A Guide for States: Coverage in the 
Medicaid benefit for Children and Adolescents, June 2014, available at 
https://www.medicaid.gov/medicaid/benefits/downloads/epsdt_coverage_guide.pdf. 
 
Q5.  Does the requirement in 438.4(b)(5) that payments from any rate cell must not cross-
subsidize or be cross-subsidized by payments for any other rate cell mean that the 
actuary must use assumptions that are unique to each rate cell? 
 
A5.  No.  CMS addressed this provision at page 27569 of the Final Rule.  Section 438.4(b)(5) 
does not require there to be different assumptions (such as trend or age, gender, or 
regional rating) for each rate cell and does not prevent the use of the same assumptions 
across more than one rate cell.  The prohibition on cross-subsidization among rate cells 
under the contact is to ensure prudent fiscal management and that the capitation rate 
for each rate cell is independently actuarially sound.   
 
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  Q6.  Are managed care plans permitted to maintain more than one level of appeal?  
 
A6.  No.  For the rating periods for contracts starting on or after July 1, 2017, managed care 
plans may not maintain more than one level of appeal.  Section 438.402(b) requires that 
MCOs, PIHPs, and PAHPs may have only one level of appeal for enrollees.  Note that 
states may modify managed care contracts to require managed care plans to provide 
one level of internal appeal in advance of the rating period for contracts starting on or 
after July 1, 2017, as subpart F in the 2002 final rule permitted states flexibility as to the 
number of internal appeals.  Please see page 27509 of the Final Rule for additional 
explanatory information.  
 
Q7.  Can states elect to permit enrollees to request a State fair hearing without first 
exhausting the managed care plans appeal process? 
 
A7.  No, not for the rating period for contracts starting on or after July 1, 2017.  Section 
438.402(c)(1)(i) requires that the enrollee exhaust the internal level of appeal before 
requesting a State fair hearing.  Note that if the MCO, PIHP, or PAHP fails to adhere to 
the notice and timing requirements in 438.408, 438.402(c)(1)(i)(A) provides that the 
enrollee is deemed to have exhausted the internal level of appeal and may request a 
State fair hearing.  States may modify managed care contracts to require exhaustion of 
the internal level of appeal in advance of the rating period for contracts starting on or 
after July 1, 2017, as subpart F in the 2002 final rule permitted states flexibility to 
determine whether exhaustion would be required.  Please see page 27509 of the Final 
Rule for additional explanatory information.  
 
Q8.  The Final Rule at 438.2 defines a rating period as the 12 month period for which 
actuarially sound capitation rates are set, but there may be legitimate reasons why a 
state may want to set capitation rates for a time period that is less than or greater 
than 12 months.  Will states have any flexibility in this area? 
 
A8.  Yes.  CMS acknowledges that states may have legitimate reasons to set capitation rates 
for a time period that differs from 12 months and will take unusual circumstances into 
account when reviewing compliance with the rating period duration requirements.  CMS 
will approve a rating period other than of 12 months when a state transitions the 
contract term and rating period from a calendar year to a state fiscal year basis and 
setting capitation rates for a 6 month or 18 month period would facilitate that 
transition.  There may be other reasonable justifications for such variations in the rating 
period that CMS would be open to considering.  The rationale for a rating period that 
differs from 12 months as defined in the regulation in 438.2 should be specified in the 
rate certification required in 438.7 for such consideration. 
 
Q9.   A rating period is defined in 438.2 as the 12 month period for which actuarially sound 
capitation rates are set.  The Final Rule ties implementation and compliance deadlines 
for some provisions to the rating period for contracts starting on or after a specific 
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  date.  Non-risk prepaid inpatient health plans (PIHPs) and non-risk prepaid 
ambulatory health plans (PAHPs), PCCMs, and PCCM entities do not have a rating 
period as defined in 438.2 because such arrangements are not subject to actuarial 
soundness requirements for the development of the per-member per-month (PMPM) 
amounts under the contracts.  What is the implementation date for provisions tied to 
the rating period for contracts starting on or after a specified date for the 
aforementioned managed care arrangements? 
 
A9.  The implementation date for non-risk PIHPs and PAHPs, PCCMs, and PCCM entities for 
provisions tied to a rating period is the earliest date that a risk-based MCO, PIHP, or 
PAHP would need to comply.  For example, the provisions in subpart F relating to 
appeals and grievances have an implementation date for risk-based contracts of the 
rating period for contracts starting on or after July 1, 2017.  Non-risk PIHPs and PAHPs 
would need to implement those provisions by July 1, 2017.    
 
