[Federal Register Volume 76, Number 75 (Tuesday, April 19, 2011)]
[Rules and Regulations]
[Pages 21950-21975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9340]



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Vol. 76

Tuesday,

No. 75

April 19, 2011

Part II





Department of Health and Human Services





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 Centers for Medicare & Medicaid Services



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42 CFR Part 433



 Medicaid Program; Federal Funding for Medicaid Eligibility 
Determination and Enrollment Activities; Final Rule

Federal Register / Vol. 76 , No. 75 / Tuesday, April 19, 2011 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 433

[CMS-2346-F]
RIN 0938-AQ53


Medicaid Program; Federal Funding for Medicaid Eligibility 
Determination and Enrollment Activities

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule will revise Medicaid regulations for 
Mechanized Claims Processing and Information Retrieval Systems. We are 
also modifying our regulations so that the enhanced Federal financial 
participation (FFP) is available for design, development and 
installation or enhancement of eligibility determination systems until 
December 31, 2015. This final rule also imposes certain defined 
standards and conditions in terms of timeliness, accuracy, efficiency, 
and integrity for mechanized claims processing and information 
retrieval systems in order to receive enhanced FFP.

DATES: Effective Date: These regulations are effective on April 19, 
2011.

FOR FURTHER INFORMATION CONTACT: Richard Friedman, (410) 786-4451.

SUPPLEMENTARY INFORMATION: 

I. Background

A. The Current State of the Medicaid Management Information System 
(MMIS)

    A Medicaid management information system (MMIS) is a mechanized 
system of claims processing and information retrieval used in State 
Medicaid programs under title XIX of the Social Security Act (the Act). 
The system is used to process Medicaid claims from providers and to 
retrieve and produce utilization data and management information about 
medical care and services furnished to Medicaid recipients. The system 
also is potentially eligible to receive enhanced administrative funding 
from the Federal government under section 1903(a)(3) of the Act. 
Specifically, section 1903(a)(3)(A)(i) of the Act provides that Federal 
financial participation (FFP) is available at 90 percent of 
expenditures for the design, development, or installation of mechanized 
claims processing and information retrieval systems as the ``Secretary 
determines are likely to provide more efficient, economical and 
effective administration of the plan and to be compatible with the 
claims processing and information retrieval systems utilized in the 
administration of title XVIII [Medicare].'' In addition, section 
1903(a)(3)(B) of the Act provides for the availability of FFP at 75 
percent of expenditures attributable to operating the ``systems * * * 
of the type described in [section 1903(a)(3)] subparagraph (A)(i),'' 
which are approved by the Secretary and meet certain other requirements 
(including requirements relating to explanations of benefits). For 
purposes of this final rule, we refer to 90 percent and 75 percent FFP 
as ``enhanced'' FFP since it is greater than the 50 percent FFP 
available for most Medicaid administrative expenses. In addition, 
section 1903(r) of the Act places conditions on a State's ability to 
receive Federal funding for automated data systems in the 
administration of the State plan.
    To receive an enhanced match, the Secretary must find that the 
mechanized claims and information retrieval system is adequate to 
provide more efficient, economical, and effective administration of the 
State plan. The Patient Protection and Affordable Care Act of 2010 
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted 
on March 30, 2010) (collectively referred to as the Affordable Care 
Act) also made additional changes to the requirements within section 
1903(r) of the Act relating to the reporting of data to the Secretary; 
guidance on these requirements will be issued in a separate rulemaking 
document. Our Federal regulations concerning mechanized claims 
processing and information retrieval systems are at 42 CFR part 433, 
subpart C. A State that chooses to develop, enhance, or replace its 
required system or subsystems must first submit for approval an 
Advanced Planning Document (APD). The general Health and Human Services 
(HHS) requirements for approval of APDs are found at 45 CFR part 95, 
subpart F.

B. Availability of Enhanced FFP for Automated Eligibility Systems

    Historically, Medicaid eligibility for many applicants and 
recipients was determined by an agency other than the State Medicaid 
agency. Under section 1902(a)(10)(A)(i) of the Act, States were 
required to provide Medicaid to recipients under the Aid to Families 
with Dependent Children (AFDC) program, as well as recipients of the 
Supplemental Security Income (SSI) program. In these cases, eligibility 
determinations were derived from the cash welfare-assistance 
determination. As a result, States that maintained a Medicaid 
eligibility determination system usually integrated these systems into 
the public welfare systems. In the October 13, 1989 Federal Register 
(54 FR 41966, effective November 13, 1989), we published a final rule 
excluding eligibility determination systems from the enhanced funding 
that was available under section 1903(a)(3) of the Act, reasoning that 
the close interrelationship between these cash assistance programs and 
Medicaid eligibility rendered such enhanced assistance redundant and 
unnecessary (54 FR 41966 through 41974). As a result, we revised the 
definition of mechanized claims processing and information retrieval 
systems to exclude eligibility determination systems.
    We also indicated in the 1989 final rule that to receive any FFP 
for Medicaid purposes for an eligibility determination system after 
November 13, 1989, a State must submit an APD for funding in accordance 
with the requirements of 45 CFR Part 95, Subpart F. If we approved the 
APD, the State agency would receive 50 percent FFP for administrative 
costs under section 1903(a)(7) of the Act for the system's design, 
development, and installation, and operation.

C. Changes in Medicaid Eligibility Policies

    Since we issued the October 13, 1989 final rule, a series of 
statutory changes have dramatically affected eligibility for Medicaid 
and how Medicaid eligibility is determined. Among other things, new 
eligibility coverage groups were created and expanded, and in 1996, 
Medicaid eligibility was ``de-linked'' from the receipt of cash 
assistance when the AFDC program was replaced by the Temporary 
Assistance to Needy Families (Pub. L. 104-193, enacted on August 22, 
1996) (TANF) program created by the Personal Responsibility and Work 
Opportunity Reconciliation Act (PRWORA) (Pub. L. 104-193, enacted on 
August 22, 1996).
    With the passage of the Balanced Budget Act of 1997 (Pub. L. 105-
33, enacted on August 5, 1997) (BBA), States were required to 
coordinate eligibility for and enrollment in Medicaid with the new 
Children's Health Insurance Program (CHIP) to ensure enrollment of 
children in the appropriate program. With passage of the ``Express Lane 
Eligibility'' provisions in section 203 of the Children's Health

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Insurance Program Reauthorization Act of 2009 (Pub. L. 111-3) (CHIPRA), 
States were provided with the option, and are encouraged, to coordinate 
and expedite eligibility for children in Medicaid and CHIP by using 
findings regarding income and other eligibility criteria made by other 
agencies, such as the Supplemental Nutrition Assistance Program (SNAP), 
as the basis for Medicaid and CHIP eligibility adjudications.
    With the passage of the Affordable Care Act, we expect that changes 
to Medicaid eligibility policies and business processes need to be 
adopted. States will need to apply new rules to adjudicate eligibility 
for the program; enroll millions of newly eligible individuals through 
multiple channels; renew eligibility for existing enrollees; operate 
seamlessly with newly authorized Health Insurance Exchanges (see 
section 1311 of the Affordable Care Act) whether run by the State or 
the U.S. Department of Health and Human Services (HHS) if the State 
chooses not to operate a State Exchange (hereafter referred to as 
``Exchanges''); participate in a system to verify information from 
applicants electronically; incorporate a streamlined application used 
to apply for multiple sources of coverage and health insurance 
assistance; and produce notices and communications to applicants and 
beneficiaries concerning the process, outcomes, and their rights to 
dispute or appeal. We further anticipate, following consultation with 
States and other stakeholders, additional standard Federal requirements 
for more timely and detailed reporting of eligibility and enrollment 
status statistics, including breakdowns by eligibility group, 
demographic characteristics, enrollment in managed care plans, and 
participation in waiver programs.
    System transformations will be needed in most States to accomplish 
these changes. These systems transformations should be undertaken in 
full partnership with Exchanges in order to meet coverage goals, 
minimize duplication, ensure effective reuse of infrastructure and 
applications, produce seamless enrollment for consumers, and ensure 
accuracy of program placements (see sections 1413 and 2201 of the 
Affordable Care Act). Extensive coordination and collaboration will be 
required between Exchanges and Medicaid, including on oversight and 
evaluation of the interoperability of the Exchange and Medicaid 
systems. In addition, States may consider how to coordinate systems 
changes with the eligibility determination systems used for other 
health and human services programs, such as SNAP, because a large share 
of individuals who are eligible for Medicaid also are eligible for 
other programs as well.

II. Provisions of the Proposed Regulations

    In the November 8, 2010 Federal Register (75 FR 68583), we 
published a proposed rule that revised the Medicaid regulations for 
Mechanized Claims Processing and Information Retrieval Systems. 
Specifically, we proposed to amend the definition of Mechanized Claims 
Processing and Information Retrieval Systems to include mechanized 
eligibility determination systems, which would include the enrollment 
and eligibility reporting activities associated with such systems. We 
also proposed that the enhanced FFP would be available for design, 
development and installation or enhancement of eligibility 
determination systems until December 31, 2015.

III. Analysis of and Responses to Public Comments

    We received 40 timely comments on the November 8, 2010 proposed 
rule (75 FR 68583 through 68595).
    Commenters expressed general support for the policies outlined in 
the proposed rule. Specifically, commenters agreed that providing 
enhanced matching funds for Medicaid eligibility systems is appropriate 
and necessary. Commenters expressed almost universal agreement that 
this enhanced match is critical to support State efforts to modernize 
their eligibility systems, and will allow States to bring these systems 
into the 21st Century so that they can provide cost-effective, 
accurate, reliable, and beneficiary-friendly assessments of eligibility 
for the Medicaid program. In light of the substantial changes made by 
the Affordable Care Act, commenters agreed that it is more important 
than ever to ensure that eligibility determination systems are designed 
and operated using the most up-to-date technological and business 
process solutions. With States expected to enroll millions of newly 
eligible individuals into Medicaid and to ensure seamless coordination 
with the new Exchanges, it is essential that States have modern and 
cost-effective eligibility systems that will accurately enroll eligible 
individuals, without unnecessarily cumbersome processes or delays. 
Commenters also believed that such initial investments would ultimately 
lower ongoing maintenance and operational expenses, driving savings for 
both States and the Federal government.
    Commenters also noted that HHS had released additional documents at 
approximately the same time as the November 8, 2010 proposed rule, 
which reinforced our strategic direction and received their support. 
Specifically, commenters acknowledged the joint guidance released by 
CMS and the Office of Consumer Information and Insurance Oversight (now 
CMS' Center for Consumer Information and Insurance Oversight (CCIIO)) 
entitled, ``Exchange/Medicaid Information Technology Guidance, version 
1.0,'' and the Funding Opportunity Announcement for Cooperative 
Agreements to Support Early Innovator Grants for Exchanges. Commenters 
indicated that they greatly appreciated the foresight of CMS and CCIIO, 
and are supportive of the guidance providing direction towards a 
service-oriented IT infrastructure based on interoperable systems and 
that they fully support the concept of a collaborative IT development 
approach among States, CMS and CCIIO.
    A summary of additional major issues and our responses follow. 
Since many of the comments were general in nature and not specific to 
any particular regulatory provision, we have identified the comments by 
nine categories:
    <bullet> Requests for enhanced Federal funding.
    <bullet> Requests for additional guidance.
    <bullet> Public feedback and suggestions related to the seven 
standards and conditions.
    <bullet> Public feedback and suggestions related to the APD 
process.
    <bullet> Issues related to the transition period for compliance.
    <bullet> Comments regarding CMS' strategy for monitoring and 
oversight, including performance reviews.
    <bullet> Issues related to partial systems improvements or 
modernizations.
    <bullet> Specific issues by regulatory provision.
    <bullet> Issues related to the Regulatory Impact Analysis including 
the cost estimates, and information collection.

A. Requests for Enhanced Federal Funding

    Comment: Numerous commenters requested that the enhanced FFP for 
design, development, and installation or enhancement of eligibility 
determination systems be extended beyond the December 31, 2015 
deadline. Commenters indicated that new and significant enhancements 
may be needed beyond December 31, 2015, particularly in order to affect 
future legislative changes to Medicaid eligibility or to keep pace with 
technological innovations. The

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commenters noted that State budgets continue to be in a state of crisis 
and State revenues may not fully recover until 2016 or later; 
consequently, the Federal government must take responsibility for 
ensuring adequate funding of the program infrastructure to ensure 
compliance by January 1, 2014. Commenters recommended several different 
options in this regard. Some commenters indicated that CMS should 
consider that the requirement apply to funds allocated rather than 
expended. Other commenters believed that CMS could allow for the 
possibility of a continued enhanced match beyond the deadline in 
specified circumstances (many outside the control of State 
governments), such as new Federal requirements or major advances in 
computer technology. Other exception categories suggested by commenters 
included unforeseen issues in implementation and/or new opportunities 
for interoperability with other health and human services programs. 
Other commenters indicated that CMS should extend funding if States 
have approved APDs on or before December 31, 2015 and the project has 
not been completed or if States are planning to leverage improvements 
from other State Medicaid eligibility systems. The commenters further 
indicate that they are concerned that they will be unable to receive 
legislative approval to begin their project, develop an APD, receive 
Federal approval, and then complete work on the project while meeting 
the standards and conditions before the enhanced FFP ends on December 
31, 2015. Still other commenters believed the date should be changed to 
coincide with the end of the Federal fiscal year 2015 and 2016, so that 
enhanced funding would expire September 30, 2016. One commenter 
suggests that the deadline should be interpreted to apply to costs for 
projects receiving enhanced funding and obligated by that date rather 
than expended by December 31, 2015. One commenter expressed concern 
that a requirement for States to maintain existing eligibility 
processes for pregnant women and children until September 30, 2019 will 
mean States have to maintain dual eligibility systems during this time 
period. At the end of 2019, the IT systems will need to be updated to 
remove this function and that enhanced funding should be extended for 
States to make changes to eligibility systems when this requirement 
ends.
    Response: We appreciate the significant number of comments we 
received on this aspect of our proposed rule and the view of commenters 
that we should eliminate, extend, or modify the deadline for expiration 
of the enhanced match for eligibility systems. Nonetheless, while we 
appreciate the opinions of commenters, we continue to believe that the 
deadline we established in the proposed rule is appropriate and proper. 
We believe it is within our authority to determine that by a certain 
date, additional investments in eligibility determination systems will 
no longer continue to result in ``more'' efficient, effective or 
economical administration of the State Plan, as required by section 
1903(a)(3)(A)(i) of the Act. Further, we continue to believe that 
December 31, 2015 is a reasonable and proper end-point for when 
investments cease to result in acceptable increases in efficiency, 
economy, or effectiveness. Our reason is threefold: First, changes 
imposed by the Affordable Care Act will require immediate attention and 
commitment to new technologies for eligibility and enrollment systems. 
Second, once appropriate systems are deployed to support the coverage 
expansions and other eligibility changes required by the Affordable 
Care Act, we anticipate significant efficiencies in both application 
maintenance and business operations. Third, the additional 2 years we 
provided to States after the Medicaid expansion goes into effect allows 
ample time for States to refine and enhance the capability of the 
systems, and to capitalize on the efficiencies of these investments.
    We articulated in the proposed rule that additional investments are 
unlikely to yield similar rates of improvement and a regular 
administrative match should be sufficient for efficient and effective 
administration of State Medicaid programs. We anticipate that the 
improved underlying infrastructure supporting both Medicaid and 
Exchanges will be strongly leveraged in support of a State's person-
centric outreach, eligibility and enrollment activities across the 
health and human services spectrum.
    With respect to the request made by some commenters to establish an 
exceptions process, we believe this is already sufficiently provided 
for through our extension of enhanced FFP for an additional 2 years 
beyond the date for operation of the Exchanges. We are concerned that 
broadening or codifying exceptions to the deadline in the way suggested 
by the commenters would effectively render the deadline moot for many 
purposes and projects.
    The September 30, 2019 date noted by one commenter is the end-date 
for maintenance of effort (MOE) provisions for children (not pregnant 
women). Because of these MOE provisions, States must not have more 
restrictive ``eligibility standards, methodologies, or procedures'' for 
children than those in effect on March 23, 2010. The MOE requirement 
does not mean that States must maintain identical standards, 
methodologies or procedures as those in effect on March 23, 2010, and 
it does not mean that the same IT system or IT system processes be 
used. Rather, the MOE requires that the eligibility standards, methods, 
and procedures be no more restrictive than those in effect on March 23, 
2010.
    We are not certain of what the commenter is concerned about in 
terms of States' needing to maintain dual eligibility processes, but we 
assume he or she may be concerned about the interaction of the MOE 
requirements and the requirement under section 2002 of the Affordable 
Care Act. The conversion to a MAGI-equivalent income standard required 
under section 2002 of the Affordable Care Act is designed in the 
statute to ensure that individuals who meet the eligibility 
requirements in effect as of March 23, 2010 do not lose eligibility as 
a result of the shift to MAGI. Guidance will be provided by the 
Secretary regarding how States can accomplish the required conversion, 
and once the new MAGI-equivalent income standard has been determined, 
the MOE requirements will be applied to such converted standard, using 
the MAGI methodologies to determine an individual's income, as required 
under the Affordable Care Act. Therefore, the MOE requirements will not 
require operating dual eligibility systems.
    After consideration of the public comments received, we are 
maintaining the December 31, 2015 deadline in our regulations for 
eligibility determination systems.
    Comment: One commenter requested that CMS consider interpreting the 
deadline of December 31, 2015 for projects receiving enhanced Federal 
funding to requiring the funds be obligated by that date rather than 
expended.
    Response: We indicated in the proposed rule (75 FR 68589) that 
States would need to incur costs for goods and services furnished no 
later than December 31, 2015 to receive 90 percent FFP for design, 
development, installation, or enhancement of an eligibility system. For 
further clarification, this means that States must ensure that goods 
and services (for example, eligibility and enrollment modules, 
applications, systems, etc.) are provided to States no later than close 
of

