DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
Center for Medicaid, CHIP and Survey & Certification 
 
CMCS Informational Bulletin 
  
 
DATE:  November 9, 2010 
 
FROM:   Cindy Mann, JD 
  Director 
  Center for Medicaid, CHIP and Survey & Certification (CMCS) 
 
SUBJECT:  Recent Developments in Medicaid and CHIP Policy 
 
This Informational Bulletin is to provide a summary of new and recent activities and guidance to 
the States over the past two weeks.  On October 29, our colleagues at the HHS Office of 
Consumer Information and Insurance Oversight released a major funding opportunity 
announcement (FOA) for development of Information Technology (IT) systems for the new 
Exchanges.  On November 3, CMCS and OCIIO together released an IT guidance document for 
Medicaid and the Exchanges, and CMS published in the Federal Register a notice of proposed 
rulemaking regarding federal support for Medicaid eligibility systems upgrades. Today, CMCS 
is releasing the second letter discussing the political subdivisions provisions included in the 
American Recovery and Reinvestment Act (the Recovery Act) and the Affordable Care Act, and 
we are also releasing a letter discussing the Affordable Care Act provision that provides States 
with the opportunity to receive up to a 5 year renewal period for certain types of Medicaid 
waivers that serve dual eligibles. Finally, this Informational Bulletin discusses the $250 rebate 
that was provided by the Affordable Care Act for individuals who must pay out-of-pocket drug 
costs under Medicare Part D.  A more detailed description of each of these activities is provided 
below: 
 
  OCIIO Funding Opportunity Announcement  -- On October 29, 2010 OCIIO released 
an FOA for competitive funding opportunities for States to design and implement the IT 
infrastructure needed to operate the new Health Insurance Exchanges. The FOA offers 
grants to up to 5 States (or groups of States) that have been considered early innovators 
and are therefore ready to begin work on infrastructure building.  The FOA can be 
accessed at www.grants.gov by searching for CFDA 93.525. 
 
  OCIIO/CMS Guidance for Exchange and Medicaid Information Technology (IT) 
Systems  -- On November 3, 2010, CMS and OCIIO released a joint guidance document 
entitled, Guidance for Exchange and Medicaid Information Technology (IT) Systems, 
Version 1.0  that is intended to assist States with the design, development, 
implementation, and operation of IT and systems projects to support the Exchanges, 
Medicaid, and the Childrens Health Insurance Program (CHIP). This document provides 
an initial discussion of the direction for the effective support of business operations and 
processes required by the Affordable Care Act and will be followed by further guidance  
 
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based on continued collaboration with States. The IT guidance is available at 
http://www.hhs.gov/ociio/regulations/joint_cms_ociio_guidance.pdf. 
 
  Federal Funding for Medicaid Eligibility Determination and Enrollment Activities 
Published on display at the Federal Register on November 3, 2010, this notice of 
proposed rulemaking (NPRM) establishes that Medicaid eligibility determination systems 
will be potentially eligible for an enhanced Federal matching rate of 90 and 75 percent 
for development and maintenance respectively, under section 1903(a)(3) of the Social 
Security Act. This represents a significant increase above the 50 percent match rate 
currently available for such systems. The proposed rule describes a set of performance 
standards and conditions States must meet in order for their Medicaid technology 
investments (including traditional claims processing systems, as well as eligibility 
systems) to be eligible for the enhanced match. As proposed, the 90 percent matching rate 
will be available for eligibility systems until December 31, 2015, and the 75 percent 
match for such systems will be available beyond that date, assuming the conditions are 
met by December 31, 2015.  The proposed rule is available at  
http://www.gpo.gov/fdsys/pkg/FR-2010-11-08/pdf/2010-27971.pdf.  Questions regarding 
the Medicaid IT guidance documents may be directed to Penny Thompson, Deputy 
Director, CMCS at 410-786-3870. 
 
  Medicaid Recovery Audit Contractors (RACs)  On November 5, 2010, CMS 
published a notice of proposed rulemaking on implementation of section 6411 of the 
Affordable Care Act, which requires State Medicaid programs to establish Recovery 
Audit Contractor (RAC) programs by December 31, 2010.  Medicaid RACs will identify 
and recover provider overpayments, and will also identify underpayments.  RACs are 
private entities that are contracted to audit providers, review claims, and identify and 
collect improper payments on a contingency fee basis.  RACs began as a Medicare 
demonstration initially authorized by MMA of 2003 and were later permanently 
authorized and expanded nation-wide in 2006.  The proposed rule follows publication of 
a  letter to State Medicaid Directors (SMD #10-021, available at 
http://www.cms.gov/smdl/downloads/SMD10021.pdf) which provided guidance to States 
on the parameters for establishing RAC programs and includes a draft Medicaid State 
plan preprint States will need to submit to CMS to provide the required assurances 
regarding the establishment of the States RAC program. The proposed rule is available  
at http://edocket.access.gpo.gov/2010/pdf/2010-28390.pdf. Questions regarding the 
proposed rule may be directed to Angela Brice-Smith, Director of the Medicaid Integrity 
Program, CMS Center for Program Integrity, at 410-786-4340. 
 
