Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 68583 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 433 

[CMS–2346–P] 

RIN 0938–AQ53 

Medicaid; Federal Funding for 

Medicaid Eligibility Determination and 

Enrollment Activities 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

revise Medicaid regulations for 

Mechanized Claims Processing and 

Information Retrieval Systems. 

Specifically, we are proposing to amend 

the definition of Mechanized Claims 

Processing and Information Retrieval 

Systems to include systems used for 

eligibility determination, enrollment, 

and eligibility reporting activities. We 

propose to modify 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, with enhanced FFP for 

maintenance and operations available 

for such systems beyond that date in 

certain circumstances. We also propose 

that all Medicaid Management 

Information Systems (MMISs) meet 

certain defined standards and 

conditions in terms of timeliness, 

accuracy, efficiency, and integrity and 

that they achieve high positive levels of 

consumer experience, acceptance and 

satisfaction in order to receive enhanced 

FFP. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. January 7, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–2346–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–2346–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–2346–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: a. For delivery in 

Washington, DC—Centers for Medicare 

& Medicaid Services, Department of 

Health and Human Services, Room 445– 

G, Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

FOR FURTHER INFORMATION CONTACT: 

Richard Friedman, (410) 786–4451. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

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 is 

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 [that is, 

Medicare].’’ In addition, section 

1903(a)(3)(B) 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 proposed 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. 

Finally, 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. 

In order to receive an enhanced 

match, the Secretary must find that the 

mechanized claims and information 

retrieval system is adequate to provide 


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68584 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 

efficient, economical, and effective 

administration of the State plan. The 

Patient Protection and Affordable Care 

Act of 2010 (Pub. L. 111–148, as 

amended by the Health Care and 

Education Recovery Act of 2010; Pub. L. 

111–152, together 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; these requirements will be 

discussed in separate rulemaking. 

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 

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 1989, 

we published a final rule on October 13, 

1989 (54 FR 41966, effective November 

13, 1989) 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 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 promulgation of the 1989 

regulation, 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 

July 1, 1997) (TANF) program. 

With the passage of the Balanced 

Budget Act of 1997 (Pub. L. 105–33) 

(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 

Insurance Reauthorization 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, as the 

basis for Medicaid and CHIP eligibility 

adjudications. 

With the passage of the Affordable 

Care Act, we expect that changes to 

eligibility policies and business 

processes would need to be adopted. 

States would 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 

whether run by the State or 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 would 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. 

Extensive coordination and 

collaboration would be required 

between Exchanges and Medicaid, 

including on oversight and evaluation of 

the interoperability of the Exchange and 

Medicaid systems. 

II. Provisions of the Proposed 

Regulations 

A. Medicaid Eligibility Determinations 

Because of the changes made by the 

Affordable Care Act with respect to 

Medicaid eligibility, as well as changes 

in Medicaid eligibility and business 

processes that have occurred since our 

1989 final rule, we propose to consider 

Medicaid eligibility determinations to 

be ‘‘claims’’ of eligibility that can be 

considered part of the MMIS systems 

that are potentially eligible for the 

enhanced 90 and 75 percent FFP under 

section 1903(a)(3) of the Act. This 

proposed policy would apply only upon 

the effective date of the subsequent final 

rule. Additionally, we note that 

enhanced FFP does not eliminate the 

responsibility of States to ensure 

compliance with cost allocation 

principles outlined in OMB Circular 

A–87. 

Further, as explained below, 

enhanced FFP at the 90 percent rate for 

design, development, installation or 

enhancement would 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 

would be available after 2015 if those 

systems continue to meet the 

requirements specified in this 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, 


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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 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 

immediate, substantial commitment to, 

and investment in, technologies. That is, 

we expect that changes to State systems 

would 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. 

At the same time, once appropriate 

systems are deployed to support the 

eligibility changes in the Affordable 

Care Act, we anticipate significant 

efficiencies in both application 

maintenance and business operations. 

Thus, we believe that after CY 2015, 2 

years after the Affordable Care Act 

changes have gone into effect, 

additional investments in the design, 

development, and installation of such 

systems would 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. 

Additional investments in State 

eligibility systems are unlikely to yield 

similar rates of improvement and a 

regular administrative match (that is 50 

percent FFP for design, development, 

installation or enhancement) should be 

sufficient for efficient and effective 

administration of State Medicaid 

programs. We also note that ending 

enhanced funding in 2015 follows 

closely with the end of Federal grants 

for development of health insurance 

exchanges. 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. 