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business December 31, 2015. Thus, for example, if an amount has been 
obligated by December 31, 2015, but the good or service has not yet 
been furnished by that date, then such expenditure would not be 
eligible for enhanced FFP.
    As a result of this comment, we are adding language to the 
regulations text to clarify this point.
    Comment: Numerous commenters asked whether enhanced funding is 
available for subsystems that interface with and/or are part of the 
eligibility process since such subsystems will require modifications to 
meet the requirements of the Affordable Care Act. Additionally, 
commenters sought enhanced FFP for projects that meet Medicaid 
Information Technology Architecture (MITA) guidance, yet still may need 
to integrate with legacy systems, with the understanding that, where 
feasible, open rules and specifications developed for programs will be 
used to read, insert, or update data into systems that currently do not 
have the functionality of being interoperable. The commenters agreed 
that APDs would need to be put in place and approved to modernize the 
legacy systems/subsystems.
    Response: We agree that enhanced funding can be available for 
subsystems that meet the standards and conditions outlined in this 
final rule. However, to the extent that such subsystems are reliant on 
or tied to a larger legacy system or suite of systems that introduce 
performance risk or ongoing costs to the operation of the subsystem, we 
may find that the system as a whole is not meeting the standards and 
conditions of this final rule and decline to approve enhanced match on 
that basis. It is our desire to acknowledge that subsystem 
modernization may be an entirely appropriate pathway to a high 
performing Medicaid program, while at the same time not binding 
ourselves to approve enhanced match for minor components of a large, 
fragmented legacy system that has little chance of delivering to 
expected business results. CMS will review APDs and make determinations 
regarding such subsystems, and to the extent that such subsystems meet 
with the standards and conditions outlined in this final rule and 
States can document that there is no performance risk or ongoing 
unnecessary costs, as a result of the subsystem being a part of larger 
legacy system, CMS will make determinations regarding enhanced funding 
accordingly.
    Comment: Several commenters want to ensure that enhanced FFP is 
available to States that are not completely MITA compliant, but rather 
to States that can demonstrate efficiencies are being achieved, 
redundancy is being decreased/eliminated, and system integration is 
being realized through application programming interfaces (API). States 
could demonstrate that APIs, in which a particular set of rules and 
specifications for services and resources have been developed by one 
software program that can be accessed and used by another software 
program implementing the API, can be used and serve as an interface 
between different software programs and facilitating their interaction, 
and thus, leading to efficiencies. Commenters added that with an 
approved APD reasonable and measureable milestones of system compliance 
can be demonstrated.
    Response: Enhanced FFP is available for those systems that comply 
with the standards and conditions of this final rule. Aligning to, and 
advancing increasingly, in MITA maturity for business, architecture, 
and data is one of the standards and conditions that must be met. We 
did not use the term ``MITA compliant'' in our proposed rule because 
MITA maturity is by definition, a matter of degree. We agree that 
achieving increasing levels and degrees of MITA maturity is likely to 
happen in stages. Recognizing this, we will be requiring a MITA roadmap 
that delineates how the proposed system enhancements for eligibility 
and enrollment functions will fit into the States' greater MITA 
framework. Such requirement will align with our expectations to see 
States continuing to make measurable progress in implementing their 
MITA roadmaps. We believe it is critical to build on and accelerate the 
modernization we have collectively begun under MITA, so that States 
achieve the final vision of MITA and have a comprehensive framework 
with which to meet the technical and business demands required by an 
environment that will increasingly rely on health information 
technology and the electronic exchange of healthcare information to 
improve health outcomes and lower program costs.
    Comment: One commenter requested clarification as to whether 
enhanced FFP will be available where a project has some components that 
meet the standards and guidelines required for enhanced FFP, but may 
include other components that do not.
    Response: We believe it is entirely appropriate to accomplish 
system modernization through phasing. In cases such as the one raised 
by the commenter, the changes being made to various system components 
will need to be reviewed through submission of an APD and review. We 
will need to ensure that component-based development is on a path 
toward an entire system or subsystem coming into compliance with the 
standards and conditions of this final rule. We would expect that if 
the components that do not meet the standards and conditions are 
essentially preventing the entire system or subsystem from meeting the 
standards and conditions, then the State would have a plan for updating 
such components, even if all components are not updated at the same 
time. For example, we do not expect that we would offer enhanced FFP 
for improvements to just the reporting aspect of the traditional, 
legacy eligibility system, if the State does not have a plan for 
bringing this entire legacy system into compliance with the standards 
and conditions. In addition, to receive enhanced FFP, States may not 
ignore any single standard or condition regardless of the level or 
breadth of their compliance with the remaining standards, although if a 
State is weaker or more at risk with certain standards or conditions, 
the State should include a roadmap in their APD demonstrating how they 
intend to come into compliance. We intend to carefully track progress 
against approved roadmaps when determining if system updates continue 
to meet the standards and conditions for enhanced match.
    Comment: One commenter suggests that CMS clarify that enhanced 
funding is also available for ``traditional'' eligibility 
determinations, such as those made on behalf of medically needy 
clients, buy-in, elderly, disabled, long-term care and home and 
community-based individuals.
    Response: To the extent that eligibility systems meet all 
requirements, standards, and conditions contained in this final rule, 
States will be eligible for enhanced FFP, and such enhanced funding is 
not dependent upon the eligibility group using the system.
    Comment: One commenter recommended that CMS clarify that enhanced 
funding is available for personnel costs, as well as the costs of 
physical systems. Specifically, the commenter notes that Federal 
regulations at Sec.  432.50(b) provide for enhanced funding at 75 
percent for the costs of staff ``engaged directly in the operation of 
mechanized claims processing and information retrieval systems'' and 
for enhanced funding at 90 percent for staff costs related to the 
design, development, and installation of these systems. FFP is provided 
at 50 percent for the costs of training personnel when new systems are 
developed.

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    Response: We did not propose amendments to the regulations at Sec.  
432.50(b); thus, enhanced funding is available for staff time spent on 
mechanized eligibility determination systems in the same manner that 
they apply to all mechanized claims processing and information 
retrieval systems, since mechanized eligibility determination systems 
are now considered to be part of such systems, assuming the 
requirements of this section are met.
    Comment: One commenter asked that we extend the enhanced funding to 
encompass the testing of the effectiveness of the eligibility systems, 
including testing beneficiary experience such as allowing States to 
receive reimbursement for conducting focus groups with community-based 
workers and/or beneficiaries who rely on the system to apply for and 
renew Medicaid coverage.
    Response: Again, to the extent these costs would be reimbursable 
under Sec.  432.50(b), they would be eligible for reimbursement under 
this rule as well (assuming all standards and conditions are met). 
States would need to ensure that the expenditures are tied to the 
mechanized eligibility determination system and follow all procedures 
for seeking approval.
    Comment: Several commenters requested that CMS require States to 
pass enhanced match through to counties. The commenters stated that CMS 
should ensure that if a State requires counties to contribute to the 
non-Federal share of Medicaid and Medicaid administrative costs, and 
that receives enhanced FFP; the State should be required to share the 
enhanced FFP in proportion to the counties' contribution. The 
commenters stated that this requirement would reflect the clear 
Congressional intent as expressed in the enhanced Federal Medical 
Assistance Percentage (FMAP) requirements for certain States in section 
5001(g)(2) of the American Recovery and Reinvestment Act (Pub. L. 111-
5, enacted on February 17, 2009) and strengthened by section 
10201(c)(6) of the Affordable Care Act.
    Response: The commenters cite section 10201(c)(6) of the Affordable 
Care Act, which added section 1905(cc) to the Act. Under this 
provision, a State may not be eligible for certain increased FMAPs 
associated with health care reform and disaster recovery if the State 
``requires that political subdivisions pay a greater percentage of the 
non-Federal share * * * than the respective percentages that would have 
been required by the State under the State plan under this title, State 
law, or both, as in effect on December 31, 2009.'' Since the level of 
Federal funding available for the costs of the eligibility and 
enrollment determination systems under this final rule will increase 
and the level of the non-Federal share specific to such expenditures 
will decrease, there could be an effect on the level of required 
political subdivision contributions that would be subject to this 
limitation. We already issued guidance on how the political subdivision 
contribution limitations under section 1905(cc) apply in an SMD letter 
issued November, 9, 2010 (see http://www.cms.gov/smdl/downloads/SMD10023.pdf). Rather than reiterate what is already in that guidance, 
we refer States and counties to such guidance. States and counties may 
also work with CMS to determine whether any required contributions by 
political subdivisions toward the non-federal share of these 
expenditures would be in compliance with political subdivision 
contribution provision.
    Comment: One commenter urged CMS to encourage States to consider in 
establishing actuarially sound Medicaid managed care rates, the 
additional systems-related investments by Medicaid health plans that 
are likely to be needed to interface with new State systems.
    Response: We believe this commenter is asking about managed care 
rates, and not the proposal we issued with regard to mechanized claims 
processing and information retrieval systems, and when they will be 
eligible for enhanced FFP. As our proposed rule did not address 
Medicaid managed care rates, we believe this comment is outside the 
scope of the proposed rule.
    Comment: One commenter asked for clarification on whether the 
addition of eligibility determination and enrollment systems is limited 
to stand-alone systems administered directly by the single State 
Medicaid Agency. The commenter indicates that some State eligibility 
systems are a joint venture with the HHS and the United States 
Department of Agriculture and are used to determine eligibility for 
financial assistance programs in addition to medical assistance 
programs.
    Response: The enhanced funding can apply to ``stand alone'' systems 
or ``integrated eligibility'' systems, assuming they meet the standards 
and conditions specified in this final rule. Many States are 
considering ways to coordinate Medicaid, CHIP and Exchange eligibility 
with other health and human services programs. However, we will only 
provide enhanced funding for the portion of the costs that can be 
directly attributed to Medicaid eligibility and enrollment functions. 
We also direct the commenter to the discussion on cost-allocation in 
OMB Circular A-87 (http://www.whitehouse.gov/omb/circulars_a087_2004) 
specifying appropriate allocation of costs when the system includes 
various benefiting programs.
    Comment: Other commenters have asked whether the enhanced funding 
can be used to support updating and completing the MITA assessment and 
roadmap, and performance measurement.
    Response: We agree with the commenters that it is appropriate to 
request enhanced funding for updating the MITA assessment and the 
roadmap, since one of the standards and conditions listed in Sec.  
433.112 speaks directly to MITA maturity. Enhanced funding is available 
assuming that updates are related to the standards and conditions and 
the State's plan for meeting them. We are making no further additions 
to the rule in response to this comment.
    Comment: Some commenters believed the timeframes related to the 
enhanced funding for the development of eligibility solutions seems to 
be extremely aggressive. Many of the activities related to the 
planning, design, development, and deployment of eligibility solutions 
will be new activities for both State and vendor staff. States will 
need to consider how they will integrate and leverage eligibility 
solutions into their Health Insurance Exchanges, their integrated human 
services eligibility solutions, their MMIS, and other points of 
intersection. Just the planning phase leading up to an approved APD and 
FFP release could easily consume more than a year. The commenters 
suggested that CMS should consider lengthening the timeframes for the 
completion of these efforts related to eligibility components.
    Response: We recognize that the timelines for developing new 
eligibility systems, and for submitting and approving new APDs, must be 
greatly accelerated from historical and traditional experiences and 
approaches in order to meet the timelines in the Affordable Care Act 
and to take advantage of enhanced match prior to December 31, 2015. We 
emphasize that we expect to operate efficiently in processing APDs and 
work collaboratively with States to implement these changes, and we 
expect States to operate quite differently in how they pursue new 
development, share and reuse assets, and take advantage of 
``lightweight'' applications and new technologies to meet these needs. 
We

[[Page 21955]]

noted in our proposed rule that dramatic systems transformations would 
be necessary and while the timeframes may appear aggressive to some, 
the Department is committed to providing leadership, technical 
assistance, and financial support to produce the IT infrastructure 
necessary to accomplish the tasks required by the Affordable Care Act 
according to the timelines specified in the law. We note that the 
Affordable Care Act requires that States be able to enroll the newly 
eligible individuals and coordinate with Health Insurance Exchanges by 
January 1 of 2014. Thus, our timeline accounts for this statutory 
deadline, while still maintaining a period of two years (through 
December 31, 2015) to account for potential delays or unforeseen 
obstacles in developing new or improved eligibility determination 
systems.
    We are making no further revisions to the rule as a result of this 
comment.

B. Requests for Additional Guidance

    Comment: One commenter requested that CMS produce and make 
available to the States a project planning template illustrating key 
entry points to major phases of the projects.
    Response: We will be providing a whole series of artifacts and 
supporting tools, documentation, diagrams to States as part of our 
technical assistance, collaboration, and governance. We will consider 
the usefulness of a template for project planning as we develop and 
publish these materials.
    Comment: Several commenters requested additional guidance on the IT 
enterprise.
    Response: We will issue additional Guidance for Exchange and 
Medicaid Information Technology Systems (IT guidance). We issued IT 
guidance version 1.0 on November 30, 2010, and expect to issue, expand 
and renew that guidance over time. These guidance documents will help 
States with the business rules necessary to design, develop, and 
implement State eligibility systems that can meet the requirements of 
the Affordable Care Act.
    Comment: Several commenters inquired about future guidance on MITA, 
the MITA alignment process, and whether the process for certifying and/
or validating MITA alignment will be detailed in the final rule.
    Response: We have provided continued guidance and artifacts 
associated with MITA since the MITA Initiative began. We will continue 
to provide that guidance and related toolsets and details. We will 
consider a number of elements in reviewing states' alignment with MITA 
and increasing MITA maturity, including States' self-assessments and 
MITA roadmaps.
    Comment: Several commenters inquired about the ``modular, flexible 
approach to systems development'' and increasing MITA alignment 
requirements, as well as whether such requirements apply to all MMISs 
or only eligibility determination systems. The commenters believed that 
to promote the feasibility of a ``modular, flexible approach to systems 
development'' of Medicaid systems, CMS should continue to fund and 
aggressively develop necessary interfaces and technical standards that 
are required to facilitate MMIS interoperability.
    Response: As stated in the above responses, we intend to issue a 
series of tools for States to use in ensuring the facilitation of 
interoperability. It should be noted that the requirements of this 
final rule apply to all MMISs, not just eligibility determination 
systems (which will now be considered part of the MMIS). We are making 
no further additions to the rule as a result of this comment.
    Comment: Several commenters urged CMS to develop stronger Federal 
guidelines for enrollment and renewal procedures to accompany new 
eligibility systems, including guidance on acceptable data matches 
creating safe harbors for data sources used in electronic income 
verification, to allow States to move to paperless income verification 
with confidence that they comply with quality and accuracy standards. 
In developing additional requirements, the commenters urged CMS to 
ensure that Medicaid's application, renewal and verification procedures 
are no more paperwork intensive or burdensome than those for Exchange 
tax credit applicants.
    Response: We agree with the commenters that simplification and 
streamlining of the consumer experience are expected outcomes of the 
Affordable Care Act. However, business process and policy requirements 
for determining eligibility are outside the scope of this regulation 
and will be addressed in separate rulemaking. As discussed later in the 
response to comments concerning performance measures, we will also 
publish measures concerning expected business outcomes in separate 
notices. We are making no further additions to this section of the 
final rule.
    Comment: Some commenters requested reforms and clarifications 
regarding cost allocation principles.
    Response: Our proposed rule did not contain any proposals to alter 
cost allocation principles, and we believe it is prudent that CMS and 
the States continue to follow the cost allocation principles outlined 
by OMB in Circular A-87. As stated in the proposed rule, for integrated 
eligibility systems, assuming those systems meet the standards and 
conditions outlined in the final rule, only the costs associated with 
Medicaid eligibility and enrollment functions will be eligible for the 
enhanced funding and funding for Exchange activities is fully Federally 
funded through January 1, 2015. We discussed cost allocation and the 
principles of cost allocation in guidance that was released on November 
2010; that is, the IT guidance version 1.0 and in the Funding 
Opportunity Announcement for the Early Innovator Grants. States can 
access the OMB Circular A-87 at http://www.whitehouse.gov/omb/circulars_a087_2004.
    Comment: Several commenters asked for guidance on commercial off-
the-shelf (COTS) software products, and indicated that such products 
are often modular, reusable, sharable, leveraged, and aligned with 
MITA. Commenters also stated that enhanced FFP should be available for 
COTS initial licensing and implementation service costs as well as 
ongoing software licensing and maintenance costs. Commenters also 
questioned why there is no language confirming established protections 
for COTS pre-existing intellectual property (IP) and newly developed IP 
used in eligibility modernization initiatives.
    Response: We are not dictating specific solutions to States as they 
undertake their technology projects, as long as the standards and 
conditions of this final rule are met and we expect to work with States 
in an effort to share, reuse, and leverage other State solutions. For 
COTS products, we have a longstanding rule that the State must own any 
software that is designed, developed, installed or improved with 90 
percent FFP (see Sec.  433.112(b)(5)). In other words, software that is 
developed with public funds must be owned by the public and as a 
``public product'' is available to be shared with other States. COTS-
based solutions may still receive a 75 percent enhanced funding (that 
is, for licensing and implementation services costs), if they are 
related to the MMIS (including the eligibility determination system) 
and meet all the requirements of this final rule. In addition, current 
rules protecting intellectual property (such as copyright and/or patent 
laws) would simply apply in the way that they already do apply to 
intellectual property. Nothing in this final rule is attempting to 
alter those rules.
    Comment: Several commenters asked that we define the terms 
``modular'',