  Political Subdivisions  This letter to State Medicaid Directors provides additional 
clarification for States regarding the political subdivision provisions found in both the 
Recovery Act and the Affordable Care Act.  This guidance follows a letter on this topic 
released on June 21, 2010, available at 
http://www.cms.gov/smdl/downloads/SMD10010.pdf.  The Recovery Act provided for 
an increase in the Federal medical assistance percentage (FMAP) for the duration of a 
"Recession Adjustment Period.  A prerequisite for receipt of such increased federal 
funding is that States may not increase the percentage of the non-federal share of 
Medicaid expenditures that political subdivisions are required to pay.  The Affordable  
   
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Care Act contains language that affects the treatment of the political subdivision 
provision under the Recovery Act.  As such, this letter clarifies how the determination of 
compliance with the political subdivision provision under the Recovery Act is calculated, 
notes that such determinations shall take account of State law as well as State plan 
provisions, and updates the attestations States must make regarding compliance. 
Questions regarding this letter may be directed to Bill Lasowski, Deputy Director, CMCS 
at 410-786-3870. 
 
  Five Year Waiver Renewal and Approval Periods -- This letter provides guidance to 
States regarding the implementation of section 2601 of the Affordable Care Act which 
provides for a 5-year approval or renewal period for certain Medicaid waivers -- 
including section 1115 and sections 1915(b) and 1915(c) of the Social Security Act -- 
through which a State serves individuals who are dually eligible for Medicare and 
Medicaid. The Medicaid statute specifies the duration for the various types of Medicaid 
waiver and demonstration programs. Section 1915(c) waivers are approved initially for a 
3-year period and renewed for 5-year periods. Section 1915(b) waivers are approved 
initially for 2 years and renewed for up to 2-year periods; section 1115 demonstrations 
are approved initially for a period of 5 years and are typically extended for a period of up 
to 3 years.  
 
States are now permitted, at the Secretarys discretion, to receive up to a five year 
approval or renewal period for waivers that provide medical assistance for dually eligible 
beneficiaries. This new authority enhances existing tools available to improve care and 
services for this particularly vulnerable group of beneficiaries. In order for a State to 
apply for the extended approval periods, the waiver or demonstration must include a 
focus on the dual-eligible population and provide delivery system options or services that 
could not typically be provided to dually eligible individuals under the State plan. 
Questions regarding this guidance may be directed to Barbara Edwards, Director of the 
CMCS Disabled and Elderly Health Programs Group at 410-786-0325. 
 
  Withdrawal of Average Manufacturers Price Regulation -- This final rule, which is  
on display at the Federal Register today, withdraws two provisions from the final rule 
that addressed the Average Manufacturers Price for prescription drugs under Medicaid -- 
originally published in the Federal Register on July 17, 2007  known as the AMP final 
rule.  The rule is being withdrawn due to litigation and changes resulting from the 
Affordable Care Act. This rule withdraws the determination of average manufacturer 
price and the federal upper limits for multiple source drugs and the definition of multiple 
source drug as it was revised in the final rule published in the Federal Register on 
October 7, 2008.  This final rule also responds to comments we received on the 
September 3, 2010 proposed rule on this topic. 
 
 
 
 
 
   
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  Medicare Part D Donut Hole Rebates.  Section 3315 of the Affordable Care Act 
provides for a one-time $250 rebate for certain individuals who must pay out of pocket 
drug costs due to the donut hole under the Medicare Part D prescription drug program.  
CMS has received questions as to whether the $250 rebate is countable as income when 
determining eligibility for Medicaid.  For reasons explained in more detail below, the 
$250 rebate should not be a factor in determining income eligibility for Medicaid. 
 
A limited number of Medicare beneficiaries are eligible to receive the $250 rebate, 
because individuals who are entitled to a Low-Income Subsidy (LIS) under Medicare Part 
D are excluded from receiving the rebate.  The Medicare statute and Part D regulations 
define those eligible for a LIS as: 
 
--Medicaid full-benefit dual eligibles; 
--Those eligible as medically needy; 
--Those eligible in 209(b) States; 
--Qualified Medicare Beneficiaries (QMB); 
--Specified Low-Income Medicare Beneficiaries (SLMB); 
--Qualifying Individuals (QI); and 
--Anyone receiving SSI benefits. 
 
Therefore, only Medicaid beneficiaries in an eligibility group with a limited benefit 
package; e.g., the optional Tuberculosis group or the optional COBRA continuation 
group, are likely to be eligible for the $250 rebate.  In the rare instances where a 
Medicaid beneficiary is eligible to receive a rebate, the rebate still would not be counted 
as income when determining eligibility.  The $250 rebates fall under the Supplemental 
Security Income (SSI) definition of rebates or refunds that are not countable as income. 
 
Since the rebates would not be counted as income under SSI rules, they also would not be 
countable as income under the Medicaid program.  It is important to note, however, that 
if an individual who receives a $250 rebate retains those funds instead of spending them, 
any remaining funds would be countable as a resource beginning the month after the 
funds were received.  Questions may be directed to Roy Trudel of the CMCS Family and 
Childrens Health Programs Group at 410-786-3417, or roy.trudel@cms.hhs.gov.