Q10.  Can CMS please clarify if only audited financial statements that are done on a formal 
Generally Accepted Accounting Principles (GAAP) basis can be used to meet the 
requirements in 438.3(m)?  Audits can also be done following statutory accounting 
principles or government auditing standards and it is not clear if states and managed 
care plans have flexibility in which standard to apply.  
A10.  The regulation at 438.3(m) has a general reference to generally accepted accounting 
principles and generally accepted auditing principles.  This means that states have 
the flexibility to specify the applicable generally accepted accounting and auditing 
principles for the audited financial reports in the managed care plan contracts.  The 
federal regulation does not endorse a particular standard. 
 
Q11.    Where can I find general information on the change in matching rates for External 
Quality Review (EQR)? 
 
A11.    CMS released an Informational Bulletin (CIB) discussing the change in federal financial 
participation (FFP) for EQR that was effective May 6, 2016.  The CIB includes revised 
claiming instructions for the CMS-64 and a sample form.  It is available at Medicaid.gov 
on the EQR webpage, under Technical Assistance Documents, and available at 
https://www.medicaid.gov/federal-policy-guidance/downloads/cib061016.pdf.  
 
Q12.    Under what circumstances can states claim the enhanced 75 percent match for EQR 
activities? 
 
A12.    Under 438.370, the enhanced match of 75 percent is available for the EQR-related 
activities described in 438.358 if all of the following conditions are met: 
  The EQR activity is performed on a managed care organization (MCO) by an entity 
meeting the requirements of a qualified EQRO in 438.354 or its subcontractor;   
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    The activity is performed pursuant to a contract approved by CMS; and 
  The activity is performed in accordance with a protocol issued by CMS.  
 
FFP at the 50 percent matching rate is available for mandatory and optional EQR-related 
activities for PIHPs, PAHPs, and affected PCCM entities, regardless of whether the 
activities were conducted by an EQRO or another entity.  FFP at the 50 percent 
matching rate is also available for EQR and related activities performed for MCOs that 
are conducted by an entity that is not a qualified EQRO.  This is a change from previous 
regulations, under which the enhanced match was available for EQR of PIHPs to the 
same extent as MCOs.  This provision took effect May 6, 2016. 
 
Q13.   Does the May 6, 2016 effective date for the change in FFP for EQR-related activities 
apply based on the date of approval of the EQRO contract, the date the activity was 
performed, or the date of expenditure for the EQR activity?  
 
A13.    Regardless of whether an EQRO contract is approved before or after May 6, 2016, the 
change in FFP for EQR-related activities was effective May 6, 2016 for expenditures 
incurred by the state on or after May 6, 2016.  Per general CMS-64 claiming principles, a 
state incurs an expenditure that may be claimed on the CMS-64 on the date the state 
pays the EQRO for the completed performance of the contracted EQR-associated 
activity.   
 
The change to the FFP match rate for expenditure reporting takes effect in the middle of 
a quarter, which means that states must ensure that claims for expenditures for EQR 
activities affected by the change in FFP which were paid before May 6th and claims for 
expenditures which were paid on or after May 6th are reported separately.  For only the 
quarter ending June 30, 2016, the CMS-64 EQRO Line 17 will allow states to report state 
expenditures associated with PIHP EQRO activities paid prior to May 6, 2016 and claim 
the enhanced 75 percent match.  State expenditures associated with PIHP EQRO 
activities paid on or after May 6th must be claimed at the 50 percent matching rate.  
   
Q14.    My state is planning for our upcoming EQRO contracting.  When does CMS plan to 
publish a protocol for the new activity relating to the validation of network adequacy? 
 
A14.   CMS expects to first issue revised protocols for the current mandatory and optional 
EQR-related activities in the Fall of 2017.  We expect to issue the protocol for the new 
mandatory EQR activity relating to the validation of network adequacy later in 2017 or 
early 2018.  States will have up to one year from the publication of the protocol to 
implement the new mandatory EQR activity.  
 
   
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  Q15.    Does the new mandatory EQR network adequacy validation activity have to be 
performed by the same EQRO that performs the other mandatory activities? 
 
A15.    No.  Under 438.356 of the Final Rule, states can contract with one or more EQROs to 
conduct EQR activities and other related tasks (such as production of the EQR report).   
 
Q16.   If I have additional questions about EQR and claiming for EQR, who can I ask? 
 
A16.    For questions related to state expenditure reporting and claiming instructions for EQR 
activities, please contact your CMS regional office financial representative.  For specific 
external quality review questions, including what activities qualify for enhanced match, 
please contact the Division of Quality and Health Outcomes at 
ManagedCareQualityTA@cms.hhs.gov. 
 
 
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