[[Page 21956]]

``modules'', ``models'', and ``successful models.'' Commenters 
indicated they are unclear about whether a model is equivalent to an 
architecture, reference model, process design, etc. for a given 
customer or class of customers and consistent with MITA architecture 
framework, process and planning guidelines, and maturity model.
    Response: We believe it is important to frame our response in terms 
of the IT Guidance jointly issued by CMS and CCIIO. This guidance 
outlined a set of expectations and principles for sharing solutions and 
approaches between both Medicaid and the Exchanges. Consequently, we 
believe it is imperative for States and vendors to view all IT 
activities much more broadly than a single physical implementation of a 
set of technical capabilities.
    ``Modular'' means reducing the complexity of a larger problem by 
breaking it down into small well defined pieces. For example, MITA 
business architecture reduced the complexity of the Medicaid program 
into eight high-level business areas. Each business area is further 
broken down/decomposed into smaller and manageable business processes. 
These business processes can be described as ``modules''. System 
components can also perform tasks in a similar fashion. ``Modularity'', 
if done right, accomplishes re-usability, maintainability, and 
reliability. The term also underscores our strong desire for States and 
the vendor community to develop ``lighter-weight'' and ``loosely-
coupled'' approaches to the design of health care systems, including, 
but not limited to eligibility determination and enrollment functions.
    In the MITA initiative, we have urged States to focus on designing 
sets of overarching and reusable functions that traditionally might 
have been included within one particular application and that would 
have been specific to that particular application, but that now could 
be used, in a consistent manner, by multiple applications used by the 
State. Additionally, we want to emphasize that the rules for processing 
data should be written in such a way as to be available to more than 
just one application. For example, whether it is a Web service querying 
for a response, or an Extract Transformation and Load (ETL) set of 
tools to move data from a database to an external interface, the rules 
that are invoked are the same, thus ensuring the underlying data 
maintains its inherent ability to consistently transform to the same 
information.
    ``Reference Models'' focus on classification and conceptual 
structure. Typically, a Technical Reference Model, for example, 
consists of infrastructure and business applications that interface 
with a number of operating and network services through a variety of 
specific applications such as graphics and imaging, data management, 
data interchange, user interface, transaction processing, security and 
system/network management.
    ``Reference Architecture'' is about proven solutions and best 
practices, typically without being vendor/platform specific. Typically 
arrayed in different tiers (access client tier, middle tier and data 
tier, for example), a technical reference architecture includes a 
client browser and an XML appliance to allow for access, a presentation 
layer using a portal with HTML and an application/Web server, business 
services applications, enterprise information integration, and 
operational data storage facility typically through a data base with 
data exploration capabilities sometimes arrayed via data marts.
    We believe MITA 2.0 addresses all of the defined terms. We also 
urge readers interested in these and related topics to familiarize 
themselves with the MITA Framework, look for additional guidance in the 
various iterations of the IT Guidance, and contact CMS staff for 
additional clarifications related to specific circumstances.
    Comment: Other commenters requested that the term ``eligibility 
determination system'' be defined. The term should indicate that 
eligibility determination system includes the technology interfaces for 
program applicants and beneficiaries, such as Web sites that include 
on-line applications and other Web features that allow individuals to 
use eligibility estimators, to report changes, to renew eligibility, or 
to seek information about their case status. Likewise, ``eligibility 
determination system'' should be defined to include computer generated 
notices and data.
    Response: Our final rule considers systems that process claims for 
eligibility to be part of mechanized claims processing and information 
retrieval systems. Thus, to the extent that a function is part of 
processing the claim for eligibility, we believe it could be eligible 
for enhanced FFP under this final rule. We believe building an online 
application would likely be part of the system that processes claims 
and applications for eligibility. Additionally, we can envision how all 
of the components identified by the commenters will be part of an 
eligibility determination system, but we would need to understand more 
fully how such components are integrated into a system that processes 
claims for eligibility. States will explain in their APDs how the 
various components are part of the mechanized claims processing and 
information retrieval system and will meet with our standards and 
conditions.
    We are making no further additions to this section of the final 
rule.
    Comment: One commenter indicated that it would be helpful if CMS 
provided additional leadership and technical assistance in further 
standardizing data semantics and information nomenclature across the 
eligibility function.
    Response: We agree with the commenter and look forward to working 
in close partnership with States, Exchanges, and the Office of the 
National Coordinator for Health Information Technology, and the HIT 
Policy and Standards Committees on this activity. We intend to enforce 
industry standards as they develop in order to promote 
interoperability, improve reliability of outputs and outcomes, and 
reduce development costs.
    Comment: A few commenters spoke of the importance of ensuring that 
county governments act as full partners in the planning, design, 
oversight and operations of necessary Medicaid eligibility system 
transformations. To ensure that counties are poised to best assist 
Medicaid applicants and recipients, the commenters suggested that the 
Secretary develop model systems and deploy the necessary resources for 
implementation including technical assistance and support for capital 
investment.
    Response: We agree with the commenter that States, Tribal 
organizations, County governments, and Federal government agencies 
should work together to ensure effective interoperability and to 
develop model systems, as well as to deploy the necessary resources for 
implementation including technical assistance and support for capital 
investment. We recognize the historical contribution made by counties 
to making eligibility determinations in most States. We look to States 
to determine how best to deploy and optimize assets within the State to 
accomplish the purpose and requirements of the Affordable Care Act.
    Comment: Several commenters believe that, to support the one 
application concept and streamlined eligibility determinations for 
Medicaid and related programs (including CHIP, TANF, Food Stamps, and 
WIC), CMS should work with other Federal agencies to obtain agreement 
to allow sharing of data across those related programs.

[[Page 21957]]

    Response: Our standard and condition regarding data exchange 
requires seamlessness with the Exchanges and also requires that States 
allow for interoperability with other health and human services 
programs. We also note that our standards and conditions require 
compliance with the standards and protocols adopted by the Secretary 
under sections 1104 and 1561 of the Affordable Care Act. We expect that 
such standards and protocols will promote reuse and data exchange.
    Comment: One commenter believes that to support timely processing 
of eligibility, CMS should work with other Federal agencies that 
interface with State Medicaid agencies to allow a single point for 
correction of client data errors, including birthdates and erroneously 
posted death dates.
    Response: We believe this comment addresses the actual program 
instructions and policy requirements for eligibility systems, and not 
the information technology solutions that will be needed for the 
systems themselves. Our requirements regarding these matters will be 
established in separate rulemaking.
    Comment: One commenter requested that CMS offer strong guidance to 
the States on privacy and confidentiality issues that need to be 
observed in the new State systems.
    Response: We agree that confidentiality and privacy are critical to 
protecting beneficiaries and providers. The final rule includes as a 
standard that systems ensure alignment with the HIPAA privacy, security 
and transaction standards.
    Comment: One commenter indicates that we should issue guidance more 
definitively discussing the standards developed in response to section 
1561 of the Affordable Care Act. The commenter noted that while section 
1561 the Affordable Care Act is an outstanding source of ideas and 
information, section 1561 the Affordable Care Act standards appear to 
stop short of creating specific, concrete requirements.
    Response: Section 1561 the Affordable Care Act requires HHS, in 
consultation with the Health Information Technology (HIT) Policy 
Committee and the HIT Standards Committee, to develop interoperable and 
secure standards and protocols that facilitate electronic enrollment of 
individuals in Federal and State health and human services programs. 
The HIT Policy and Standards Committees approved initial 
recommendations, and in September 2010, the Secretary adopted these 
recommendations. The recommendations include initial standards and 
protocols that encourage adoption of modern electronic systems and 
processes that allow a consumer to seamlessly obtain and maintain the 
full range of available health coverage and other human services 
benefits.
    The HIT Policy and Standards Committees recommendations are 
available at http://healthit.hhs.gov/portal/server.pt?open=512&mode=2&objID=3161. We wish to note that one of the 
seven standards and conditions specifically requires States to ensure 
alignment with, and incorporation of, industry standards and specifies 
several national standards including standards and protocols adopted by 
the Secretary under section 1561 of the Affordable Care Act.
    Comment: Another commenter suggested that we make all guidance 
documents, including the State Medicaid manual readily available.
    Response: We agree. We are currently working to gather all 
applicable guidance documents on the CMS Web site. Guidance documents 
are already posted to several web sites, including the proposed rule 
(see regulations.gov), the IT guidance version 1.0, (see http://www.hhs.gov/ociio/regulations/joint_cms_ociio_guidance.pdf), 
Overview on the MITA framework, (see http://www.cms.gov/MedicaidInfoTechArch), and Overview of the MMIS (see http://www.cms.gov/MMIS). Please note that Chapter 11 of the State Medicaid 
Manual can be accessed electronically at http://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021927.
    In summary, we are making no revisions to regulation text as a 
result of these comments.
    Comment: Several commenters suggested that CMS provide educational 
materials to ensure consumers get individualized assistance and have 
their questions answered to assure enrollment in Medicaid and the 
Exchanges.
    Response: We believe this comment addresses the actual program 
instructions and policy requirements for eligibility systems, and not 
the information technology solutions that will be needed for the 
systems themselves. Our requirements regarding these matters will be 
established in separate rulemaking.
    Comment: Commenters also requested that CMS issue ``Frequently 
Asked Questions,'' establishing a direct contact line for assistance, 
make available a complete contact list of all of the States and their 
designated person/representatives, and develop a Webpage/module to the 
existing Web site that will use this information and any ongoing data 
exchange information for the State. Commenters further recommended that 
CMS Regional Offices be fully trained and educated on the regulations 
and standards.
    Response: We will consider these recommendations as we begin 
implementation of this final rule. We expect to provide numerous venues 
for sharing of information, including conferences, information posted 
to the CMS.gov Web site, letters, program memoranda, and training 
materials. The final rule and additional IT guidance will provide 
information regarding funding standards and conditions. We expect to 
release additional guidance on performance matrices. We are currently 
exploring several approaches to expedite the APD process and will be 
providing guidance on this process soon after publication of this final 
rule.
    Additionally, we have recently awarded seven cooperative agreements 
to help a group of ``Early Innovator'' States design and implement the 
IT infrastructure needed to operate Exchanges. We expect to share 
information among these Innovator States and, as Exchanges are being 
developed, we expect to share information from these Innovator States 
with other States as well through the use of the CMS.gov Web site, 
conferences, and face-to-face meetings.

C. Public Feedback and Suggestions Related to the Seven Standard and 
Conditions

    Comment: Several commenters requested clarification on the 
standards and conditions, and questioned how progress would be 
measured. Specifically, several commenters were concerned about our 
reference at Sec.  433.112(b)(13) to ``promoting sharing, leverage, and 
reuse of Medicaid technologies and systems within and among States.'' 
Commenters requested that CMS define ``promoting'' and specify how 
States will be required to leverage this information between States. 
Further, the commenters questioned when CMS will provide States with 
information regarding ``promising State systems that can be leveraged 
and used by other States.'' They also questioned how these ``promising 
State systems'' will be identified. The commenters noted that it will 
be important for CMS to provide sufficient time for States to leverage 
promising systems and qualify for enhanced FFP to fund the development 
of those Medicaid eligibility systems. Other commenters expressed 
concern

[[Page 21958]]

that to meet the standards and conditions required for the Medicaid 
eligibility system to qualify for the enhanced funding, significant 
systems changes will be necessary to integrate Medicaid/CHIP 
eligibility and develop a single client identifier for all Medicaid and 
CHIP members to establish seamless coordination for eligibility and 
enrollment. Some commenters requested that CMS provide clarity on the 
criteria CMS will use to assess how States have demonstrated compliance 
with these standards and conditions including what documentation States 
will be expected to provide.
    Several commenters questioned the phrase ``seamless coordination.'' 
That is, Sec.  433.112(b)(16) requires seamless Medicaid coordination 
and integration between Medicaid eligibility systems and the Exchange, 
allowing for interoperability with the Exchanges, and other health 
information systems. The required interoperability would involve the 
exchange of eligibility and enrollment status to the health information 
system, however, the rule did not specify the health information being 
exchanged among the eligibility and enrollment systems. The commenters 
believed it would be important for CMS to provide additional guidance 
on the type of data to be exchanged between eligibility and enrollment 
systems and other health information systems; thus, the commenters 
requested a definition of ``seamless coordination.'' Additionally, the 
commenters requested that CMS provide clarity around whether other 
programs, such as the Supplemental Nutrition Assistance Program and the 
Temporary Assistance for Needy Families Program, are considered part of 
CMS' vision for ``seamless coordination'' and whether enhanced Medicaid 
funds would be used to make related changes to eligibility systems for 
these programs as well.
    One commenter suggested that we add stronger language to the list 
of standards and conditions in Sec.  433.112(b) consistent with the 
preamble language included in the proposed rule regarding the emphasis 
on the customer experience. Specifically, the commenter stated CMS 
references the goal of creating an ecosystem designed to deliver 
person- and citizen-centric services and benefits. The commenter 
requested similar language be added in regulations text.
    Numerous commenters were supportive of our proposed standards and 
conditions. Specifically, several commenters have indicated they 
welcome our efforts to identify ``promising State systems'' that can be 
leveraged and used by other States. Commenters indicated that they 
support our perspective that State eligibility and enrollment systems 
must be conceived of as contributing to a ``system of systems.'' To 
achieve interconnected, functional systems in time to implement the 
Affordable Care Act, States must leverage existing systems to the 
greatest extent possible and successfully connect across silos. 
Commenters further stated that CMS should develop a repository or 
method of sharing information and support the development of reference 
applications. Additionally, commenters stated CMS should establish a 
means for communication between agencies at the Federal level in a 
manner that can be replicated at the State level. The commenters also 
stated that CMS should also provide support to those States that choose 
to ``phase in'' some of the changes, to ensure that they can proceed 
while also receiving enhanced funds. Additionally, the commenters 
requested that CMS should consider the MITA governance model for 
disseminating more detailed specifications for the standards and 
conditions; that is, the MITA governance model which includes the 
Business, Information, and Technical Review Boards, organized to 
support the MITA model for review, approval, and adoption of national 
standards.
    Response: All of these comments are specific to Sec.  433.112 and 
Sec.  433.116 in which we have required that to receive enhanced 
funding for development, design, installation or enhancement of 
mechanized claims processing and information retrieval systems and 
operation of such systems, the standards and conditions specified in 
Sec.  433.112(b)(10) through (16) must be met. The standards and 
conditions are prescriptive in nature; we did, however, recognize that 
for State systems to meet these standards and conditions, it would be 
necessary to provide additional guidance that clearly articulates our 
criteria for meeting these standards and conditions, the performance 
measures that we will use to ensure that State systems are complying 
with these standards and conditions, and the collaboration efforts we 
will take with CCIIO and other human services programs.
    As mentioned previously, we released several guidance materials 
last year including the proposed rule and the IT guidance version 1.0, 
and we are committed to releasing additional guidance in the near 
future which will detail our criteria for ensuring compliance with the 
standards and conditions. States should consider that we will be 
interested in partnering with them to ensure that they are making 
progress and meeting measurable goals. We consider that States may 
progress in several phases and ensure compliance by meeting goals along 
the way. Some examples that States may wish to consider in meeting the 
standards and conditions would be (1) That States should supply 
roadmaps for major improvements in current systems based on ``as/is'' 
MITA assessments and demonstrate how they will increase in MITA 
maturity by at least one maturity level; (2) States should identify how 
they plan to achieve full MITA maturity and in what timeframe; (3) 
States should ensure that their business architecture conforms to 
concept of operation and business process models distributed by CMS for 
specific business functions, or identify divergences to CMS; and (4) 
States should use a business rules engine which is maintained and 
operated separate from transactional programming language, which allow 
for modification and updates on an emergency as well as a regularly 
scheduled (at least quarterly) change control process.
    Additionally, we will be releasing IT guidance version 2.0 soon and 
we will be releasing future versions of IT guidance, as the January 1, 
2014 deadline approaches. We will also be issuing guidance surrounding 
APDs. We continue to work with the Early Innovator grant awardees to 
ensure that State ``early innovator'' systems will meet the goal of 
seamless coordination with the Exchange. Furthermore, we continue to 
provide technical assistance and support to States through several 
vehicles including CMS State calls, State workgroups, and conferences. 
We will convene an annual MMIS conference in which States can share 
their experiences and provide feedback and request assistance regarding 
issues surrounding the implementation of the Affordable Care Act. We 
have committed to providing leadership and technical assistance in not 
only developing national standards and conditions but in ensuring 
systems transformation will provide that the goals of the Affordable 
Care Act goals can be met. That is, with systems transformation, States 
can meet coverage goals, minimize duplication, ensure effective reuse 
of infrastructure and applications, produce seamlessness for consumers, 
and ensure accuracy of program placements.
    In terms of our plans for use of the MITA governance model which 
includes the Business, Information, and Technical Review Boards, 
organized to support the MITA model for review, approval and adoption 
of national