Further, we are proposing to limit 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. As discussed above, 

the eligibility changes of the Affordable 

Care Act will require that States modify 

their eligibility systems in time to 

comply with all such eligibility changes, 

and we believe that to meet the 

requirements of section 1903(a)(3)(A)(i) 

of the Act, all such modifications must 

be in place by December 31, 2015. If 

eligibility systems cannot meet our 

standards and conditions by such 

deadline, then we believe such systems 

will not be operating in a more efficient, 

economical or effective manner, because 

of their inability to timely meet the 

requirements of the Affordable Care Act 

for seamless coordination with the 

Exchange and implementation of 

simplified Medicaid eligibility rules and 

expanded coverage. Therefore we 

believe their subsequent operation 

would not meet the statutory 

requirements that they result in a more 

efficient, economical and effective 

operation of the State plan. 

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 

proposing 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). 

Over the last 5 years CMS developed 

and implemented the Medicaid 

Information Technology Architecture 

(MITA). MITA is intended to foster 

integrated business and IT 

transformation across the Medicaid 

enterprise to improve the administration 

of the Medicaid program. (The Medicaid 

enterprise is comprised of the Federal 

government, the States, and any trading 

partners who exchange Medicaid 

transactions with either the States or the 

Federal government). 

We believe the MITA initiative has 

accelerated the pace of modernization 

and over time, this effort will drive 

States’ systems toward a widespread 

network of technology and processes 

that support improved State 

administration of the Medicaid program, 

with a focus on streamlining and 

simplifying the enrollment process, and 

improving health outcomes and 

administrative procedures for Medicaid 

beneficiaries. 

The MITA initiative began in 2005 

with the concept of moving the design 

and development of Medicaid 

information systems away from the 

siloed, sub-system components that 

comprise a typical MMIS and moving to 

a Service Oriented Architecture (SOA) 

method of designing Medicaid 

information systems using discretely 

identified and described business 

services to drive system requirements. 

The MITA initiative uses an architecture 

framework—business, technical, and 

information—along with a business 

maturity model and process and 

planning guidelines, to provide a 

framework for the planned use of 

technology and infrastructure to meet 

the changing business needs of 

Medicaid programs. MITA enables all 

State Medicaid enterprises to meet 

common objectives within the 

Framework, while still supporting local 

needs unique to one particular State. 

All MITA framework documents are 

available to the public at http:// 

www.cms.gov/MedicaidInfoTechArch/. 

The MITA Framework describes the 

maturity model, policies, and 

procedures. 

We know that there is not a ‘‘one size 

fits all’’ technology solution to every 

business challenge and recognize that 

each technology investment must be 

viewed in light of existing, interrelated 

assets and their maturity. We also 

recognize that there are trade-offs 

concerning schedules, costs, risks, 

business goals, and other factors that 

should be considered when making 

technology investments. However, 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. 

We are proposing to define MITA at 

§ 433.111(c) in this rule and we propose 

to 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 


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conditions are met. Specifically, we 

articulate a set of standards and 

conditions that States must commit to in 

order to receive enhanced FFP: 

• 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 

business rules in both human and 

machine readable formats. We believe 

that this commitment is extremely 

important in order to ensure that States 

can more easily change and maintain 

systems, as well as integrate and 

interoperate with a clinical and 

administrative ecosystem designed to 

deliver person- and citizen-centric 

services and benefits. 

• Align to and advance increasingly 

in MITA maturity for business, 

architecture, and data. We expect to see 

States continuing to make measurable 

progress in implementing their MITA 

roadmaps. Already the MITA 

investment by Federal, State, and 

private partners have allowed us to 

make important incremental 

improvements to share data and reuse 

business models, applications and 

components. However, 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. 

• Ensure alignment with, and 

incorporation of, industry standards: the 

Health Insurance Portability and 

Accountability Act of 1996 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. 

We must ensure that Medicaid 

technology investments are made both 

to ensure the timely and reliable 

adoption of industry standards and to 

make most productive use of those 

standards as they become available. Use 

of industry standards promotes reuse, 

data exchange, and reduces 

administrative burden on patients, 

providers, and applicants. We would 

communicate applicable standards to 

States. Standards would be updated 

periodically to ensure conformance with 

the standards in the industry. States 

would be required to update systems 

and practices to adhere to evolving 

industry standards in order to remain 

eligible for enhanced FFP. Use of 

standards to promote accessibility for 

individuals with disabilities ensures 

that Medicaid technology investments 

would be equally effective in providing 

access to benefits and services for all 

users, and would comply with Federal 

civil rights laws prohibiting 

discrimination against individuals with 

disabilities, such as section 504 of the 

Rehabilitation Act and Title II of the 

Americans with Disabilities Act. 

