GAO-02-858R 

United States General Accounting Office

Washington, DC 20548 

B-290718 

June 28, 2002 

The Honorable Max Baucus 

Chairman 

The Honorable Chuck Grassley 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable W.J. “Billy” Tauzin 

Chairman 

The Honorable John D. Dingell 

Ranking Minority Member 

Committee on Energy and Commerce 

House of Representatives 

Subject: Department of Health and Human Services, Centers for Medicare and 

Medicaid Services: Medicaid Program; Medicaid Managed Care: New 

Provisions

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a 

major rule promulgated by the Department of Health and Human Services, Centers 

for Medicare and Medicaid Services (CMS), entitled “Medicaid Program; Medicaid 

Managed Care: New Provisions” (RIN: 0938-AK96). We received the rule on June 13, 

2002. It was published in the Federal Register as a final rule on June 14, 2002. 67 

Fed. Reg. 40989. 

The final rule amends CMS’s Medicaid regulations to implement provisions of the 

Balanced Budget Act of 1997 that allow states greater flexibility by permitting them 

to amend their state plan to require certain categories of Medicaid beneficiaries to 

enroll in managed care entities without obtaining waivers if beneficiary choice is 

provided. The rule also establishes new beneficiary protections in the areas of 

quality assurance, grievance rights, and coverage of emergency services. Finally, the 

rule eliminates certain requirements viewed by state agencies as impediments to the 

growth of managed care programs, such as the enrollment composition requirement, 

the right to disenroll without cause at any time, and the prohibition against enrollee 

cost-sharing. 
Page 2 GAO-02-858R 

Enclosed is our assessment of the CMS’s compliance with the procedural steps 

required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. 

Our review indicates that the CMS complied with the applicable requirements. 

If you have any questions about this report, please contact James W. Vickers, 

Assistant General Counsel, at (202) 512-8210. The official responsible for GAO 

evaluation work relating to the subject matter of the rule is William Scanlon, 

Managing Director, Health Care. Mr. Scanlon can be reached at (202) 512-7114. 

 signed 

Kathleen E. Wannisky 

Managing Associate General Counsel 

Enclosure 

cc: Ann Stallion 

Regulations Coordinator 

Department of Health and 

 Human Services 
GAO-02-858R 

ENCLOSURE 

ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE 

ISSUED BY THE 

DEPARTMENT OF HEALTH AND HUMAN SERVICES, 

CENTERS FOR MEDICARE AND MEDICAID SERVICES 

ENTITLED 

"MEDICAID PROGRAM; MEDICAID MANAGED CARE: 

NEW PROVISIONS" 

(RIN: 0938-AK96) 

(i) Cost-benefit analysis

According to CMS, the estimated cost of the final rule will be between $221 million 

and $295 million annually. 

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605, 

607, and 609

CMS has certified that the final rule will not have a significant economic impact on a 

substantial number of small entities or a significant impact on the operations of a 

substantial number of small rural hospitals in comparison to the total revenues of 

these entities. 

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform 

Act of 1995, 2 U.S.C. §§ 1532-1535

CMS has determined that the final rule will not impose either an intergovernmental 

or private sector mandate, as defined in title II, of more than $100 million (adjusted 

annually for inflation) in any one year. 

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. 

The final rule was issued using the notice and comment procedures contained at 

5 U.S.C. 553. 

On September 29, 1998, a proposed rule was published in the Federal Register. 

63 Fed. Reg. 52022. A final rule was published on January 19, 2001, but after its 

effective date was delayed several times, a new proposed rule was published in the 

Federal Register on August 20, 2001. 66 Fed. Reg. 43613. In response to this 

proposed rule, CMS received 387 comments, which are discussed in the preamble to 

the final rule. 
Page 2 GAO-02-858R 

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520 

The final rule contains information collections that are subject to review by the 

Office of Management and Budget (OMB) under the Paperwork Reduction Act. 

The preamble to the final rule contains the information required under the act, such 

as the purposes and estimated annual burdens of the 37 collections that are being 

forwarded to OMB for review and approval. There is a 30-day public comment 

period regarding the collections. 

Statutory authorization for the rule 

The final rule is promulgated under the authority contained in section 1102 of the 

Social Security Act (42 U.S.C. 1302) and various provisions of the Balanced Budget 

Act of 1997 (Pub. L. 105-33). 

Executive Order No. 12866 

The final rule was reviewed by OMB and found to be an “economically significant”

regulatory action under the order. 

Executive Order No. 13132 (Federalism) 

CMS has determined that the final rule will not significantly affect states’ rights, 

roles, and responsibilities. The final rule supercedes existing state laws regulating 

managed care, unless state laws are more restrictive. 

The preamble to the final rule describes the actions taken by CMS in involving the 

states in the development of the final rule.