[[Page 21959]]

standards, it should be noted that the standards and conditions were 
developed considering many perspectives; that is, the Office of the 
National Coordinator's standards for enrollment, the HIPAA standards 
for privacy and security, the Office of Civil Right's views on the 
Rehabilitation Act and other accessibility standards, other Federal 
government agencies, States and other stakeholders.
    Comment: Several commenters requested that we promote transparency 
and provide opportunities for beneficiary input since the proposed 
Sec.  433.112(b)(14) would require effective communications with 
providers, beneficiaries, and the public. The commenters believed that 
States should be required to consult with beneficiaries, advocates, 
provider groups, including safety net providers such as Federally 
Qualified Health Centers, and public workers as they plan their new or 
improved eligibility systems; to make public copies of the business 
rules used to determine the decisions on eligibility that will be made 
by their new systems; and to gather data directly from beneficiaries on 
their experiences with eligibility determinations (for example, via 
field-tested procedures such as focus groups or meetings with 
beneficiaries or low-income advocates) on a periodic basis. 
Additionally, commenters believed that States must demonstrate that 
their modernized eligibility systems produce communications with 
beneficiaries (regardless of whether they are distributed through the 
mail, on-line, or through other alternative means) that are appropriate 
for their literacy level and consider the needs of people with 
disabilities. Commenters believed that policies regarding notices help 
ensure user-friendly notices which should include involvement of 
stakeholders, such as beneficiaries. Similarly, the commenters believed 
that CMS should actively solicit and include data on beneficiaries' 
perspectives when it conducts its periodic reviews of State's 
eligibility systems. Lastly, commenters believed that this standard and 
condition will be difficult to measure, and therefore, should include 
definable metrics.
    Response: We believe it is wise for States to consult with their 
stakeholders as they implement the Affordable Care Act, and in 
developing business process models and technology roadmaps. While we do 
not intend to set Federal requirements regarding consultation in this 
rule and specific to this activity, we do note that other eligibility 
policy rulemaking may address this issue. One of our standards and 
conditions specifically states the expectation that business rules 
should be maintained in human readable form; we agree with the 
recommendations of the HIT Policy and Standards Committees considering 
the requirements of section 1561 of the Affordable Care Act that such 
business rules should be submitted and maintained in a common 
repository, and are designing approaches to support that activity. 
These rules will be available to the public to the fullest extent 
possible and practicable, and we urge States to make their business 
rules public on the same basis. As for the request that we define the 
metrics that will be used in periodic reviews of State systems, such 
metrics will be published in a subsequent notice or notices. We will 
consider the suggestion to add beneficiary feedback and user experience 
in these measures.
    Comment: One commenter questioned if the standards and conditions 
for Medicaid eligibility systems apply also to MMISs and claims 
adjudication and whether States have to meet the standards and 
conditions for MMISs to collect the enhanced FFP.
    Response: Yes, under our proposed and final regulations, a State's 
entire MMIS (including its eligibility determination system) will be 
required to comply with all of the standards and conditions outlined in 
Sec.  433.112. Please see our proposed rule (75 FR 68585) where we 
clarify that we were proposing standards and conditions that would 
apply to both ``traditional claims processing systems, as well as 
eligibility systems to be eligible for the enhanced match.''
    We are making no further additions to this section of the final 
rule.
    Comment: Several commenters requested that CMS ensure eligibility 
systems comply with all civil rights laws and provide beneficiaries 
with the opportunity to secure information in a culturally and 
linguistically appropriate manner. Commenters requested that CMS ensure 
that the experiences of people with disabilities are considered when 
CMS conducts its periodic reviews of the system. In addition, 
commenters believed that CMS should more clearly delineate that 
eligibility systems must be in compliance with all civil rights 
protections based on race, color, and national origin and be designed 
in a culturally and linguistically appropriate manner. Some commenters 
expressed concern regarding eligible children in immigrant families and 
individuals with limited English proficiency and the difficulties they 
experience in communicating with public assistance caseworkers and in 
navigating the Medicaid application process in general. Commenters 
suggested that new systems and/or modifications to current systems 
address these needs. Additionally, commenters suggest that the 
eligibility systems qualifying for the enhanced match should be in 
compliance with Title VI of the Civil Rights Act of 1964, section 1557 
of the Affordable Care Act, and all related rules, regulations and 
guidance, including the Department of Justice's policy document, 
``Guidance to Federal Financial Assistance Recipients Regarding Title 
VI Prohibition Against National Origin Discrimination Affecting Limited 
English Proficient Persons.''
    Response: While we believe the majority of these comments address 
determinations of eligibility, but are not specifically addressed to 
the actual systems technical requirements that are the subject of our 
proposed and final rules, we wish to clarify that we are requiring that 
States meet the standards and conditions outlined in Sec.  433.112 and 
that one of the standards and conditions relates to effective 
communication with beneficiaries. States should consider that State 
systems should provide a 21st Century customer experience for all 
individuals and should provide for person-centric outreach, 
eligibility, and enrollment. In terms of determining eligibility, we 
are happy to work with States regarding assistance to individuals with 
limited English proficiency in the context of the Department's 
``Guidance to Federal Financial Assistance Recipients Regarding Title 
VI Prohibition Against National Origin Discrimination Affecting Limited 
English Proficient Persons'' (``Revised HHS LEP Guidance'') accessible 
at: http://www.hhs.gov/ocr/civilrights/resources/specialtopics/lep/policyguidancedocument.html. Additionally, we note that section 201(b) 
of the Children's Health Insurance Program Reauthorization Act of 2009 
(Pub. L. 111-3, enacted on February 4, 2009) (CHIPRA), added section 
1903(a)(2)(E) to the Act to provide increased Federal funding for 
translation and/or interpretation services provided in connection with 
the enrollment of, retention of, and use of services by children of 
families where English is not their primary language. Further, we note 
that our current regulation at 45 CFR 95.633 holds that State agencies 
that acquire automated data processing equipment and services are 
subject to nondiscrimination requirements in 45 CFR parts 90, 84 and 80 
(nondiscrimination on the basis of age; disability; and national 
origin, race or color, respectively). Federal guidance

[[Page 21960]]

issued on September 21, 2000 by the Office of Civil Rights and the U.S. 
Department of Agriculture, Administration for Children and Families and 
the Health Care Financing Administration (as CMS was formerly known) 
``Policy Guidance Regarding Inquiries into Citizenship, Immigration 
Status and Social Security Numbers in State Applications for Medicaid, 
State Children's Health Insurance program (SCHIP), Temporary Assistance 
for Needy Families (TANF), and Food Stamp Benefits'' (``Tri-Agency 
Guidance'') also discusses application practices involving the citizen/
legal immigrant children of immigrant parents, where questions asked of 
nonapplicant parents may deter the eligible children from enjoying 
equal participation in and access to the Medicaid program, thereby 
potentially violating prohibitions on national origin discrimination in 
Title VI of the Civil Rights Act). (See http://www.hhs.gov/ocr/civilrights/resources/specialtopics/tanf/triagencyletter.html). We also 
will continue to consider the Institute of Medicine's, 2009 report, 
``Race, Ethnicity, and Language Data: Standardization for Health Care 
Quality Improvement,'' for collecting race, ethnicity, and language. 
Finally, we expect to address section 1557 of the Affordable Care Act 
in separate rulemaking.
    Comment: One commenter suggested that, in considering the standard 
and condition supporting accurate and timely processing and 
adjudications/eligibility determinations and effective communications 
with providers, beneficiaries, and the public, CMS should require 
States to adopt and implement translated notices and taglines in their 
eligibility systems to ensure effective communication with limited 
English proficient applicants and enrollees.
    Response: We will consider this suggestion as we develop further 
technical guidance and additional rulemaking. We agree that such 
practices are worthy of consideration in development activities.
    Comment: Other commenters expressed concerns regarding current 
barriers that immigrant families face when applying for public 
assistance benefits. Some of the barriers identified include the 
following: Requests for Social Security numbers in the application for 
non-applicants (that is, undocumented parents that wish to apply on 
behalf of their United States citizen children), requirements for 
income verification that nontraditional workers cannot access; and lack 
of translated forms and interpretive services for individuals with 
limited English proficiency. Commenters wanted CMS to consider the 
``Tri-Agency Guidance,'' discussed in the responses above and require 
that eligibility determination systems should ensure that individuals 
can seek all of the benefits for which they or their family members may 
be eligible without providing unnecessary information.
    Response: These comments address program and policy requirements, 
and will be addressed in separate rulemaking.
    Comment: One commenter wanted CMS to require that State systems 
determine eligibility for low-income, lawfully present immigrants who 
are income eligible for Medicaid but whose immigration status makes 
them ineligible for Federal Medicaid. Specifically, since these 
individuals would not be eligible for Federal Medicaid but may be 
eligible for tax credits and Exchange coverage, their applications 
should be delivered to the Exchange without requiring a new application 
be submitted, while also providing the applicant clear notice of the 
status of their application and eligibility.
    Response: These comments address program and policy requirements, 
and will be addressed in separate rulemaking. However, we wish to 
clarify that one standard and condition that must be met to receive 
enhanced match is seamless coordination and integration with the 
Exchange.
    Comment: One commenter requested that CMS require that eligibility 
determination systems demonstrate how they will comply with sections 
1411(e) and (g) of the Affordable Care Act. Section 1411(e) of the 
Affordable Care Act provides that certain procedures governing 
verification of eligibility in the Medicaid program, including its due 
process protections, apply to the Exchange. Section 1411(g) of the 
Affordable Care Act prohibits unnecessary questions during the 
application process and limits the use of information provided to the 
Exchange.
    Response: These comments address program and policy requirements 
and will be addressed in separate rulemaking.
    Comment: One commenter suggested that CMS prohibit States from 
delegating responsibility to private entities for administering on-line 
Medicaid eligibility systems without the State accepting the legal 
responsibility for the system.
    Response: These comments address program and policy requirements, 
and will be addressed in separate rulemaking.
    Comment: A commenter suggested that CMS oversee providing periodic 
notice to Medicaid beneficiaries for their individual use of medical 
services, similar to an explanation of benefits (EOB). The commenter 
believed this would alert Medicaid beneficiaries of fraud, provide 
treatment history, and could help with redeterminations.
    Response: While we appreciate the commenter's proposal, such 
provisions are beyond the scope of the regulation of the final rule. As 
such, we are making no changes in response to the comment.
    Comment: The commenters believed that the requirements for timely 
and accurate processing of claims and adjudications should take into 
account what is known about the major factors that contribute to system 
performance, such as system architecture, capacity, and usability by 
workers. Commenters recommended that decision logic and coding used by 
eligibility systems be publicly available, and States should be 
required to have a process for identifying errors and promptly 
correcting them. Further, the commenters believed that systems should 
be capable of producing audit trails of decisions.
    Response: We agree with the commenter. We expect to address these 
issues when we issue performance metrics in a separate notice.
    Comment: Several commenters agreed with our requirements that the 
eligibility determination system produce performance data and reports 
that contribute to program, evaluation, continuous improvement, and 
transparency and accountability. The commenters suggested that we 
further specify the minimum data and performance reports that the 
system must generate and provide the specifications for these reports 
and that we should aim for basic program and performance data that is 
comparable across States and that addresses fundamental program 
objectives and compliance with key requirements. Commenters believed 
this information should be posted to Web sites on a regular and timely 
basis.
    Response: We agree with the commenters' suggestions, and further 
clarify the applicability of this standard to all MMISs and not just 
eligibility systems. While the regulation establishes standards and 
conditions for transaction data, reports and performance information, 
additional specifications will be addressed in future subregulatory IT 
guidance continuously as the January 1, 2014 deadline approaches.
    Comment: Some commenters stated that the proposed regulatory 
changes

[[Page 21961]]

did not address the needs of Medicare beneficiaries for seamless 
enrollment to Medicaid, Medicare Savings Programs (MSPs), and Part D 
low income subsidy (LIS) support older people and people with 
disabilities.
    Response: Because the regulatory changes addressed availability of 
enhanced Federal funding for Medicaid eligibility and enrollment 
functions and necessary standards, specific provisions impacting 
enrollment of Medicare recipients was outside the scope of these 
changes. We would like to note that the newly established Federal 
Coordinated Health Care Office within CMS, under section 2602 of the 
Affordable Care Act, will be addressing administrative and regulatory 
barriers between the Medicare and Medicaid programs in order to better 
serve this population and it is our belief that improvements in 
Medicaid eligibility systems will benefit many populations including 
individuals that are dually eligible for Medicaid and Medicare.
    Comment: Several commenters noted that the systems should be built 
in a manner that allows for the effective expansion to other 
populations.
    Response: We agree that systems should be built to allow for 
expansion and leverage, and indeed note that many of the standards and 
conditions (such as separation of business rules, service-oriented 
architecture, MITA, etc.) will effectively enable such downstream 
activities and extensions.
    Comment: Several commenters believed that CMS standards and 
conditions should not be the only factor in considering enhanced FFP. 
For example, commenters believed that Federal leadership, technical 
assistance, and sub-regulatory guidance should focus on outcomes, as 
well as the standards and conditions.
    Response: We concur that Federal (and State) leadership, technical 
assistance and subregulatory guidance needs to increasingly focus on 
outcomes. One of the standards and conditions is that systems 
effectively support and contribute to intended business results. We 
expect to publish proposed performance measures to help assess 
compliance with this condition and standard.
    Comment: Commenters stated that the standard and condition 
regarding use of a modular, flexible approach to systems development 
and the separation of business rules from core programming available in 
human and machine readable formats do not address the maintainability, 
quality or governance process for changes to the rule sets which they 
believe have a much greater effect on quality and timeliness than the 
particular syntax structure of the rules source code.
    Response: While we do not believe this particular standard and 
condition will solve all of these challenges, we believe it will 
significantly reduce maintenance costs and provide added systems 
flexibility in an environment that is continually evolving. Use of a 
modular, flexible approach to systems development and the separation of 
business rules from core programming will allow States to make changes 
more quickly and efficiently than the situation in place today for most 
States. We did not attempt to tackle the governance process as we 
believe that, while very important, the relationship between systems 
performance and governance can be accommodated using different 
approaches depending upon the specific conditions within the States.
    Comment: Several commenters recommended that the separation of 
business rules from core programming should recommend the use of 
commercially available business rules engines as opposed to custom or 
one-of-a-kind implementation of rules processing techniques.
    Response: One of our standards and conditions focuses on reuse and 
leveragability. This encourages and even demands consideration of 
existing solutions, including proprietary and open source solutions, 
solutions in place at other States, or solutions already in place 
within a State, before embarking on ground up custom development. We 
believe this standard and condition adequately ensures that States give 
due attention and consideration to these options without dictating 
specific solutions.
    Comment: Several commenters requested that CMS provide additional 
guidance on the business rules and specifically requested that since 
every State will have to meet the business rules requirement, it might 
be more efficient for CMS to develop a repository of business rules 
along the lines of the recommendations transmitted to HHS 
(recommendation 3.2) by the HIT Policy and Standards Committees. States 
could then adopt and adapt the rules to their own systems.
    Response: We agree with the commenters that we should provide 
additional guidance on the business rules. As mentioned, we will 
continue to provide leadership, technical assistance, and guidance with 
an eye toward the January 1, 2014 date for required operation of the 
Exchanges and Medicaid expansion. We have also provided that States 
should consider other documents that articulate the Department's 
strategy such as the IT guidance 1.0, Guidance for Exchange and 
Medicaid Information Technology Systems, and continue to consider such 
guidance in meeting the requirements of this final rule. As the 
commenters stated, the HIT Policy and Standards Committees' 
recommendations should be considered when developing systems that 
comply with the standard and condition regarding ensuring alignment 
with, and incorporation of, industry standards: HIPAA security, 
privacy, and transaction standards; accessibility standards under 
section 508 of the Rehabilitation Act and compliance with Federal civil 
rights laws; and standards adopted by Secretary under sections 1104 and 
1561 of the Affordable Care Act. Our final rules will require that 
systems include usability features or functions that accommodate the 
needs of persons with disabilities, including those who use assistive 
technology. As noted in the IT guidance issued November 30, 2010, State 
enrollment and eligibility systems already are subject to the program 
accessibility provisions of section 504 of the Rehabilitation Act, 
which include an obligation to provide individuals with disabilities an 
equal and effective opportunity to benefit from or participate in a 
program, including those offered through electronic and information 
technology. The Department noted in that guidance that a State's Web 
sites, interactive kiosks, and other information systems addressed by 
section 508 Standards would be viewed as being in compliance with 
section 504 if such technologies meet the 508 standards. The Department 
also encouraged States to follow either the 508 guidelines or 
guidelines that provider greater accessibility to individuals with 
disabilities, and noted that States could consult the latest Section 
508 guidelines issued by the US Access Board or W3C's Web Content 
Accessibility Guidelines (WCAG) 2.0 (see http://www.access-board.gov/sec508/guide/index.htm). Therefore, we believe that as a result of 
complying with section 504, many States will already be in or moving 
toward compliance with the accessibility standards we have included in 
this final rule.
    Lastly, we will be developing a repository of business rules; 
however, we wish to clarify that it may take some time to populate. 
Considering the deadlines imposed by the Affordable Care Act, we 
realize a repository of business rules may be helpful to some States 
and not others depending upon a given State's IT configuration at the 
time

[[Page 21962]]

it is in need of such rules. We are also considering the possibility of 
the development of model rules, in a collaborative project with States.
    Comment: One commenter requested further clarification for the 
standards and conditions listed in Sec.  433.112(b)(2) that require 
that the system meet the requirements of Part 11 of the State Medicaid 
Manual, and Sec.  433.112(b)(12) that require that ensuring alignment 
with, and incorporation of, industry standards: HIPAA security, 
privacy, and transaction standards; accessibility standards under 
section 508 of the Rehabilitation Act and compliance with Federal civil 
rights laws; and standards adopted by Secretary under sections 1104 and 
1561 of the Affordable Care Act. The commenter questioned how CMS will 
measure compliance with these requirements and if States are found to 
be out of compliance with this requirement in one area such as a small 
part of the conversion to ICD-10 coding or revision of the 5010 
transaction standards, will States risk losing all enhanced FFP.
    Response: States are required to meet all conditions for their 
mechanized claims processing and information retrieval system described 
in Title XIX of the Act in order to receive FFP. We have the authority 
to withhold enhanced FFP (or potentially all FFP) for issues of 
noncompliance with the conditions listed in Title XIX of the Act. It is 
not our intention to withhold FFP for a frivolous or insubstantial 
reason. We will give States the opportunity to correct any failures 
that might endanger FFP. However, a States' continued or persistent 
failure to adopt industry standards in a timely and compliant way 
would, in fact, place enhanced FFP at risk. We note that we have 
outlined a transition period for State MMIS systems to come into 
compliance that allows for up to 38 months of transition while, at the 
same time, still ensuring that State systems move expeditiously towards 
improvement and advanced technology (see our discussion below in 
section III.E. regarding the transition period).