• Promote sharing, leverage, and 

reuse of Medicaid technologies and 

systems within and among States. 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. 

We intend to work with States to 

identify promising State systems that 

can be leveraged and used by other 

States. We anticipate that we would be 

able to expedite review of APDs 

incorporating such successful models. 

Further, we would strongly encourage 

States to move to regional or multi-State 

solutions as often as possible, and we 

would help facilitate collaboration and 

communication among States. We 

would also scrutinize carefully any 

proposed investments in sub-State 

systems when we are asked to share in 

the costs of updating or maintaining 

multiple systems performing essentially 

the same functions within the same 

State. 

• Support accurate and timely 

processing of claims (including claims 

of eligibility), adjudications, and 

effective communications with 

providers, beneficiaries, and the public. 

Ultimately, the test of an effective and 

efficient system is whether it supports 

and enables an effective and efficient 

business process, producing and 

effectively communicating intended 

operational results with a high degree of 

reliability and accuracy. We do not 

believe that it would be appropriate for 

us to provide enhanced Federal funding 

for systems that are unable to support 

desired business outcomes. 

• Produce transaction data, reports, 

and performance information that 

would contribute to program evaluation, 

continuous improvement in business 

operations, and transparency and 

accountability. Systems should be able 

to electronically and accurately produce 

and expose data necessary for oversight, 

administration, evaluation, integrity, 

and transparency. This includes 

program data on claims, expenditures, 

and enrolled individuals; participation 

in waivers and plans; performance data, 

such as processing times, accuracy, and 

appeal results; and traditional systems 

standards such as availability and down 

time. 

We would develop a range of data and 

performance metrics on which States 

would be required to report on a regular 

basis, as a condition of receiving 

ongoing enhanced FFP for maintenance 

and operation. 

• 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. 

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 and beneficiaries. 

Additionally, we expect that technology 

investments must comply with 

standards to ensure security and 

accessibility consistent with current 

Federal law and investments must 

comply with the requirements under 

existing Federal civil rights protections 

for all individuals in developing the 

system architecture. 

We seek comments on these standards 

and conditions. In particular, we seek 

comments on the following: 

• What types of Federal leadership, 

technical assistance, and sub-regulatory 

guidance would be helpful to support 

States as they come into compliance 

with these standards and conditions. 

• Whether this list of standards and 

conditions is sufficiently robust and 

complete to guide decisions on 

technology investments of the scope and 

size of MMIS. 

Further, to ensure that States have an 

opportunity to come into compliance 

with these requirements, we are 

proposing that States currently receiving 

enhanced FFP for MMIS have a period 

of transition to come into compliance 

with the standards and conditions 

above. Under our proposed schedule, 

the following transition periods would 

apply: 

• For new MMIS development (new 

APDs requesting 90 percent FFP for 

design, development, installation, and 

enhancement): No transition period. We 

believe all APD requests submitted after 


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the effective date of the final rule must 

comply with all of our final standards 

and conditions. 

• For MMIS development already 

underway (approved APDs providing 90 

percent enhanced FFP): 12-month 

transition period (beginning with the 

effective date of the final regulation) in 

which to submit an updated 

Implementation APD (IAPD) detailing 

how systems would be modified to meet 

the required conditions and standards. 

This transition period would allow 

systems that are currently being 

developed to come into compliance 

with our standard and conditions, while 

ensuring that new systems receiving 

Federal funding are eventually designed 

in a manner that results in the most 

efficient use of technology. 

• For maintenance and operations of 

MMIS currently receiving 75 percent 

FFP: 36-month transition period 

(beginning with the effective date of the 

final regulation) in which to submit an 

IAPD with plans to upgrade or modify 

systems to meet the required conditions 

and standards. 

