DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
 
Medicaid and CHIP Managed Care Final Rule (CMS-2390-F) 
Frequently Asked Questions (FAQs)  Section 438.6(e) 
 
August 2017 
 
This FAQ document addresses common questions related to section 438.6(e) for payments to 
MCOs and PIHPs for an enrollee that is a patient in an institution for mental disease (IMD), in 
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 Medicaid and CHIP Managed Care Final Rule.  
 
Note that references to pages in the Final Rule below are to the version published in the Federal 
Register on May 6, 2016. 
 
Q1.  What is the implementation date for the provision at 438.6(e), which would permit 
a state to make a capitation payment to an MCO or PIHP for an enrollee with a 
short-term stay in an Institution for Mental Disease (IMD)?  The Final Rule at page 
27560 provides that states must be in compliance for the rating period for contracts 
starting July 1, 2017, while the compliance date section in the Final Rule at page 
27499 provides that the implementation date is July 5, 2016; which is the effective 
date for the Final Rule? 
 
A1.  We acknowledge and regret the conflicting dates set forth in the preamble to the Final 
Rule describing CMS enforcement of compliance with 438.6(e).  We intended that the 
compliance date section at page 27499 of the Final Rule would be the applicable date for 
CMS enforcement of compliance; therefore, we will review compliance with this 
provision for managed care contracts in place on and after July 5, 2016. 
  
Q2.  Does the state need to modify managed care authority documents, such as the 
description of benefits in the capitation rate in 1915(b) waiver documents, to use the 
option in 438.6(e)?  
 
A2.   CMS understands that, for some states, the cost effectiveness section of the 1915(b) 
waiver documents currently list inpatient mental health (state psychiatric hospital) as a 
State plan benefit, and states identify these services as covered under the managed care 
program.  The reference to inpatient mental health (state psychiatric hospital) in the 
1915(b) waiver documents is used to identify benefits covered under the State plan.  As 
such, that reference is only for such services provided to enrollees under the age of 21, or 
over the age of 64, that can be covered under the State plan.  The IMD exclusion does 
not apply to the benefit for inpatient psychiatric hospital services for individuals under 
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  DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
 
age 21 (which is defined to include inpatient services at certain facilities that are not 
certified as hospitals), and it does not apply to individuals who are over age 64. 
  
Q3.  Does the state need to submit a State Plan Amendment (SPA) to modify the 
standard benefit package or an Alternative Benefit Plan (ABP) to use the option 
under the managed care rule to make a capitation payment to a MCO or PIHP for 
an enrollee with a short-term stay in an IMD as specified in 438.6(e)? 
 
A3.  No.  A SPA to alter coverage under the State plan to include services for inpatients in an 
IMD would not be approvable due to the prohibition of federal financial participation 
(FFP) in subsection (B) following section 1905(a)(29) of the Act.  The flexibility for 
states to make a capitation payment to a risk-based MCO or PIHP for an enrollee with a 
short-term stay in an IMD for inpatient psychiatric or substance use disorder services of 
no more than 15 days within the month for which the capitation payment is made is 
permissible under the regulation at 438.6(e) for MCOs and PIHPs to use the IMD as a 
medically appropriate and cost effective alternative setting to those covered under the 
State plan or ABP.  This flexibility is referred to in the regulations as in-lieu-of services 
or settings and is effectuated through the contract between the state and the MCO or 
PIHP.  Therefore, no modification to coverage under the State plan is required and none 
could be approved. 
 
Q4.   Could a state make two capitation payments to a MCO or PIHP for an enrollee with 
a stay of longer than 15 days that spans two months but each month includes less 
than 15 days of the stay? 
  
A4.  Yes.  We would permit a capitation payment for a month when the enrollee is only an 
inpatient in an IMD for 15 days during that month.  We addressed this question in the 
Final Rule and stated that two capitation payments for an enrollee who was a patient in an 
IMD for more than 15 days that spans consecutive months would be permissible so long 
as the stay was no more than 15 days in each month (81 FR 27561).  As stated in the 
Final Rule, the appropriate application of the in-lieu-of services policy for use of an IMD 
requires the risk-based MCO or PIHP to determine if the enrollee has an inpatient level of 
care need that necessitates treatment for no more than 15 days.  If the managed care plan 
(or physician) believes that a stay of longer than 15 days is necessary or anticipated for an 
enrollee, the use of this specific in-lieu-of service is likely inappropriate and not 
consistent with the Final Rule because of the prohibition in subsection (B) following 
section 1905(a)(29) of the Act. 
 
Q5.  Does the short-term length of stay of no more than 15 days within the month in 
438.6(e) need to be a single admission? 
 
A5.  No.  The enrollee may have a cumulative short-term length of stay in an IMD of no more 
than 15 days within the month for which the capitation payment is made.  However, CMS 
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  DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
 
would expect the MCO or PIHP, as well as the state, to be concerned with such 
utilization practices as an indication that repeated admittances to the IMD within a short 
timeframe are not stabilizing the enrollees acute psychiatric or substance use disorder 
condition or meeting the enrollees medical needs.  In such cases, the managed care plan 
should take steps to ensure that medically necessary treatment within the scope of the 
contract and the State plan are being provided to the enrollee. 
 
Q6.  If an enrollee is a patient in an IMD for more than 15 days within a month (for 
example, the enrollee is a patient in an IMD for 20 days), can the state make a pro-
rated capitation payment to the MCO or PIHP to cover the remaining 10 days 
within the month (assuming a 30 day month) when the enrollee is back in the 
community (and not a patient in an IMD) and enrolled with the managed care plan? 
 
A6.  Yes, a state can make a pro-rated capitation payment to cover the days when the enrollee 
is not a patient in an IMD, but FFP is not available for payments related to days when the 
enrollee is in an IMD when the requirements of 438.6(e) are not met.  In the Final Rule 
(81 FR 27555  27556), we discussed our rationale for ensuring that the use of IMD 
settings in-lieu-of covered settings for covered care is sufficiently limited so as to not 
contravene subparagraph (B) of section 1905(a)(29) of the Act.  Since a capitation 
payment is made to the MCO or PIHP for assuming the risk of covering Medicaid-
covered services during the month for which a capitation is made, there would be no such 
risk assumed in the case of an enrollee who is a patient in an IMD for the entire month, as 
the enrollee could not, by definition, be entitled to any Medicaid covered benefits during 
that month.  However, we understand that there may be circumstances in which the 
enrollee will be a patient in an IMD for more than 15 days within a month, but for less 
than 30 days.  In some of these circumstances, such enrollees will remain in states 
managed care programs, and the MCO or PIHP will assume some level of risk for 
Medicaid-covered services once the enrollee is back in the community and not a patient 
in an IMD.  In such cases, states are permitted to make a pro-rated capitation payment to 
the MCO or PIHP to cover only the days within the month when the enrollee is not a 
patient in the IMD.  FFP is not available for payments related to days when the enrollee is 
in an IMD when the requirements of 438.6(e) are not met. 
  
Pro-ration of the capitation payment to cover only those days when the enrollee is not a 
patient in an IMD is consistent with CMS policy regarding other periods when services 
for an enrollee are excluded from Medicaid coverage (see Q/A #20) and is consistent 
with the IMD exclusion (see our discussion in 80 FR 31117).  When an enrollee is in a 
managed care plan for non-IMD days (that is, those days in a month when the enrollee is 
not a patient in an IMD), and the requirements of 438.6(e) are not met, the state may 
claim FFP only for a portion of the monthly capitation payment that has been pro-rated to 
the number of non-IMD days in that month. 
 
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