D. Public Feedback and Suggestions Related to the APD Process

    Comment: Several commenters suggested that the APD process and the 
Federal organizations responsible for its administration will likely be 
taxed in an unprecedented way by the volume of work spurred by the 
implementation of the Health Information Technology for Economic and 
Clinical Health Act and the Affordable Care Act. The commenters noted 
that even when applied to projects supporting a single program with a 
fairly limited set of requirements, the many moving parts in the APD 
process can work more slowly than anticipated and lead to unforeseen 
outcomes. Consequently, the commenters suggested that the APD process 
be reformed. Commenters suggested that CMS make the APD process more 
transparent and that making the large history of APD documents and 
outcomes available to other States would promote increased 
collaboration. Other commenters agreed and indicate that with many 
States submitting APDs for both eligibility and MMIS systems within the 
same window of time, the APD approval process will put increased 
pressure on both State and Federal agencies to meet deadlines. The 
commenters urged CMS to provide an APD template and to examine ways to 
expedite the APD process to make sure it can support the critical 
timeframe and urged CMS to consult with States and the vendor community 
to identify options to ensure timely approval of APDs. Additionally, 
commenters recommended that CMS consider the waiver option in 45 CFR 
95.627 as a method to streamline the enhanced funding approval process 
during this time limited availability of enhanced funds. This could 
allow States to submit alternative approaches to hasten implementation 
of needed systems changes.
    Response: On October 28, 2010, HHS released a final rule (75 FR 
66319) that introduced a new concept of ``high risk'' APDs that 
specified software development as a ``high risk'' trigger. 
Additionally, the period for Federal review currently identified in 45 
CFR 95.611(d) allows up to 60 days for APD approval, disapproval, or 
requests for information.
    We realize it will be important to conduct APD reviews quickly so 
as not to delay the projects the States are pursuing. As we are issuing 
this rule, we are also preparing additional guidance for APDs, and for 
the governance and collaboration process we will use to work with 
States to minimize project risk, optimize outcomes, and to ensure 
successful compliance with the seven standards and conditions added by 
this final rule. In response to the commenters' suggestions to make 
APDs more transparent and public, we agree. We are evaluating how, and 
in what form, to make APDs available as they are submitted.

E. Issues Related to the Transition Period for Compliance

    Comment: One commenter proposed that the regulation not be 
retroactive to initiatives with an APD already.
    Response: While not directly suggested here, we believe it is 
important to clarify that enhanced funding is currently not available 
for eligibility initiatives that have already been approved by CMS. 
However, we have provided that States currently receiving enhanced FFP 
for MMIS have a period of transition to come into compliance with the 
standards and conditions outlined in this rule. Specifically, for new 
MMIS development (new APDs requesting 90 percent FFP for design, 
development, installation, and enhancement), we provide for no 
transition period. For MMIS development already underway (approved APDs 
providing 90 percent enhanced FFP), we proposed a 12-month transition 
period (beginning with the effective date of this final rule) in which 
to submit an updated Implementation APD (IAPD) detailing how systems 
would be modified to meet the required conditions and standards. For 
maintenance and operations of MMIS currently receiving 75 percent FFP, 
we proposed a 36-month transition period in which to submit an IAPD 
with plans to upgrade or modify systems to meet the required conditions 
and standards. Since we are providing that this final rule is effective 
upon publication, we are revising the transition periods by 2 months 
(to 14 and 38 months, respectively).
    For new MMIS development (new APDs requesting 90 percent FFP for 
design, development, installation, and enhancement), we will continue 
to provide for no transition period. For MMIS development already 
underway (approved APDs providing 90 percent enhanced FFP), we provide 
for a 14-month transition period (beginning with the effective date of 
this final rule) in which to submit an updated Implementation APD 
(IAPD) detailing how systems would be modified to meet the required 
conditions and standards. For maintenance and operations of MMIS 
currently receiving 75 percent FFP, we provide for a 38-month 
transition period (beginning with the effective date of this final 
rule) in which to submit an IAPD with plans to upgrade or modify 
systems to meet the required conditions and standards.
    Additionally, we have discussed a period of transition to come into 
compliance with the standards and conditions outlined in this rule for 
eligibility systems as well. Specifically,

[[Page 21963]]

for eligibility systems (currently receiving 50 percent for development 
and maintenance and operations), we are providing for no transition 
period for new requests for enhanced funding for eligibility systems. 
States with eligibility systems currently under development (approved 
APDs providing 50 percent FFP) can update their APDs to reflect how 
they would comply with these standards and conditions in order to begin 
receiving 90 percent FFP. Similarly, eligibility systems currently 
receiving 50 percent FFP for State expenditures would need to comply 
with our final standards and conditions to receive a 75-percent FFP.
    We are making no change to the transition period for eligibility 
determination systems.
    Comment: One commenter questioned whether CMS will impose 
additional deadlines on States following the submission of an IAPD 
requesting funding and specifying the plans for updating MMISs within 
the 36 month (now 38 month) transition period.
    Response: In the context of this regulation, any more standards and 
conditions (in addition to the 7 finalized in this rule) would be 
subject to notice and public comment. Consequently, States would have 
an opportunity to provide CMS with feedback.
    Comment: One commenter stated strong objections to the transition 
period for existing development projects and established MMIS 
applications for the submission of an IAPD to achieve CMS' proposed new 
MMIS standards. The commenter believed that this time limitation is 
extremely burdensome to States at a time when resources are already 
strapped. The commenter believed the development of an IAPD will 
require a planning period and this will be occurring at the same time 
that States are overhauling their eligibility and determination 
systems. Further, the commenter believed that States are already 
struggling to meet the HIPAA 5010 and the ICD-10 mandates. The State 
staff, contractors, and vendors conducting the work on these mandates 
are the same ones who would be involved in the planning necessary to 
submit an IAPD and they would be the same ones implementing the changes 
to the MMIS. The commenter believed the rule requires adherence to 
standards that don't exist and from the State's perspective the MMIS 
requirements represent an unfunded mandate. The commenter expressed 
concern that the requirement to ``hurry up and meet'' the new standards 
and conditions will turn current MMISs into ``lame duck'' systems. The 
commenter noted that with all States required to undertake major 
eligibility systems projects, implement 5010 and ICD-10, and already 
facing impossible budget constraints, now is not the time to mandate 
onerous new requirements that in many cases require replacement of 
perfectly workable MMIS systems.
    Response: In the January 16, 2009 Federal Register, HHS published 
two final rules: The ASC X12 Version 5010, NCPDP Version D.0, NCPDP 
Version 3.0 (74 FR 3296) and the ICD-10 code sets (74 FR 3328) were 
published by HHS on January 16, 2009 in 2 separate final rules. These 
rules are available at www.regulations.gov. In NCPDP Version D.0, NCPDP 
Version 3.0, HHS adopted ASC X12 Version 5010 and NCPDP Version D.0 for 
the HIPAA transactions that currently require the use of the ASC X12 
Version 4010/4010A and NCPDP Version 5.1 standards. In that rule, HHS 
also adopts a new standard for Medicaid subrogation for pharmacy claims 
transactions, known as NCPDP Version 3.0. For Version 5010 and Version 
D.0, the compliance date for all covered entities is January 1, 2012. 
This gives the industry enough time to test the standards internally, 
to ensure that systems have been appropriately updated, and then to 
test between trading partners before the compliance date. The 
compliance date for the Medicaid subrogation standard is also January 
1, 2012, except for small health plans, which have until January 1, 
2013 to come into compliance.
    In ICD-10 code sets final rule, HHS modified the standard medical 
data code sets for coding diagnoses and inpatient hospital procedures 
by concurrently adopting the International Classification of Diseases, 
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding 
and the International Classification of Diseases, 10th Revision, 
Procedural Coding System (ICD-10-PCS) for inpatient hospital procedure 
coding. These new code sets replace the current International 
Classification, 9th Revision, Clinical Modification, Volumes 1 and 2 
and the International Classification, 9th Revision, Clinical 
Modification, Volume 3 for diagnosis and procedure codes respectively. 
The implementation date for ICD-10-CM and ICD-10-PCS is October 1, 2013 
for all covered entities. Thus, we believe there has been ample time 
and ample guidance to States so that they can move towards compliance 
with these requirements.
    We disagree that the new standards and conditions and the timeframe 
for meeting them represent an ``unfunded mandate.'' We are not imposing 
any mandate on the State, but rather are creating standards which 
States will need to meet if they wish to receive an enhanced 90 or 75 
percent FFP rate under the Act. States that do not wish to come up to 
these standards would continue to be eligible for a 50 percent FFP.
    Additionally, in considering the deadlines outlined in the 
Affordable Care Act for operation of the Exchanges and the requirement 
that Exchanges also determine Medicaid eligibility, we believe, and 
States have agreed, that the procurement process for projects of the 
size and scope required to meet the challenges of the Affordable Care 
Act can take several months to complete. Thus, we considered these 
challenges and determined it necessary to provide flexibility by 
instituting a transition period and by providing additional financial 
support, additional IT guidance, Federal technical assistance, and 
leadership so that States can design systems that can meet the 
requirements of the Affordable Care Act.
    Comment: One commenter questioned whether MMIS upgrades and 
modifications (as envisioned by a States IAPD) may be phased in over a 
period of years, so that by a certain end-date, the MMIS is fully 
compliant, or whether our final rule would require that the IAPD 
provide that the MMIS actually meet all standards and conditions by the 
end of the transition period.
    Response: We believe the commenter is referring to the 36-month 
(now 38-month) transition period that applies to current MMISs 
receiving 75 percent FFP for maintenance and operations. For this 
purpose, States will have up to 38 months to submit an IAPD. This 
transition period ensures that new systems receiving Federal funding 
are eventually designed in a manner that results in the most efficient 
use of technology. In reviewing APDs, we will be considering individual 
State factors such as budget, schedule and risk, and we will be 
evaluating the State's proposed timeline and pathway in an effort to 
ensure full compliance with the standards and conditions at the 
earliest opportunity.

F. Comments Regarding CMS' Strategy for Monitoring and Oversight, 
Including Performance Reviews

    Comment: One commenter asked CMS to elaborate on how frequently the 
agency will perform periodic reviews--such as would reviews occur every 
6 months, every year, or less frequently.
    Response: We are not, at this time, creating specific deadlines for 
the periodic reviews. As mentioned earlier, large systems 
transformations will be needed in order to accomplish the

[[Page 21964]]

requirements outlined in the Affordable Care Act. As such, we plan to 
work with States, and as systems are designed and developed, we will be 
conducting reviews on a continuous basis keeping in mind the January 1, 
2014 and December 31, 2015 deadlines. We are making no further 
revisions to the rule as a result of this comment.
    Comment: A few commenters supported ``the back-end review'' of MMIS 
solutions, including certification and on-going performance monitoring. 
Many commenters requested to see more explicit details regarding 
oversight, frequency of reporting, record layout, and the specific 
performance metrics CMS will use to ensure ongoing successful 
performance. Other commenters suggested a ``modernized'' approach to 
the performance of these activities. Rather than basing the processes 
on the 30-year old traditional review of output, the commenters 
suggested focusing on whether ``the implementation achieves the 
business goals that the funding was supposed to accomplish.'' The 
commenters believed that aligning these reviews to the goals set forth 
in the approved planning documents will result in solutions that more 
closely align with program objectives and will result in substantial 
reductions in burdens for both State and CMS staff.
    Additionally, the commenters requested clarification on whether CMS 
is considering adopting a modular certification process in order to 
complement and align with the modular system development process.
    Response: We appreciate the support for conducting periodic reviews 
of MMISs. Our performance measures will tie directly to the standards 
and conditions that are being issued in this final rule, and will be 
communicated to States through subsequent documents. We intend to 
publish performance metrics in a Federal Register notice, and then 
allow a period for public comments. The performance results of States 
and systems will be the primary driver of the periodicity and intensity 
of any CMS reviews. We also intend to focus reviews on whole systems, 
modules or components, based on those results.
    Comment: Many commenters asked that CMS outline the expected 
timeframe for setting up the performance measures. Commenters believed 
that the timeframe could potentially impact the timeline for planning, 
design, and implementation of system enhancements for compliance. The 
commenters proposed an alignment of standards for ongoing review with 
standards used to evaluate States' eligibility for enhanced funding, to 
ensure that proposed systems modifications lead to achieving standards 
established for ongoing monitoring.
    Response: As stated above, we intend to publish performance metrics 
in subsequent notices, with a request for comments. We will consult 
with States and others prior to publishing metrics. To guide States in 
their development activities, we will issue a series of documents in 
concert with or shortly after publication of this rule, including IT 
Guidance 2.0, sub-regulatory guidance on complying with the seven 
standards and conditions, and instructions and protocols for APD 
submission and review. MITA 3.0 guidance will follow later this year. 
We emphasize to States that we expect to see a highly iterative and 
fluid approach to business process development, blueprinting, 
specifications, and development as we approach implementation of the 
coverage expansions and eligibility simplifications within the 
Affordable Care Act. We will give strong recognition of the iterative 
and collaborative approach and we intend to support Affordable Care Act 
implementation as we enforce the standards and conditions in this rule.

G. Issues Related to Partial Systems Improvements or Modernizations

    Comment: One commenter recommended that the requirement for 
tracking ongoing progress should be eliminated for enhancement(s) made 
to address a specific requirement. These may be reviewed for 
compliance, once after implementation of enhancement, and subsequently 
any time changes are made that would impact the initial enhancement.
    Response: We disagree with the commenter. To receive enhanced 
funding, State systems must meet with the standards and conditions 
outlined in this rule. We expect that a key outcome of our technology 
investments is a much higher degree of interaction and interoperability 
in order to maximize value and minimize burden and costs on providers, 
beneficiaries, and States. Additionally, we wish to ensure that 
enhanced FFP is approved only when infrastructure and application 
projects maximize the extent to which they utilize current technology 
development and deployment practices and produce reliable business 
outputs and outcomes. Further, MITA principles also require ongoing 
improvement--such that the system continues to meet certain milestones. 
Thus, States making enhancements to address a specific requirement 
would, in accordance with MITA principles, have to continue to look to 
industry standards to ensure that the enhancement is evolving along 
with such standards. Tracking ongoing progress is critical to success.

H. Specific Issues by Regulatory Provision

    Comment: One commenter noted that CMS has removed the authority in 
Sec.  433.110(a)(2)(iii) and Sec.  433.130 to provide for waivers of 
conditions of approval, conditions of re-approval, and FFP reductions 
in certain circumstances. The commenter expressed concern that removal 
of the current waiver flexibility to take into account State-specific 
circumstances will increase the potential for loss of enhanced Federal 
match with catastrophic budget impact to States.
    Response: We agree with the commenter that language in sections 
433.110(a)(2)(iii) and 433.130 is removed. These sections implemented 
section 1903(r) of the Act which requires reductions in FFP due to a 
State under section 1903(a) of the Act if a State fails to meet certain 
deadlines for operating a mechanized claims processing and information 
retrieval systems or if the system fails to meet certain conditions of 
approval or re-approval. We determined it is necessary to delete the 
waiver authority in Sec.  433.110(a)(2)(iii) and Sec.  433.130 since it 
is redundant and we noted in the preamble of the proposed rule to make 
conforming changes to 42 CFR part 433, subpart C in an effort to remove 
redundancy. We have, however, retained the authority in Sec.  433.131 
which provides for waivers of an FFP reduction in certain circumstances 
if the State is unable to comply with the conditions of approval or of 
reapproval.
    Comment: One commenter requests that we clarify whether the intent 
of striking Sec.  433.111(b)(3) includes deleting approved enhancements 
to mechanized systems, including claims processing and information 
retrieval systems, rather than merely removing the exclusion for 
eligibility determination systems.
    Response: To clarify the striking of Sec.  433.111(b)(3), we 
intended to specifically remove the language indicating that 
eligibility determination systems are not part of mechanized claims 
processing and information retrieval systems. However, in doing so, we 
realized that some may question our removal of the language in Sec.  
433.111(b)(3) relating to enhancements; and since we agree with the 
commenter that enhancements are