• Eligibility systems (currently 

receiving 50 percent for development 

and maintenance and operations): 

Because eligibility systems are not 

currently receiving enhanced funding, 

we propose no 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 would 

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 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 request comments on this 

proposed transition schedule and 

whether the transition periods should 

be reduced or extended. We also request 

comments on how, during the transition 

period and beyond, we can provide 

strong Federal leadership by fostering 

collaboration among States, identifying 

and disseminating best practices, 

creating Federal models or components 

(e.g., the Office of Consumer 

Information and Insurance Oversight’s 

(OCIIO) Cooperative Agreement 

providing funding to create efficiencies 

in the design, development, and 

implementation of the Exchange IT 

systems), and assisting individual 

States. 

Lastly, we are proposing that these 

standards and conditions be enforced 

through both front-end and back-end 

review processes. Front-end review 

would entail APD review and prior 

approval processes where States apply 

for enhanced match before entering into 

IT investment projects. Back-end 

reviews would entail certifications of 

the systems capabilities, as well as 

ongoing performance monitoring. 

C. Reviews and Performance Monitoring 

of MMISs 

Previously, regulations at § 433.119 

indicated that we would review at least 

once every 3 years each system 

operation initially approved under 

§ 433.114 and, based on the results of 

the review, reapprove it for FFP at 75 

percent of expenditures if certain 

standards and conditions were met. The 

3-year system performance reviews 

(SPRs) served as an evaluation 

instrument in determining the extent to 

which an MMIS performance is 

sustained after the initial certification. 

As part of SPRs, we determined if the 

system program logic was accurately 

and timely processing claims and 

payment information according to 

standards determined in Federal 

regulation. Subsequent recertification of 

a State’s MMIS was based upon the 

results of the SPR. Prior to 1998, SPRs 

were performed annually. 

We stopped performing such periodic 

reviews after enactment of section 4753 

of the BBA (See section 11100 of the 

State Medicaid Manual). SPRs currently 

are performed only as part of focused 

reviews. The BBA also eliminated 

references to development and 

application of performance standards 

used to conduct periodic standardsbased reviews of previously certified 

MMISs. As such, many of the provisions 

in 42 CFR part 433, subpart C should 

have been revised to comply with the 

repealed requirements; for example, 

much of the language included in 

§ 433.119 through § 433.121 references 

the SPRs and the reduction of FFP in 

the event that States did not have 

systems that remained capable of 

processing claims and payments and/or 

were not performing well in completing 

these activities. 

While the BBA eliminated the 

mandate that we perform SPRs, we do 

not believe it removed our discretion to 

perform reviews under our general 

authority to ensure that MMISs continue 

to operate in a manner that complies 

with Federal law, regulations, and 

guidance. The Secretary has authority to 

perform periodic reviews of MMIS 

systems (including eligibility 

determination systems receiving an 

enhanced FFP) to ensure that systems 

receiving enhanced FFP continue to 

meet the requirements of section 

1903(a)(3) of the Act and that they 

continue to provide efficient, 

economical, and effective 

administration of the plan. Section 

1903(a)(3)(B) of the Act allows for 75 

percent FFP for the sums expended that 

are ‘‘attributable to the operation of 

systems * * * of the type described in 

subparagraph (A)(i).’’ The type of system 

described in ‘‘subparagraph (A)(i)’’ is 

one that, on an ongoing basis, results in 

‘‘more efficient, economical and 

effective administration of the plan.’’ In 

addition, the Secretary has authority 

under section 1903(r) of the Act to 

ensure continuing compliance with the 

requirements of that section. 

Given our proposed modifications to 

part 433 of our regulations, as well as 

the new enhanced FFP for certain 

eligibility determination systems, we 

believe it is prudent for us to clearly 

state the expectation that ongoing 

successful performance is a necessary 

condition for receipt of the 75 percent 

FFP for operations and maintenance. 

We plan to establish standards and 

conditions that would ensure that all 

MMIS systems receiving enhanced FFP 

are complying with regulatory and 

statutory requirements. Through subregulatory guidance, we would explain 

further how we would measure whether 

the requirements are being met, such as 

through a core set of standards and 

conditions that focuses on the 

dimensions for systems that 

communicate to beneficiaries. We 

would also explain how States can meet 

any such performance measures. 

For example, we would 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 stakeholders and 

based on industry experience. 

Additionally, we propose to evaluate 

systems based upon their 

interoperability with other Federal and 

State health programs. Thus, in 

operating their systems, States would 

need to ensure that they consult 

documents articulating the 


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Department’s strategy on 

interoperability, such as the Guidance 

for Exchange and Medicaid Information 

Technology Systems. 

