DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
February 20, 1998  
Dear State Medicaid Director:  
This letter is one in a series that provides guidance on the implementation of the Balanced Budget Act of 1997 
(BBA). The BBA contains numerous provisions relating specifically to managed care. In order to provide 
guidance on these as quickly as possible, we are issuing a number of managed care policy letters. (List of those 
already issued is attached). This letter is the thirteenth in the managed care series.  
The purpose of this letter is to provide initial guidance to States on changes regarding grievance procedures for 
eligible enrollees. This guidance is associated with section 4704(a) of the BBA which creates section 1932(b)(4) 
of the Social Security Act.  
Under current federal regulations, Medicaid health maintenance organizations must have internal grievance 
procedures that provide for prompt resolution, are approved by the State, and assure that individuals with 
authority to require corrective action are involved in the process. In addition, Medicaid law requires States to 
provide enrollees with a fair hearing process.  
The new law requires managed care organizations (MCOs) to establish internal grievance procedures which 
permit an eligible enrollee, or a provider on behalf of an enrollee, to challenge the denials of coverage of 
medical assistance or denials of payment for medical assistance. It is important to note that this provision refers 
to internal MCO grievance procedures and does not supersede or substitute for the State fair hearing process.  
Note that this law does not prohibit any current provider rights to challenge MCO decisions (on other than 
enrollee-specific issues) as set forth in MCO contracts or State law. In addition, it does not bestow additional 
appeal rights on providers other than the right mentioned for enrollees. Any challenges brought by providers on 
behalf of enrollees must have enrollee consent.  
A framework for these procedures will be implemented through a formal rulemaking process later this year. 
Until HCFA promulgates the rule, managed care organizations should continue to operate their existing internal 
grievance procedures as required prior to the BBA.  
If you have any questions regarding the information in this letter or the BBA provision relating to grievance 
procedures, contact Nicole Martin at 410-786-1068 or by e-mail at nmartin3@hcfa.gov.  
Sincerely,  
/s/  
Sally K. Richardson  Director   
Center for Medicaid and State Operations  
 
Attachment  
cc:  All HCFA Regional Administrators   
All HCFA Associate Regional Administrators for Medicaid and State Operations   
Lee Partridge - American Public Welfare Association   
Joy Wilson - National Conference of State Legislatures   
Jennifer Baxendell - National Governors Association   
HCFA Press Office    BBA MANAGED CARE STATE LETTERS   
Section Subject Date Issued  
4701 SPA Option for Managed Care 12/17/97  
4704(a) Specification of Benefits 12/17/97  
4707(a) Marketing Restrictions 12/30/97  
4704(a) Miscellaneous Managed Care Provisions 12/30/97 4704(b) 4706 4707(a) 4707(c) 4708(b) 4708(c) 
4708(d) 4701 Choice, MCE Definition, Repeal of 75/25, 1/14/98 4703 and Approval Threshold 4708(a) 4705 
External Quality Review 1/20/98 4704(a) Mental Health Parity 1/20/98 4701(a) Enrollment, Termination, and 
1/21/98 Default Assignment 4702 PCCM Services Without Waiver 1/21/98 4707(a) Sanctions for 
Noncompliance 2/20/98 4701(a) Provision of Information & Effective Dates 2/20/98 4710(a) 4704(a) 
Emergency Services 2/20/98