[[Page 21965]]

necessary to ensure that technology continues to improve, we are 
revising the regulation text in this final rule to include this 
language relating to enhancements.
    Comment: One commenter remarked that in Sec.  433.112, we have 
linked paragraph (a) with paragraph (c) thus creating, in the 
commenter's view, the elimination of the current opportunity for 
enhanced FFP at 90 percent for MMIS development and enhancements. The 
commenter believed that we have failed to recognize the true status of 
States' claims processing systems and future evolution.
    Response: We disagree with the commenter. While States will 
continue to have an opportunity to receive enhanced FFP at 90 percent 
for most MMIS development and enhancements, assuming such systems meet 
the regulatory standards and conditions, Sec.  433.112(c) simply 
indicates the more limited rule for eligibility determination systems 
that funding at enhanced rates will not be available for the design, 
development, installation or enhancement of such State eligibility 
determination systems after December 31, 2015. However, this deadline 
applies only to the eligibility component of MMIS, not the entire MMIS.
    Comment: One commenter is concerned that we have not clearly 
defined the regulatory requirements specified in Sec.  433.112(b)(10), 
(11), and (13) through (16) and that these regulatory requirements lack 
explicit and nationally-recognized standards for measuring achievement.
    Response: In proposing the 7 standards and conditions that States 
must meet in order to receive enhanced funding, we included information 
as to the importance of each of the standards and conditions. In 
addition, in some cases, we provided examples of how we will ensure 
that State systems meet the standards and conditions. For example, for 
the standard and condition that speaks to promoting sharing, leverage, 
and reuse of Medicaid technologies and systems within and among States, 
we specified that we would examine APDs to ensure that States make 
appropriate use and reuse of components and technologies available off 
the shelf or with minimal customization to maximize return on 
investment and minimize project risk. Further, we indicated in the 
proposed rule that we intend to issue further interpretations regarding 
each standard. In our preamble, we also provided an example of 
measurement; that is; we indicated that we would measure how a system 
meets requirements for providing notices to beneficiaries, claims, and 
applications and renewals, proper determinations, and experience with 
appeals, interoperability with Exchanges, as well as traditional 
systems standards such as availability and down time. Thus, while we 
have provided detailed information regarding the standards and 
conditions, we also recognize that future interpretations will be 
forthcoming. We intend to ensure that any such interpretations, as well 
as performance metrics, are developed with input from the State 
agencies. As stated above, for performance measures, we will publish 
such measures in a Federal Register notice and provide for a period of 
comment.
    Comment: One commenter requested that we reinstate the stepped down 
reduction in FFP that was outlined in Sec.  433.113 prior to our 
proposed rule and eliminate the 25 percent reduction proposed in Sec.  
433.119 should there be a decertification action.
    Response: We do not believe we have the authority to provide for 
the stepped down reductions in FFP as previously outlined in Sec.  
433.113. The specific authority to provide such stepped down reductions 
that previously existed in section 1903(r) of the Act was repealed by 
section 4753 of BBA. However, as explained elsewhere in preamble, we do 
have the authority to, on the basis of our review, determine that a 
system is no longer leading to more effective, efficient, or economical 
operation of the State plan, under section 1903(a)(3) of the Act, and 
therefore, to remove the enhanced FFP.
    Comment: One commenter asks CMS to reconsider the proposed limit on 
the opportunity for enhanced funding at 75 percent for eligibility 
determination systems operation to only those systems approved prior to 
December 31, 2015. The commenter believed that the new standards and 
conditions listed in Sec.  433.112 coupled with the typical timeframes 
for design, development, and implementation make it unlikely that the 
majority of States will achieve approval by the specified date.
    Response: We disagree with the commenter. As stated elsewhere in 
this preamble, the Affordable Care Act requires that eligibility 
changes be in place by January 1, 2014, and we have already provided an 
additional 2 years beyond that date for States to meet the standards 
and conditions for enhanced funding for design, development, or 
installation.
    Comment: One commenter requested that CMS reinstate the criteria 
previously listed in Sec.  433.120(b) indicating that any reductions in 
FFP would be tied to a reasoned determination that a system is failing 
to meet certification requirements in a significant manner.
    Response: First, we are clarifying that any deficiencies found as 
the result of future reviews would be subject to a period of corrective 
action before making a determination that enhanced FFP would be 
discontinued. Additionally, while we will be issuing future guidance 
regarding the specific performance review measurements, we do agree 
that it is likely that enhanced FFP would only be discontinued in 
situations where the system is failing to meet the standards and 
conditions in a significant manner.

I. Issues Related to the Regulatory Impact Analysis, Including the Cost 
Estimates, and Information Collection

    Comment: One commenter stated that CMS underestimated States' 
eligibility system replacement costs. The commenter pointed out that 
the impact analysis assumes that new systems, on average, would cost 
$50 million over 3 years for each State and that assumption includes 
design, development, and implementation. The commenter indicated that 
one State's plan to modernize/replace their Medicaid Eligibility System 
cost a total of $200 million over the course of 4 years.
    Response: In the Regulatory Impact Analysis of the proposed rule, 
we outlined the uncertainty surrounding the assumptions and associated 
cost estimates relating to the expenditures for the necessary 
technology, innovation, and implementation requirements. This 
uncertainty not only included recognizing the difficulty surrounding 
the extent of the necessary technology advancements, but how these 
changes would affect State systems. We concluded that time, money, 
resources, and considerable effort would be necessary for States to 
make changes to their current technology. Our estimates also accounted 
for the additional uncertainty surrounding the rate of adoption for 
States to make necessary changes in the proposed rule. As a result of 
the uncertainty in our assumptions surrounding State behavior, 
including adoption rates and the associated costs for implementing new 
systems within the timeframe assessed, we presented our concluding 
aggregate cost estimates within a 25 percent lower and upper range. 
This allowed us to reflect a larger cost estimate range, so that both 
States throughout the lower to higher bands of expenditures may be 
reflected.
    In further substantiating the initial estimates, our experience 
regarding State costs for eligibility systems is

[[Page 21966]]

based on considerably larger integrated systems involving SNAP and ACF 
programs, of which Medicaid typically has a 30 to 45 percent share 
based on how States choose to allocate costs. Thus, we recognize that 
total system costs may be higher than the $50 million (total computable 
Medicaid costs) originally estimated, but the specific Medicaid share 
of those costs reflects a portion of the total; that is, on average $50 
million (total computable). The focus of our estimates for this rule is 
strictly Medicaid costs and not total system costs. Furthermore, we 
recognize larger States may have higher costs, while smaller States may 
experience lower costs. The $50 million estimate is our best effort to 
estimate the midpoint for the Medicaid-only costs, with the estimated 
majority of States experiencing costs somewhere within the 25 percent 
lower to upper cost range provided in the regulatory impact analysis. 
As a result, we are not making revisions to the Regulatory Impact 
Analysis or associated cost estimates as a result of this comment.
    Comment: One commenter noted that we indicate there are no 
additional information collection requirements; however, the commenter 
questioned the evolving certification requirements and asked if this 
means that additional information collection will be necessary.
    Response: We considered that additional data may be necessary in 
terms of the performance measurements and compliance with our standards 
and conditions. However, we believe this process will be part and 
parcel to the APD process; that is, we believe that States will submit 
information to us as part of the APDs. We indicated in our proposed 
rule that States already submit to us for review and approval APDs for 
funding for automated data processing in accordance with Federal 
regulations at 45 CFR Part 95, Subpart F. However, we agree with the 
commenter that any new APDs for Medicaid systems that perform 
eligibility and enrollment functions will need to address the 
requirements of this final rule. Consequently, we developed an 
expedited APD checklist specific to the purposes of this rule and 
submitted to OMB for review and approval the burden associated with the 
information collection.

IV. Provisions of the Final Regulations

    After consideration of the comments reviewed and further analysis 
of specific issues, with a few modifications, we are adopting the 
provisions of the November 8, 2010 proposed rule as final.
    Specifically, we are finalizing the following provisions:

A. Medicaid Eligibility Determinations

    In Sec.  433.112, we have revised the definitions such that 
Medicaid eligibility determinations will be considered ``claims'' of 
eligibility and Medicaid eligibility determination systems are 
potentially eligible for the enhanced 90 and 75 percent FFP under 
section 1903(a)(3) of the Act. This final policy will apply only upon 
the effective date of this final rule. Additionally, enhanced FFP does 
not eliminate the responsibility of States to ensure compliance with 
cost allocation principles outlined in OMB Circular A-87.
    Further, enhanced FFP at the 90 percent rate for design, 
development, installation, or enhancement of eligibility determination 
systems will be available for State expenditures only through calendar 
year (CY) 2015, even if work on approved APDs continues after 2015. 
Enhanced FFP at the 75 percent rate to maintain and operate systems 
that previously qualified for 90 percent FFP will be available after 
2015 if those systems continue to meet the requirements specified in 
this final rule.
    Additionally, enhanced funding at 75 percent to maintain and 
operate systems meeting the standards and conditions is available prior 
to December 31, 2015, (but after the effective date of any final rule), 
in recognition of the fact that some States may have already invested 
in improvements that will allow systems to qualify without the need for 
additional enhanced development, design, installation or enhancement 
funding. For any State receiving enhanced FFP at 90 percent or 75 
percent prior to December 31, 2015, systems must continue to meet the 
requirements, standards and conditions specified in this rule in order 
to continue receiving 75 percent enhanced funding after December 31, 
2015.
    We are limiting the timeframe for which enhanced 90 percent FFP is 
available for design, development, installation or enhancement of 
automated eligibility systems because we view the changes made by the 
Affordable Care Act for the new eligibility rules in Medicaid as 
requiring an immediate, substantial commitment to, and investment in, 
technologies. In order words, we expect that changes to State systems 
will be completed with the start of the new Affordable Care Act 
provisions and support the operation of Exchanges on January 1, 2014. 
However, we realize that States may need to make additional changes to 
State systems to provide for additional functionality in support of 
Medicaid eligibility rule modifications. Thus, we are providing for an 
additional 2 years of 90 percent enhanced FFP so that States' systems 
would have additional time to ensure the peak performance of their 
systems.
    States would need to incur costs for goods and services furnished 
no later than December 31, 2015 to receive 90 percent FFP for the 
design, development, installation or enhancement of an eligibility 
determination system. This would mean that if an amount has been 
obligated by December 31, 2015, but the good or service has not yet 
been furnished by that date, then such expenditure would not be 
eligible for enhanced FFP. Further, we are limiting the availability of 
75 percent enhanced funding for maintenance and operations to those 
eligibility determination systems that have complied with the standards 
and conditions in this rule by December 31, 2015.

B. Standards and Conditions for Receiving Enhanced Funding

    Under sections 1903(a)(3)(A)(i) and 1903(a)(3)(B) of the Act, we 
are delineating standards and conditions that must be met by States in 
order for their Medicaid technology investments (including traditional 
claims processing systems, as well as eligibility systems) to be 
eligible for the enhanced match. These authorities provide that the 
enhanced FFP of 90 percent is not available unless the Secretary 
determines that a system is ``likely to provide more efficient, 
economical, and effective administration of the plan'' as described in 
section 1903(a)(3)(A)(i) of the Act. Similarly, section 1903(a)(3)(B) 
of the Act specifies that enhanced FFP of 75 percent is not available 
for maintenance or operations unless the system is ``of the type 
described in subparagraph (A)(i)'' and is approved by the Secretary.
    We define MITA at Sec.  433.111(c) and we build on the work of MITA 
by codifying that enhanced FFP (either at the 90 percent rate for 
design, development, installation or enhancement; or at the 75 percent 
rate for maintenance and operations) is only available when certain 
standards and conditions are met. Specifically, we articulate a set of 
standards and conditions that States must commit to in order to receive 
enhanced FFP:
    <bullet> Use of a modular, flexible approach to systems 
development, including the use of open interfaces and exposed 
application programming interfaces; the separation of business rules 
from core programming; and the availability of

[[Page 21967]]

business rules in both human and machine readable formats.
    <bullet> Align to and advance increasingly in MITA maturity for 
business, architecture, and data.
    <bullet> Ensure alignment with, and incorporation of, industry 
standards: the Health Insurance Portability and Accountability Act of 
1996 (HIPAA) security, privacy and transaction standards; accessibility 
standards established under section 508 of the Rehabilitation Act, or 
standards that provide greater accessibility for individuals with 
disabilities, and compliance with Federal civil rights laws; standards 
adopted by the Secretary under section 1104 of the Affordable Care Act; 
and standards and protocols adopted by the Secretary under section 1561 
of the Affordable Care Act.
    <bullet> Promote sharing, leverage, and reuse of Medicaid 
technologies and systems within and among States.
    <bullet> Support accurate and timely processing of claims 
(including claims of eligibility), adjudications, and effective 
communications with providers, beneficiaries, and the public.
    <bullet> Produce transaction data, reports, and performance 
information that would contribute to program evaluation, continuous 
improvement in business operations, and transparency and 
accountability.
    <bullet> Ensure seamless coordination and integration with the 
Exchange (whether run by the State or Federal government), and allow 
interoperability with health information exchanges, public health 
agencies, human services programs, and community organizations 
providing outreach and enrollment assistance services.
    To ensure that States have an opportunity to come into compliance 
with these requirements, the States currently receiving enhanced FFP 
for MMIS will have a period of transition to come into compliance with 
the standards and conditions listed above. Under our schedule, the 
following transition periods will apply:
    <bullet> For new MMIS development (new APDs requesting 90 percent 
FFP for design, development, installation, and enhancement): No 
transition period.
    <bullet> For MMIS development already underway (approved APDs 
providing 90 percent enhanced FFP): 14-month transition period 
(beginning with the effective date of this final rule) in which to 
submit an updated Implementation APD (IAPD) detailing how systems will 
be modified to meet the required conditions and standards.
    <bullet> For maintenance and operations of MMIS currently receiving 
75 percent FFP: 38-month transition period (beginning with the 
effective date of this final rule) in which to submit an IAPD with 
plans to upgrade or modify systems to meet the required conditions and 
standards.
    <bullet> Eligibility systems (currently receiving 50 percent for 
development and maintenance and operations): Because eligibility 
systems are not currently receiving enhanced funding, there is no 
transition period and no need for a transition period for new requests 
for enhanced funding for eligibility systems. Any APDs requesting 
enhanced funding for eligibility systems funding following the 
effective date of this regulation will have to meet the standards and 
conditions above. States with eligibility systems currently under 
development (approved APDs providing 50 percent FFP) can update their 
APDs to reflect how they will comply with these standards and 
conditions in order to begin receiving 90 percent FFP. Similarly, 
eligibility systems currently receiving 50 percent FFP for State 
expenditures will need to comply with our final standards and 
conditions to receive a 75-percent FFP.
    Our standards and conditions will be enforced through both front-
end and back-end review processes. Front-end review will entail APD 
review and prior approval processes where States apply for enhanced 
match before entering into IT investment projects. Back-end reviews 
will entail certifications of the systems capabilities, as well as 
ongoing performance monitoring.

C. Reviews and Performance Monitoring of MMISs

    In this final rule, we are also reinstituting periodic performance 
reviews of MMISs (including eligibility determination systems receiving 
enhanced funding). Our reviews will focus on performance measures we 
set to determine whether States are meeting the standards and 
conditions in this final rule. For example, we will measure how a 
system meets requirements for providing notices to beneficiaries, 
claims and applications intake and acceptance, efficient timely and 
accurate processing of claims, applications and renewals, proper 
determinations, and experience with appeals, interoperability with 
Exchanges, as well as traditional systems standards such as 
availability and down time. We expect to see such data automatically 
generated by the systems in which we invest, with standards and 
conditions established in consultation with States and stakeholders, 
and based on industry experience.
    Additionally, we will evaluate systems based upon their 
interoperability with other Federal and State health programs. Thus, in 
operating their systems, States will need to ensure that they consult 
documents articulating the Department's strategy on interoperability, 
such as the Guidance for Exchange and Medicaid Information Technology 
Systems.
    Any failures or deficiencies will be the basis for investigation 
and opportunity for corrective action before making a determination 
that enhanced FFP will be discontinued.
    To reflect the passage of the BBA, we have modified Sec.  433.119 
through Sec.  433.121 to eliminate any reference to Systems Performance 
Reviews (SPRs) but, more importantly, to reflect the requirements for 
performance monitoring and review.

D. Partial Systems Improvements or Modernizations

    As discussed in response to comment, as well as in the proposed 
rule, in referring to ``system'' or ``technology,'' we recognize that 
States will likely use a system of systems in support of MMIS 
functions. States submitting partial system updates will need to submit 
and have an approved roadmap for achieving full compliance with the 
standards and conditions in the regulation. We will track progress 
against an approved roadmap when determining if system updates meet the 
standards and conditions for the enhanced match. For enhancements 
intended to satisfy a specific requirement or to address a compliance 
issue, for example, ICD-10 or implementation of the National Correct 
Coding Initiative, our final policy is that States making enhancements 
to address a specific requirement would have to continue to make 
improvements and continue to look to industry standards to ensure that 
the enhancement is evolving along with such standards.

E. Changes to Federal Regulations at 42 CFR Part 433 Subpart C--
Mechanized Claims Processing and Information Retrieval Systems

    We are deleting Sec.  433.113 (referencing the need to have 
mechanized claims processing and information retrieval systems by a 
certain deadline, or face reduced Federal Medicaid funds as a 
consequence) and Sec.  433.130 (referencing waiver provisions for 
qualifying States with a certain 1976 population and expenditures). We 
have also deleted various cross-references to these provisions.

[[Page 21968]]

    We have also made conforming amendments to various provisions in 
part 433, subpart C to conform to our final policy that eligibility 
determination systems may now be considered part of mechanized claims 
processing and information retrieval systems. We have eliminated the 
statement in the current Sec.  433.111(b)(3) that ``Eligibility 
determination systems are not part of mechanized claims processing and 
information retrieval systems or enhancements to those systems.'' In 
response to comments we have reinserted language in Sec.  433.111(b)(3) 
to include information regarding approved enhancements to mechanized 
systems, including claims processing and information retrieval systems. 
We have also eliminated the provision at Sec.  433.112(c), which 
currently states that ``eligibility determination systems are not part 
of mechanized claims processing and information retrieval systems and 
are not eligible for 75 percent FFP under this Subpart. These systems 
are also not eligible for 90 percent FFP for any APD approved after 
November 13, 1989.'' We have replaced this with language making clear 
that 90 percent FFP for the design, development, installation, or 
enhancement of an eligibility determination system is available only 
before December 31, 2015, even if work on an approved APD continues 
after 2015. In this final rule, we also are amending the regulation to 
make clear that States will need to incur costs for goods and services 
furnished no later than December 31, 2015 to receive 90 percent FFP for 
the design, development, installation, or enhancement of an eligibility 
determination system. We are also codifying in this final rule that FFP 
at 75 percent is not available for eligibility determination systems 
that do not meet the standards and conditions by December 31, 2015.
    States will be required to supply information and demonstrate 
consideration of the standards and conditions to CMS for review and 
approval and as part of the APD before we will grant approval of 
enhanced funding. We will scrutinize all investments and will decline 
to approve enhanced funding (resulting in 50 percent FFP) that do not 
demonstrate careful consideration and application of these standards 
and conditions.