We would expect that any failures or 

deficiencies would be the basis for 

investigation and opportunity for 

corrective action before making a 

determination that enhanced FFP would 

be discontinued. 

Therefore, we propose to modify 

§§ 433.119 through 433.121 to eliminate 

any reference to SPRs but, more 

importantly, to reflect this requirement 

for performance monitoring and review. 

We are requesting comments on this 

proposal, as well as on the types of 

standards and conditions that should be 

employed initially and over time. 

Additionally, States should consider 

that we propose to evaluate systems and 

consider interoperability with other 

Federal and State health programs. 

Thus, States should consider other 

documents that articulate the 

Department’s strategy such as the 

Guidance for Exchange and Medicaid 

Information Technology Systems and 

continue to consider such guidance in 

meeting the requirements of this 

proposed rule. 

D. Partial Systems Improvements or 

Modernizations 

Throughout this proposed rule, we 

have used the word ‘‘system’’ or 

‘‘technology’’ to refer to what might well 

be a system of systems maintained in 

States in support of MMIS functions. 

We recognize that a modernization 

agenda in such a State might well move 

in phases. However, States submitting 

partial system updates would need to 

submit and have an approved roadmap 

for achieving full compliance with the 

standards and conditions in this 

regulation. We would track progress 

against approved roadmap when 

determining if system updates meet the 

standards and conditions for the 

enhanced match. We also recognize that 

some enhancements currently eligible 

for enhanced funding are intended to 

satisfy a specific requirement or to 

address a compliance issue, for 

example, ICD–10 or implementation of 

the National Correct Coding Initiative. 

We invite comments on alternative 

approaches to best address these cases 

in applying our standards and 

conditions or performance monitoring. 

E. Other Technical Changes to Federal 

Regulations at 42 CFR Part 433 Subpart 

C—Mechanized Claims Processing and 

Information Retrieval Systems 

Since the enactment of the BBA, other 

provisions of our regulations have since 

been superseded. For example, 

regulations at § 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 § 433.130 (referencing 

waiver provisions for qualifying States 

with a certain 1976 population and 

expenditures) no longer apply. As we 

are revising our regulations to provide 

for the enhanced FFP for systems that 

perform eligibility and enrollment 

activities, we propose to also revise 

other provisions in part 433, subpart C 

to conform to the proposals set out in 

this rule. Thus, we are proposing to 

delete §§ 433.113 and 433.130 in their 

entirety, and references to the 

provisions in these sections that we are 

deleting. 

Specifically, we propose to add a new 

definition to § 433.111 at (c) to include 

MITA. MITA is both an initiative and a 

framework. It is a national framework to 

support improved systems development 

and health care management for the 

Medicaid enterprise. It is an initiative to 

establish national guidelines for 

technologies and processes that enable 

improved program administration for 

the Medicaid enterprise. The MITA 

initiative includes an architecture 

framework, models, processes, and 

planning guidelines for enabling State 

Medicaid enterprises to meet common 

objectives with the framework while 

supporting unique local needs. 

Further, we propose to amend 

§ 433.111(b)(3) to eliminate the 

requirement that ‘‘Eligibility 

determination systems are not part of 

mechanized claims processing and 

information retrieval systems or 

enhancements to those systems.’’ This, 

in effect, would mean that, once the 

subsequent final rule is effective, 

mechanized claims processing and 

information retrieval systems would 

include eligibility determination 

systems, including the allocated 

Medicaid portion of integrated 

eligibility determination systems. We 

note that eligibility determination 

systems would be eligible for the 90 and 

75 percent FFP only after the effective 

date of our final rule. 

We also propose to eliminate the 

provision at § 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 propose to add language to 

§ 433.112 to indicate that 90 percent and 

75 percent FFP would be available for 

the design, development, installation or 

enhancement, and maintenance and 

operation (respectively) of mechanized 

claims processing systems, including 

those that perform eligibility 

determination and enrollment activities, 

as well as the Medicaid portion of 

integrated eligibility determination 

systems, if such systems meet our 

standards and conditions. (The 90 

percent FFP for eligibility determination 

systems would be available only for a 

time-limited period, and the 75 percent 

FFP for eligibility determinations would 

be available only for those systems that 

come into compliance with the 

standards and conditions before the end 

of that time-limited period.) 