V. Waiver of Delay in Effective Date

    Section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C. 
553(d)) ordinarily requires a 30-day delay in the effective date of 
final rules after the date of their publication. In addition, the 
Congressional Review Act at 5 U.S.C. 801, requires a major rule to take 
effect no earlier than 60 days after the date the rule is published in 
the Federal Register. Both the 30- and 60-day delays in effective date 
can be waived, however, if an agency finds for good cause that the 
delay is impracticable, unnecessary, or contrary to the public 
interest, and the agency incorporates a statement of the findings and 
its reasons in the rule issued. 8 U.S.C. 808(2).
    We find that it is both unnecessary and contrary to the public 
interest to delay the effective date of this final rule. This rule is 
altering the definition of a mechanized claims processing and 
information retrieval system, such that the definition will now include 
automated eligibility determination systems. As a result, enhanced 
Federal funding should be available to States that seek to alter their 
systems, or that have already altered their systems, in a manner that 
meets all of our requirements.
    We believe it is in the public interest to immediately ensure the 
availability of such enhanced funding, so that States are able to begin 
the process of altering their systems as soon as possible. States will 
be required to have systems in place that comply with the Affordable 
Care Act by the beginning of 2014, and the sooner States are able to 
start relying on Federal funding to begin modernizing their systems, 
the more likely they will be able to meet these deadlines. In addition, 
at least a few States already have systems that would comply with all 
of our standards and conditions. Therefore, an immediate effective date 
would allow such States to receive funding immediately to support such 
modernization efforts. For these reasons, it would be contrary to the 
public interest to delay the availability of enhanced funding.
    In addition, given that States will have a period of time to come 
into compliance with the terms and conditions we have promulgated in 
this final rule, it is unnecessary to delay an effective date, as an 
immediate effective date will not require any State to immediately 
alter its systems. Rather, for eligibility determination systems, the 
rule simply conditions enhanced funding on States being in compliance 
with the terms and conditions of this final rule--but there is no 
immediate requirement that systems change. For current MMISs already 
receiving enhanced funding, the rule does impose new terms and 
conditions to continue the receipt of such enhanced funding, but a 
transition period is built in to allow States time to comply and this 
transition period has been extended by 2 months to account for the 
immediate effective date in this final rule.
    For the above reasons, we find good cause, based on both public 
interest, and lack of necessity for a delayed effective date, to waive 
both the 30- and 60-day delayed effective dates and to make this rule 
effective upon publication.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    The changes specified in this final rule impose new reporting, 
recordkeeping or disclosure requirements for submission of APDs. 
Initially, we indicated that States already submit to us for review and 
approval APDs for funding for automated data processing in accordance 
with Federal regulations at 45 CFR Part 95, Subpart F. We noted, 
however, in section III.I. of this final rule that we received one 
comment on the burden associated with this final rule. As a result of 
review of this comment and the development of a new expedited ADP 
checklist specific to the purposes of this final rule, we are seeking 
emergency review and approval from OMB in order for the expedited APD 
checklist to be available to States at the time this rule becomes 
effective. In addition, we are soliciting public comments on the 
information collections and associated burden contained in this final 
rule.
    An Expedited Eligibility and Enrollment (E&E)--APD checklist (CMS-
10385; OMB number 0938-NEW) has been developed for States that 
participate in Early Innovator grants or Establishment grants to 
complete and submit to CMS for review and prior approval in order to 
receive enhanced

[[Page 21969]]

federal funding for Medicaid Information Technology (IT) system(s) 
projects related to eligibility and enrollment functions.
    Specifically, this checklist:
    (1) Guides States in obtaining prior approval to secure 90 percent 
Federal financial participation (FFP) for the design, development, 
implementation (DDI), and/or enhancements of a system(s); and 75 
percent FFP for maintenance and operations [42 CFR Sec.  433 Subpart 
C].
    (2) Contains Seven Standards & Conditions that the State's APD must 
meet.
    (3) Contains Federal requirements for both Planning and 
Implementation activities of an APD [45 CFR part 95 subpart F (Revised 
October 28, 2010)].
    (4) Streamlines the process for States by requiring fewer 
documents, as well as potentially shortening the review timeframe for 
CMS, and if applicable, other Agencies, of system projects related to 
the Affordable Care Act. Although Federal Regulations allow up to 60 
days for APD approvals, our goal is to provide an approval within 30 
business days upon receipt.
    We estimate that there are 56 State Medicaid programs (including 
the District of Columbia and 5 territories) and that it will take 
approximately 5 hours for each State program to complete the APD 
template with the requested information which in aggregate will take 
280 total hours to complete one checklist, and 840 total hours to 
complete the anticipated average response of 3 per Medicaid program. We 
reviewed 2009 National Labor Statistics and speculate that the job role 
of Management Analyst (13-1111) with a mean hourly wage estimate rate 
of $40.70 would be completing the data for the template. Based on these 
estimates, the total cost to complete the APD template would be 
$2,279.20 (15 hours x hourly rate of 40.70 = 610.50 x 56 programs = 
$34,188.00). We acknowledge that there are uncertainties regarding 
these burden estimates.

                                                       Estimated Annual Reporting Burden Reporting
                                                                        [States]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimated                      Average  number  Average  burden
                                                   Section              number of       Frequency of      of  annual     per  response    Annual  burden
                                                                       respondents       responses        responses         (hours)           hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
States that participate in Early         42 CFR Part 433 Subpart C               56                3              168                5              840
 Innovator grants or Establishment        and 45 CFR Part 95
 grants complete expedited checklist.     Subpart F.
                                        ----------------------------------------------------------------------------------------------------------------
    Total..............................  ..........................              56                3              168                5              840
--------------------------------------------------------------------------------------------------------------------------------------------------------

    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access our Web 
site at http://www.cms.gov/PaperworkReductionActof1995/PRAL/list.asp#TopOfPage or e-mail your request, including your address, 
phone number, OMB number, and CMS document identifier, to 
<a href="/cdn-cgi/l/email-protection#e3b382938691948c9188a3808e90cd8b8b90cd848c95"><span class="__cf_email__" data-cfemail="e3b382938691948c9188a3808e90cd8b8b90cd848c95">[email protected]</span></a>, or call the Reports Clearance Office at 410-786-
1326.
    In commenting on the information collections please reference the 
document identifier or OMB control number. To be assured consideration, 
comments and recommendations must be submitted in one of the following 
ways by June 20, 2011:
    1. Electronically. You may submit your comments electronically to 
http://www.regulations.gov. Follow the instructions for ``Comment or 
Submission'' or ``More Search Options'' to find the information 
collection document(s) accepting comments.
    2. By regular mail. You may mail written comments to the following 
address: CMS, Office of Strategic Operations and Regulatory Affairs, 
Division of Regulations Development, Attention: Document Identifier/OMB 
Control Number, Room C4-26-05, 7500 Security Boulevard, Baltimore, 
Maryland 21244-1850.

VII. Regulatory Impact Analysis

A. Statement of Need

    This regulation is important, since with the passage of the 
Affordable Care Act, we expect that changes to eligibility policies and 
business processes will need to be adopted. System transformations will 
be needed in most States to apply new rules to adjudicate eligibility 
for the program; enroll millions of newly eligible individuals through 
multiple channels; renew eligibility for existing enrollees; operate 
seamlessly with newly authorized Health Insurance Exchanges 
(``Exchanges''); participate in a system to verify information from 
applicants electronically; incorporate a streamlined application used 
to apply for multiple sources of coverage and financial assistance; and 
produce notices and communications to applicants and beneficiaries 
concerning the process, outcomes, and their rights to dispute or 
appeal.
    We wish to ensure that a key outcome of our technology investments 
is a much higher degree of interaction and interoperability in order to 
maximize value and minimize burden and costs on providers, 
beneficiaries, and States. Thus, we are committed to providing 90 
percent FFP for design, development, and installation of eligibility 
determination systems through CY 2015 or 75 percent FFP for maintenance 
and operations of such systems that meet the new regulatory 
requirements. We have provided that States must commit to a set of 
standards and conditions to receive the enhanced FFP. This enhanced FFP 
reduces the financial burden on States to 10 percent of the costs 
compared to the 50 percent financial burden currently in place and 
ensures that States utilize current technology development and 
deployment practices and produce reliable business outputs and 
outcomes.

B. Overall Impact

    The estimated costs of the Federal-share for Medicaid 
administration have been reflected in the FY 2012 President's Budget.
    We have examined the impact of this final rule as required by 
Executive Order 12866 (September 30, 1993, Regulatory Planning and 
Review), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (September 
19, 1980; Pub. L. 96-354) (RFA), section 1102(b)

[[Page 21970]]

of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year). This final rule is anticipated to have an annual effect on 
the economy of $100 million or more, making it an economically 
significant rule under the Executive Order 12866 and hence a major rule 
under the Congressional Review Act. Accordingly, we have prepared a RIA 
that to the best of our ability presents the costs and benefits of this 
final rule.
    States will continue to receive the traditional 50 percent FFP for 
reasonable administrative expenditures for designing, developing, 
installing, or enhancing the Medicaid portion of their integrated 
eligibility determination systems. Similarly, States will continue to 
receive 50 percent FFP for expenditures associated with the maintenance 
and operation of such systems.
    This final rule, however, addresses the impact related to enhanced 
FFP for mechanized claims processing and information retrieval systems, 
including those that perform eligibility determination and enrollment 
activities, as well as the Medicaid portion of integrated eligibility 
determination systems that the Secretary determines are likely to 
provide more efficient, economical, and effective administration of the 
State plan.
    In projecting the impact to the Federal government and State 
Medicaid agencies, we considered how the standards and conditions on 
MMIS and the availability of enhanced match for State eligibility 
systems through CY 2015 will impact State investments over the 10-year 
period of 2011 through 2020. As discussed in section VI.C of this final 
rule, we considered the expected costs to the Federal government of 
providing the enhanced match rate, changes in State investments due to 
the application of standards and conditions on MMIS (including 
eligibility systems), and possible savings as a result of the use of 
more modern, reusable, and efficient technologies.

C. Potential Savings

    We considered a number of ways in which application of the 
standards and conditions, including increased use of MITA, could result 
in savings; however, as no States have yet reached MITA maturity, it is 
difficult to predict the savings that may accrue over any certain 
timeframe. These areas include the following:
    (1) Modular technology solutions: As States, or groups of States, 
will begin to develop ``modular'' technology solutions, these solutions 
will be used by others through a ``plug and play'' approach, in which 
pieces of a new MMIS will not need to be reinvented from scratch every 
time, but rather, could be incorporated into the MMIS framework. We 
assume that savings associated with reusable technology could be 
achieved in both the development and operation of new systems. We 
expect that States will dispense with the need to engage in significant 
requirements analyses and the need to pay for new modules to be built 
when there are successful models around the country that they can draw 
down from a ``technology bank'' maintained by the Federal or State 
governments.
    (2) Increased use of industry standards and open source 
technologies: While HIPAA administrative transaction standards have 
existed for 5 to 7 years, use of more specific industry standards to 
build new systems will allow such systems to exchange information 
seamlessly--a major goal of the Affordable Care Act, and one that is 
the explicit purpose of the standards work envisioned within section 
1561 of the Act. We also believe that more open source technology will 
encourage the development of software solutions that address the needs 
of a variety of diverse activities--such as eligibility, member 
enrollment, and pharmacy analysis of drug claims. Software that is 
sufficiently flexible to meet different needs and perform different 
functions could result in cost savings, as States are able to use the 
systems without making major adaptations to them.
    (3) Maintenance and operations: As States take up the changes in 
this final rule, the maintenance/operation costs of new systems should 
decrease. Less maintenance should be required than that necessary to 
reengineer special, highly customized systems every time there is a new 
regulatory or legal requirement.
    (4) Reengineering business processes, more Web-based solutions, 
service-oriented architecture (SOA): Savings are likely to result from 
the modular design and operation of systems, combined with use of 
standardized business processes, as States are compelled to rethink and 
streamline processes as a result of greater reliance on technology.

D. Calculation of MMIS Costs

    MMIS costs are estimated at approximately $10.0 billion over the 5-
year budget window and $23.0 billion over the 10-year budget window. 
These costs represent only the Federal share.
    To calculate the impact of the regulation on MMIS costs, we assumed 
that new systems on average will cost $150 million over 3 years for 
each State ($50 million total cost per year, or $45 million Federal 
costs at 90 percent FFP per year). We have identified that ten States 
have sophisticated systems that are very close to meeting the 
implemented regulation standards. As a result, we assumed the remaining 
41 States will have approved APDs in place to replace or update their 
MMIS between FY 2011 and FY 2013 to comply with the new regulation 
standards and conditions.
    We assumed that the States modernizing earlier in the cycle will 
see increased development, design, and installation costs, whereas 
States moving later will see increased development, design, and 
installation savings as they are able to take advantage of efficiencies 
gained by the early adopter States. Specifically, for those States that 
update or build new systems in FY 2011 and FY 2012, we assumed a 10 
percent annual cost increase to new MMIS systems for design, 
development, and installation. For those States that build new systems 
in FY 2013 and FY 2014, we assumed a 5 percent annual savings to new 
MMIS systems for design, development, and installation. While it is 
difficult to predict State behavior, we believe all States will comply 
with the standards and conditions in this regulation to receive the 90 
percent FFP, and have assumed that for the purpose of these estimates.
    For maintenance, we assumed those States that have implemented the 
new regulation requirements would see a 20 percent annual savings, and 
for operations, we assumed those States that have implemented the new 
regulation requirements would see a 5 percent annual savings.
    Based on these assumptions, we estimate the net Federal budgetary

[[Page 21971]]

impact on baseline MMIS costs from FY 2011 through 2015 of implementing 
the new regulation is approximately $1.1 billion, and the net Federal 
budgetary impact from FY 2011 through 2020 is approximately $557 
million in savings.

E. Calculation of Eligibility Systems Costs

    For eligibility systems, we applied the same methodology we used to 
calculate net Federal costs to MMIS under the new regulation.
    To meet the requirements of the Affordable Care Act, States would 
have to build new systems or modernize existing systems. Most States 
will add new functionalities to interface with the Exchanges and 
implement new adaptability standards and conditions (such as 
incorporation of new mandated eligibility categories). We assume 
baseline costs for development, design, and installation at 50 percent 
FFP for all States are approximately $815 million from FY 2011 through 
2015 and $1.1 billion from FY 2011 through 2020. Eligibility systems 
costs for maintenance and operations at 50 percent for all States are 
approximately $1.2 billion from FY 2011 through 2015 and $2.7 billion 
from FY 2011 through 2020. These costs represent only the Federal 
share.
    To calculate the impact of the implemented regulation, we assumed 
that new systems on average will cost $50 million over 3 years for each 
State ($16.7 million total cost per year, or $15 million Federal costs 
at 90 percent FFP per year). We assumed that 25 States will replace 
their eligibility systems in FY 2011 through CY 2015. We assumed no 
States will build new systems past FY 2014 (beyond what is assumed in 
the baseline) due to the timing of the start of major coverage 
provisions in the Affordable Care Act, the length of time needed to 
build new systems (approximately 3 years), and the enhanced match 
ending after CY 2015. For maintenance, we assumed States that have 
implemented new systems meeting the required standards and conditions 
will see a 20 percent annual savings, and for operations, we assumed 
those States that have implemented the new systems would see a 5 
percent annual savings. These assumptions are consistent with our 
approach for savings under MMIS in the regulation.
    The net Federal cost impact from FY 2011 through 2015 of 
implementing our regulation on eligibility systems is approximately 
$2.2 billion, and the net Federal cost from FY 2011 through 2020 is 
$2.9 billion. These costs represent only the Federal share.