By amending § 433.112, 90 percent 

and 75 percent FFP for a State’s 

reasonable administrative expenditures 

for the design, development, installation 

or enhancement, and maintenance and 

operations to mechanized claims 

processing and information retrieval 

systems, (MMISs), including those that 

perform eligibility determination and 

enrollment activities, as well as the 

Medicaid portion of eligibility 

determination systems, would be 

available only if the APD is approved by 

us before the State’s expenditure of 

funds and if the system meets the 

standards and conditions. For those 

systems that are currently approved for 

90 percent FFP, we would provide a 

transition period of 12 months for States 

to submit an IAPD to modify and 

upgrade systems meet the standards and 

conditions established by this rule. For 

those systems that are already approved 

and currently receiving 75 percent FFP 

for maintenance and operations, the 

States would be required to submit an 

IAPD to modify and upgrade systems to 

meet the standards and conditions 

within 36 months. Both transition 

periods would begin with the effective 

date of the subsequent final rule. New 

systems seeking 90 percent FFP would 

need to demonstrate that they would 

meet all standards and conditions 

established by this rule. Eligibility 

determination systems currently 

operating would need to come into 

compliance with the standards and 

conditions in order to begin receiving 75 

percent FFP for State expenditures. We 

believe this would provide States with 

a reasonable period of transition while 

still ensuring that State systems move 

expeditiously towards improvement and 

advanced technology. 

States would be required to supply 

information and demonstrate 

consideration of the following items to 

CMS for review and approval and as 

part of the APD before we would grant 

approval of enhanced funding. We 


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would scrutinize all proposed 

investments and would decline to 

approve enhanced funding (resulting in 

50 percent FFP) for proposals that do 

not demonstrate careful consideration 

and application of these standards and 

conditions. States would ensure that 

MMIS systems, including those that 

perform eligibility determinations and 

enrollment activities (as well as the 

Medicaid portion of eligibility 

determination systems) would be 

required to meet the following 

requirements: 

(1) 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. 

(2) Align to and advance increasingly 

in MITA maturity for business, 

architecture, and data. 

(3) Ensure alignment with, and 

incorporation of, industry standards: 

The Health Insurance Portability and 

Accountability Act of 1996 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. 

(4) Promote sharing, leverage, and 

reuse of Medicaid technologies and 

systems within and among States. 

(5) Support accurate and timely 

processing of claims (including claims 

of eligibility), adjudications, and 

effective communications with 

providers, beneficiaries, and the public. 

(6) Produce transaction data, reports, 

and performance information that 

would contribute to program evaluation, 

continuous improvement in business 

operations, and transparency and 

accountability. 

(7) 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. 

States can also choose to continue as 

they currently operate and receive 50 

percent matching. However, this would 

not change the need for States to meet 

the substantive requirements of Federal 

legislation. 

Further, we are proposing to codify at 

§ 433.112(c) that we would provide 90 

percent FFP for the design, 

development, installation or 

enhancement of an eligibility 

determination system only before 

December 31, 2015, even if work on an 

approved APD continues after 2015. 

We believe that changes to State 

systems would be completed with the 

start of the new Affordable Care Act 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 

the Exchanges, and/or Medicaid and 

CHIP eligibility expansions. Thus, we 

are providing for an additional 2 years 

of 90 percent enhanced FFP so that 

States’ systems are provided with 

additional time to ensure the 

performance and efficiency 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. 

Lastly, we propose to revise § 433.119 

to account for performance monitoring 

and reviews and to make related 

conforming changes to part 433. 

III. 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: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The changes specified in this 

proposed rule do not impose any new 

reporting, recordkeeping or disclosure 

requirements. 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. The 

burden associated with the 

aforementioned information collection 

requirements is currently approved 

under OCN 0938–1088 and expires May 

31, 2013. We are, however, requesting 

comments on our analysis; that is, that 

the specific requirements imposed by 

this rule do not mandate any additional 

information collection requirements on 

States. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Overall Impact 

The estimated costs of the Federalshare for Medicaid administration have 

been reflected in the Mid-Session 

Review of the FY 2011 President’s 

Budget. 

We have examined the proposed 

impacts of this rule as required by 

Executive Order 12866, the Regulatory 

Flexibility Act (RFA), section 1102(b) of 

the Act regarding rural hospital impacts, 

the Unfunded Mandates Reform Act, 

Executive Order 13132 on Federalism, 

and the Congressional Review Act. 

Executive Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

rules with economically significant 

effects ($100 million or more in any 1 

year). This proposed 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 and 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 the proposed 

rule. 