F. Total Net Cost Impact

    Combining the impact of the regulation, the total net Federal cost 
impact is approximately $3.3 billion for FY 2011 through 2015 and 
approximately $2.3 billion for FY 2011 through 2020. We see lower costs 
over the 10-year budget window due to the increased savings to MMIS 
over time.
    Aligned with these Federal net costs, States will see a 
corresponding decrease in their net State share due to the enhanced 
Federal match for eligibility systems they will receive through CY 2015 
and the benefits accrued to their systems by putting in place the set 
of standards and conditions articulated in our regulation. Combining 
the impact of the regulation, the total net State budget impact is 
approximately $792.5 million in savings for FY 2011 through 2015 and 
approximately $1.9 billion in savings from for FY 2011 through 2020. 
Similar to the Federal budget impact, we expect to see higher savings 
achieved by States over the 10-year budget window due to the increased 
savings to MMIS over time.
    The projections in this analysis are subject to considerable 
uncertainty, as they reflect projected costs based on technology and 
innovation. While we believe that advancements in technology will 
likely have an impact on States' systems, it is difficult to predict 
with certainty how significant the technology advancements may be and 
how they would affect State systems. For example, we have worked for 
many years developing the MITA maturity model. We believe that States 
should adopt the MITA framework as the basis for all MMIS replacements 
and major system upgrades related to the MMIS, and while we are 
requiring that States move to a MITA framework in order to receive 
enhanced funding, to date there are no States that have reached full 
MITA maturity. Consequently, having no States at full MITA maturity 
indicates that it takes time, money, and considerable effort for States 
to make changes to their current technology.
    Additional uncertainty exists because we are unsure of the rate of 
adoption for States to make the changes in this final rule. The 
enhanced FFP is available for approximately 5 years, from CY 2011 
through CY 2015, and States could upgrade or replace their systems at 
any point within the 5-year period. Further, States may simply choose 
to make moderate changes to existing systems, and even with the 90 and 
75 percent enhanced FFP, such moderate changes could be less costly 
overall for States than replacing their systems.
    Additional uncertainty exists about the rate of State adoption 
since some States may consider the costs needed to move to a more 
advanced system to be too high to undertake such a project. Similarly, 
States may decide not to make changes due to implementation of 
performance requirements and the performance reviews.
    We acknowledge that there are uncertainties regarding our 
assumptions, including State behavior, and the associated cost 
estimates with respect to States implementing new systems within the 
timeframe assessed. However, we have offered our estimates with a 25 
percent upper and lower range to capture such uncertainty in actual 
implementation outcomes. Due to a number of uncertainties in our 
assumptions, we believe a range of estimates better represents the net 
cost impact of this regulation. Tables 1 and 2 represent a 25 percent 
range for these aggregate net costs to the Federal and State 
government, respectively. It is important to point out that we believe 
that systems transformation is necessary to meet the vision of the 
Affordable Care Act and consequently, these costs are necessary and 
will provide for efficient systems that in the end will provide for 
more efficient and effective administration of the State plan. The 
separate impacts to MMIS and eligibility systems are summarized below.

             Table 1--Net Federal Cost Impact of Regulation
                         [Dollars in millions] *
------------------------------------------------------------------------
                                                        FY 2011-2020
------------------------------------------------------------------------
MMIS (excluding eligibility)......................       (417.4)-(695.7)
Eligibility Systems...............................       2,154.6-3,591.0
                                                   ---------------------
    Total.........................................       1,737.2-2,895.3
------------------------------------------------------------------------
* Numbers in parentheses represent savings to the Federal government.


[[Page 21972]]


                                             Table 1.1--Net Federal Cost Impact of Regulation by Fiscal Year
                                                                 [Dollars in millions] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        2011    2012     2013     2014     2015     2016     2017     2018     2019     2020   2011-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
MMIS (excluding Eligibility).........................   231.1   469.4     435.6    54.3   (83.0)  (322.6)  (329.0)  (333.1)  (337.4)  (341.8)    (556.6)
Eligibility Systems..................................   328.9   436.7     634.6   469.3   337.4    127.9    130.5    133.1    135.8    138.5    2,872.8
                                                      --------------------------------------------------------------------------------------------------
    Total............................................   560.0   906.1   1,070.2   523.6   254.4   (194.7)  (198.5)  (200.0)  (201.6)  (203.3)   2,316.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses represent savings to the Federal government.


              Table 2--Net State Cost Impact of Regulation
                         [Dollars in Millions] *
------------------------------------------------------------------------
                                                        FY 2011-2020
------------------------------------------------------------------------
MMIS (excluding eligibility)......................       (170.6)-(284.4)
Eligibility Systems...............................   (1,255.4)-(2,092.3)
                                                   ---------------------
    Total.........................................   (1,426.0)-(2,376.7)
------------------------------------------------------------------------
* Numbers in parentheses represent savings to State governments.


                                              Table 2.1--Net State Cost Impact of Regulation by Fiscal Year
                                                                 [Dollars in millions] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             2011      2012      2013      2014      2015     2016      2017      2018      2019      2020     2011-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
MMIS (excluding eligibility).............     25.7      52.2      48.4       1.3    (24.1)    (61.6)    (65.2)    (66.6)    (68.0)    (69.5)     (227.5)
Eligibility Systems......................   (285.6)   (276.7)   (258.0)   (139.9)    64.3    (149.5)   (152.5)   (155.5)   (158.6)   (161.8)   (1,673.8)
                                          --------------------------------------------------------------------------------------------------------------
    Total................................   (259.9)   (224.6)   (209.6)   (138.6)    40.2    (211.1)   (217.7)   (222.1)   (226.6)   (231.3)   (1,901.3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses represent savings to State governments.

G. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) requires agencies to prepare a 
Regulatory Flexibility Analysis to describe and analyze the impact of 
final rule on small entities unless the Secretary can certify that the 
regulation will not have a significant impact on a substantial number 
of small entities. In the healthcare sector, Small Business 
Administration size standards define a small entity as one with between 
$7 million and $34 million in annual revenues. For the purposes of the 
RFA, essentially all non-profit organizations are considered small 
entities, regardless of size. Individuals and States are not included 
in the definition of a small entity.
    Since this rule will affect States, which are not considered small 
entities, the Secretary has determined that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. Therefore, we have not prepared a regulatory flexibility 
analysis.
    Additionally, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operation of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define small rural hospital 
as a hospital that is located outside of a Metropolitan Statistical 
Area and has fewer than 100 beds. We are not preparing an analysis for 
section 1102(b) of the Act because we have determined that this rule 
will not have a significant impact on the operations of a substantial 
amount of small rural hospitals. There is no negative impact on the 
program or on small businesses.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditures in any one year of 
$100 million in 1995 dollars (updated annually for inflation), by 
State, local, or tribal governments, in the aggregate, or by the 
private sector. In 2011, that threshold is approximately $136 million. 
This final rule does not mandate expenditures by the State governments, 
local governments, tribal governments, in the aggregate, or the private 
sector, of $136 million. This rule provides that States can receive 
enhanced FFP if States ensure that the mechanized claims processing and 
information retrieval systems (MMIS) including, for a limited time, 
those that perform eligibility determination and enrollment activities, 
as well as the Medicaid portion of integrated eligibility determination 
systems, meet with certain conditions including migrating to the MITA 
framework and meet certain performance requirements. This is a 
voluntary activity; that is, States can continue to receive the 
traditional 50 percent FFP match rate for reasonable administrative 
expenditures for the design, development, or enhancement and 
maintenance and operations to the Medicaid portion of integrated 
eligibility determination systems to make eligibility determinations 
for Title XIX of the Act. This final rule imposes no substantial 
mandates on States. The State role in determining Medicaid eligibility 
is dependent upon the population type; specifically, some populations 
such as the elderly, blind, and disabled are typically determined by 
the Medicaid State agency whereas other population types may have their 
Medicaid eligibility determined by cash-assistance programs. Mechanized 
claims processing and information retrieval systems, including those 
that perform eligibility determination and enrollment activities and 
the Medicaid portion of integrated eligibility determination systems, 
at a minimum, will need to be updated. However, providing 90 percent 
FFP for design, development, and

[[Page 21973]]

installation or 75 percent FFP for maintenance and operations of such 
systems reduces the financial burden on States to 10 percent of the 
costs compared to the 50 percent financial burden currently in place. 
Specifically, while this entails certain procedural responsibilities, 
these activities do not involve substantial State expense; providing 90 
percent and 75 percent FFP reduces the total State outlay.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We wish to note again that this is a voluntary activity 
and as such this regulation does not mandate any direct costs on State 
or local governments. Consequently, the requirements of Executive Order 
13132 are not applicable.

H. Alternatives Considered

    We considered that an alternative to our final rule could be that 
we not provide enhanced match for a limited time for State systems 
builds and not provide Federal standards and conditions. In fact, 
States could continue to receive the traditional 50 percent FFP for 
reasonable administrative expenditures for designing, developing, 
installing, or enhancing Medicaid eligibility determination systems. 
Similarly, States could continue to receive 50 percent FFP for 
expenditures associated with the maintenance and operation of such 
systems.
    However, States must continue to meet the requirements of Federal 
legislation. Since the Affordable Care Act significantly alters 
Medicaid eligibility and requires coordination with the Exchanges, it 
is imperative that States have the resources and systems to be able to 
meet this challenge.
    Therefore, we believe that if States were left to develop 
eligibility systems without Federal standards and conditions and 
without the benefit of enhanced match, States systems may not comport 
with our ultimate goal; that is, that design, development, 
implementation, and operation of IT and systems projects are in support 
of the Affordable Care Act.

I. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 3, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this rule. This table 
provides our best estimate of the net costs decrease in Medicaid 
payments as a result of the changes presented in this rule.

          Table 3--Accounting Statement: Classification of Estimated Net Costs, From FY 2011 to FY 2020
                                                 [In $millions]
----------------------------------------------------------------------------------------------------------------
                                                                       Transfers
                                      --------------------------------------------------------------------------
               Category                      Year dollar              Units discount rate
                                      ---------------------------------------------------------  Period covered
                                                 2010                 7%              3%
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.......  Primary Estimate.......         $311.31         $266.55     FYs 2011-2020
                                       Low Estimate...........          233.48          199.91     FYs 2011-2020
                                       High Estimate..........          389.14          333.19     FYs 2011-2020
----------------------------------------------------------------------------------------------------------------
From.................................          Federal Government to State Governments          ................
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.......  Primary Estimate.......        -$189.87        -$189.82     FYs 2011-2020
                                       Low Estimate...........         -142.40         -142.36     FYs 2011-2020
                                       High Estimate..........         -237.34         -237.28     FYs 2011-2020
----------------------------------------------------------------------------------------------------------------
From.................................      State Governments to System Vendors, Integrators     ................
----------------------------------------------------------------------------------------------------------------

    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 433

    Administrative practice and procedure, Child support Claims, Grant 
programs--health, Medicaid, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 433--STATE FISCAL ADMINISTRATION

0
1. The authority citation for part 433 continues to read as follows:

    Authority:  Section 1102 of the Social Security Act, (42 U.S.C. 
1302).

Subpart C--Mechanized Claims Processing and Information Retrieval 
Systems

0
2. Section 433.110 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  433.110  Basis, purpose, and applicability.

    (a) * * *
    (2) Section 1903(r) of the Act, which imposes certain standards and 
conditions on mechanized claims processing and information retrieval 
systems (including eligibility determination systems) in order for 
these systems to be eligible for Federal funding under section 1903(a) 
of the Act.
* * * * *

0
3. Section 433.111 is amended by--
0
A. Revising paragraph (b)(3).
0
B. Adding paragraph (c).
    The revision and addition read as follows:


Sec.  433.111  Definitions.

* * * * *
    (b) * * *
    (3) Approved enhancements to the system.
    (c) ``Medicaid Information Technology Architecture (MITA)'' is 
defined at Sec.  495.302 of this chapter.

0
4. Section 433.112 is amending by-
0
A. Revising paragraphs (a), (b)(2), and (c).
0
B. Amending paragraph (b)(7) by removing the reference ``45 CFR 
74.171'' and adding in its place, the reference ``45 CFR 74.27(a)''.
0
C. Adding paragraphs (b)(10) through (b)(16).

[[Page 21974]]

    The revisions and additions read as follows:


Sec.  433.112  FFP for design, development, installation or enhancement 
of mechanized claims processing and information retrieval systems.

    (a) Subject to paragraph (c) of this section, FFP is available at 
the 90 percent rate in State expenditures for the design, development, 
installation, or enhancement of a mechanized claims processing and 
information retrieval system only if the APD is approved by CMS prior 
to the State's expenditure of funds for these purposes.
    (b) * * *
    (2) The system meets the system requirements, standards and 
conditions, and performance standards in Part 11 of the State Medicaid 
Manual, as periodically amended.
* * * * *
    (10) Use a modular, flexible approach to systems development, 
including the use of open interfaces and exposed application 
programming interfaces; the separation of business rules from core 
programming, available in both human and machine readable formats.
    (11) Align to, and advance increasingly, in MITA maturity for 
business, architecture, and data.
    (12) Ensure alignment with, and incorporation of, industry 
standards: The HIPAA privacy, security and transaction standards; 
accessibility standards established under section 508 of the 
Rehabilitation Act, or standards that provide greater accessibility for 
individuals with disabilities, and compliance with Federal civil rights 
laws; standards adopted by the Secretary under section 1104 of the 
Affordable Care Act; and standards and protocols adopted by the 
Secretary under section 1561 of the Affordable Care Act.
    (13) Promote sharing, leverage, and reuse of Medicaid technologies 
and systems within and among States.
    (14) Support accurate and timely processing and adjudications/
eligibility determinations and effective communications with providers, 
beneficiaries, and the public.
    (15) Produce transaction data, reports, and performance information 
that would contribute to program evaluation, continuous improvement in 
business operations, and transparency and accountability.
    (16) Ensure seamless coordination and integration with the 
Exchange, and allow interoperability with health information exchanges, 
public health agencies, human services programs, and community 
organizations providing outreach and enrollment assistance services.
    (c) FFP is available at 90 percent of a State's expenditures for 
the design, development, installation, or enhancement of an eligibility 
determination system that meets the requirements of this subpart and 
only for costs incurred for goods and services provided on or after 
April 19, 2011 and on or before December 31, 2015.


Sec.  433.113  [Removed]

0
5. Section 433.113 is removed.

0
6. Section 433.114 is amended by--
0
A. Amending paragraph (a) by removing the reference ``(h)'' and by 
adding in its place the reference ``(i)''.
0
B. Revising paragraph (b).
    The revision reads as follows:


Sec.  433.114  Procedures for obtaining initial approval; notice of 
decision.

* * * * *
    (b) If CMS disapproves the system, the notice will include all of 
the following information:
    (1) The findings of fact upon which the determination was made.
    (2) The procedures for appeal of the determination in the context 
of a reconsideration of the resulting disallowance to the Departmental 
Appeals Board.

0
7. Section 433.116 is amended by --
0
A. Amending paragraph (a) by removing the phrase ``Subject to 42 CFR 
433.113(c),'' and by adding in its place ``Subject to paragraph (j) of 
this section,''.
0
B. Amending paragraph (b) by removing the reference ``(h)'' and by 
adding in its place the reference ``(i)''.
0
C. Adding new paragraphs (i) and (j).
    The additions read as follows:


Sec.  433.116  FFP for operation of mechanized claims processing and 
information retrieval systems.

* * * * *
    (i) The standards and conditions of Sec.  433.112(b)(10) through 
(b)(16) of this subpart must be met.
    (j) Beginning and no earlier than, April 19, 2011, FFP is available 
at 75 percent of a State's expenditures for the operation of an 
eligibility determination system that meets the requirements of this 
subpart. FFP at 75 percent is not available for eligibility 
determination systems that do not meet the standards and conditions by 
December 31, 2015.


Sec.  433.117  [Amended]

0
8. Section 433.117 is amended by--
0
A. Amending paragraph (a) by removing the phrase ``all conditions'' and 
adding in its place the phrase ``all standards and conditions''.
0
B. Amending paragraph (c)(2) by removing the reference ``(h)'' and 
adding in its place the reference ``(j)''.

0
9. Section 433.119 is amended by revising paragraphs (a) and (c) to 
read as follows:


Sec.  433.119  Conditions for reapproval; notice of decision.

    (a) CMS periodically reviews each system operation initially 
approved under Sec.  433.114 of this subpart and reapproves it for FFP 
at 75 percent of expenditures if the following standards and conditions 
are met:
    (1) The system meets the requirements of Sec.  433.112(b)(1), (3), 
(4), (7) through (16) of this subpart.
    (2) The system meets the conditions of Sec.  433.116 (d) through 
(j).
    (3) The system meets the standards, conditions, and performance 
standards for reapproval and the system requirements in part 11 of the 
State Medicaid Manual as periodically amended.
    (4) A State system must meet all of the requirements of this 
subpart within the appropriate period CMS determines should apply as 
required by Sec.  433.123(b) of this subpart.
* * * * *
    (c) After performing the review under paragraph (a) of this 
section, CMS will issue to the Medicaid agency a written notice 
informing the agency whether the system is reapproved or disapproved. 
If the system is disapproved, the notice will include the following 
information:
    (1) CMS's decision to reduce FFP for system operations from 75 
percent to 50 percent of expenditures, beginning with the first day of 
the first calendar quarter after CMS issues the written notice to the 
State.
    (2) The findings of fact upon which the determination was made.
    (3) A statement that State claims in excess of the reduced FFP rate 
will be disallowed and that any such disallowance will be appealable to 
the Departmental Appeals Board.

0
10. Section 433.120 is amended by revising paragraph (b) to read as 
follows:


Sec.  433.120  Procedures for reduction of FFP after reapproval review.

* * * * *
    (b) CMS will reduce FFP in expenditures for system operations from 
75 percent to 50 percent.

0
11. Section 433.121 is amended by revising paragraph (a) to read as 
follows:


Sec.  433.121  Reconsideration of the decision to reduce FFP after 
reapproval review.

    (a) The State Medicaid agency may appeal (to the Departmental 
Appeals Board under 45 CFR Part 16) a

[[Page 21975]]

disallowance concerning a reduction in FFP claimed for system 
operations caused by a disapproval of the State's system.
* * * * *


Sec.  433.130  [Removed]

0
12. Section 433.130 is removed.

0
13. Section 433.131 is amended by adding a new paragraph (c) to read as 
follows:


Sec.  433.131  Waiver for noncompliance with conditions of approval and 
reapproval.

* * * * *
    (c) Waiver of deadline. In no case will CMS waive the December 31, 
2015 deadlines referenced in Sec.  433.112(c) and Sec.  433.116(j).

    Authority:  Catalog of Federal Domestic Assistance Program No. 
93.778, Medical Assistance Program.

    Dated: March 16, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 12, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-9340 Filed 4-14-11; 11:15 am]
BILLING CODE 4120-01-P


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