States could 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 


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systems. Similarly, States could 

continue to receive 50 percent FFP for 

expenditures associated with the 

maintenance and operation of such 

systems. 

This proposed rule 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 

proposed standards and conditions on 

MMIS and the availability of enhanced 

match for State eligibility systems 

through CY 2015 would impact State 

investments over the 10-year period of 

2011 through 2020. As discussed further 

below, 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. 

B. 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, would begin 

to develop ‘‘modular’’ technology 

solutions, these solutions could be used 

by others through a ‘‘plug and play’’ 

approach, in which pieces of a new 

MMIS would 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 would 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 would 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 

would 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 

proposed 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, serviceoriented 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 be compelled to 

rethink and streamline processes as a 

result of greater reliance on technology. 

C. 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 would 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 assumed ten States have 

sophisticated systems that are very close 

to meeting the proposed regulation 

standards. As a result, we assumed the 

remaining 41 States would 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 early adopter States 

would see increased development, 

design, and installation costs, whereas 

late adopter States would 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 would 

comply with the standards and 

conditions proposed 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 

impact on baseline MMIS costs from FY 

2011 through 2015 of implementing the 

proposed regulation is approximately 

$1.1 billion, and the net Federal 

budgetary impact from FY 2011 through 

2020 is approximately $557 million in 

savings. 

D. Calculation of Eligibility Systems 

Costs 

For eligibility systems, we applied the 

same methodology we used to calculate 

net Federal costs to MMIS under the 

proposed regulation. 

In order to meet the requirements of 

the Affordable Care Act, States would 

build new systems or modernize 

existing systems. Rather, 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 

regulation, we assumed that new 

systems on average would cost $50 

million over 3 years for each State 


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($16.7 million total cost per year, or $15 

million Federal costs at 90 percent FFP 

per year). We assumed that 25 States 

would replace their eligibility systems 

in FY 2011 through CY 2015. We 

assumed no States would 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 would 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 

proposed regulation. 

The net Federal cost impact from FY 

2011 through 2015 of implementing the 

proposed 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. 

E. Total Net Cost Impact 

Combining the impact of the proposed 

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 

this proposed regulation. Combining the 

impact of the proposed 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 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 would 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 would indicate 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 

proposed 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 proposed 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 would provide for efficient systems 

that in the end would 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 PROPOSED 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. 

TABLE 1.1—NET FEDERAL COST IMPACT OF PROPOSED 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. 


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TABLE 2—NET STATE COST IMPACT OF PROPOSED 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 PROPOSED 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. 

F. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (RFA) 

requires agencies to prepare an Initial 

Regulatory Flexibility Analysis to 

describe and analyze the impact of 

proposed rule on small entities unless 

the Secretary can certify that the 

regulation would 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 would affect States, 

which are not considered small entities, 

the Secretary has determined that this 

proposed rule would not be likely to 

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 603 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 would 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 by State, local, or tribal 

governments, in the aggregate, or by the 

private sector of $135 million. This rule 

does not mandate expenditures by the 

State governments, local governments, 

tribal governments, or the private sector. 

This rule provides that States can 

receive enhanced FFP if States ensure 

that the mechanized claims processing 

and information retrieval systems, 

(MMISs), 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 meeting certain 

performance requirements. This is a 

voluntary activity; i.e., 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 in 

order to make eligibility determinations 

for Title XIX. This 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 cashassistance 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 

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. 

G. Alternatives Considered 

We considered that an alternative to 

our proposed rule would be that we not 

provide enhanced match 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 


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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. 

H. 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 would 

need to be adopted. System 

transformations would 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’’), or with Federal 

‘‘Exchanges’’ if States choose not to 

operate a State Exchange; 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 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 and 

beneficiaries. Thus, we are committed to 

providing 90 percent FFP for design, 

development, and installation through 

CY 2015 or 75 percent FFP for 

maintenance and operations of such 

systems. We have provided that States 

must commit to a set of standards and 

conditions in order 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. 

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. Because of the uncertainties 

identified in establishing the cost 

estimates, CMS intends to update the 

estimates with any final rule. 

TABLE 3—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED NET COSTS, FROM FY 2011 TO FY 2020 

[In $ millions] 

Category 

TRANSFERS 

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 

High Estimate ........................ 389.14 333.19 

From ....................................................................... Federal Government to State Governments 

Annualized Monetized Transfers ........................... Primary Estimate ................... ¥189.87 ¥189.82 FYs 2011–2020 

Low Estimate ......................... ¥142.40 ¥142.36 

High Estimate ........................ ¥237.34 ¥237.28 

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 proposes to amend 

42 CFR chapter IV as set forth below: 

PART 433—STATE FISCAL 

ADMINISTRATION 

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. 

2. Section 433.110 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 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. 

* * * * * 

3. Section 433.111 is amended by— 

A. Removing paragraph (b)(3). 

B. Adding paragraph (c). 

The addition reads as follows: 

§ 433.111 Definitions. 

* * * * * 


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(c) ‘‘Medicaid Information Technology 

Architecture (MITA)’’ is defined at 

§ 495.302. 

4. Section 433.112 is amended by-– 

A. Adding ‘‘Subject to paragraph (c) of 

this section,’’ at the beginning of 

paragraph (a). 

B. Revising paragraphs (b)(2) and (c). 

C. Removing the cross-reference to ‘‘45 

CFR 74.171’’ and adding ‘‘45 CFR 

74.27(a)’’ in its place in paragraph (b)(7). 

D. Adding paragraphs (b)(10) through 

(16). 

The revisions and additions read as 

follows: 

§ 433.112 FFP for design, development, 

installation or enhancement of mechanized 

claims processing and information retrieval 

systems. 

* * * * * 

(b) * * * 

(2) The system meets the system 

requirements and standards and 

conditions 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 

Health Insurance Portability and 

Accountability Act of 1996 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 beginning, 

and no earlier than, [effective date of the 

final rule], and only through December 

31, 2015. 

§ 433.113 [Removed] 

5. Section 433.113 is removed. 

6. Section 433.114 is amended by— 

A. In paragraph (a), removing ‘‘(h)’’ 

and adding in its place ‘‘(i)’’. 

B. Revising paragraph (b). 

The revision reads as follows: 

§ 433.114 Procedures for obtaining initial 

approval; notice of decision. 

* * * * * 

(b) If CMS disapproves the system, the 

notice will include 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. 

7. Section 433.116 is amended by— 

A. In paragraph (a), removing ‘‘Subject 

to 42 CFR 433.113(c),’’ and replacing it 

with ‘‘Subject to paragraph (j) of this 

section,’’. 

B. In paragraph (b), removing ‘‘(h)’’ 

and adding in its place ‘‘(i)’’. 

C. Adding new paragraphs (i) and (j). 

The additions read as follows: 

§ 433.116 FFP for operation of mechanized 

claims processing and information retrieval 

systems. 

* * * * * 

(i) The standards and conditions of 

§ 433.112(b)(10) through (16) must be 

met. 

(j) Beginning and no earlier than, [add 

in effective date of final rule], 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. 

§ 433.117 [Amended] 

8. Section 433.117 is amended by— 

A. Amending paragraph (a) by 

removing the phrase ‘‘all conditions’’ 

and adding in its place the phrase ‘‘all 

standards and conditions’’. 

B. Amending paragraph (c)(2) by 

removing the reference ‘‘(h)’’ and adding 

‘‘(i)’’ in its place. 

9. Section 433.119 is amended by— 

A. Revising paragraphs (a) 

introductory text. 

B. Revising paragraph (a)(1). 

C. Amending paragraph (a)(2) by 

removing the reference ‘‘(h)’’ and adding 

‘‘(i)’’ in its place. 

D. Revising paragraphs (a)(4) and (c). 

The revisions read as follows: 

§ 433.119 Conditions for reapproval; 

notice of decision. 

(a) CMS periodically reviews each 

system operation initially approved 

under § 433.114 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 § 433.112(b)(1), (3), (4), 

(7) through (16). 

* * * * * 

(4) A State system must meet all of the 

requirements of this subpart within the 

appropriate period CMS determines 

should apply as required by 

§ 433.123(b). 

* * * * * 

(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. 

10. Section 433.120 is amended by 

revising paragraph (b) to read as follows: 

§ 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. 

11. Section 433.121 is amended by 

revising paragraph (a) to read as follows: 

§ 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 

disallowance concerning a reduction in 


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FFP claimed for system operations 

caused by a disapproval of the State’s 

system. 

* * * * * 

§ 433.130 [Removed] 

12. Section 433.130 is removed. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program). 

Dated: October 14, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: October 28, 2010. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2010–27971 Filed 11–3–10; 11:15 am] 

BILLING CODE 4120–01–P 


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