Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20455 

2015, are still being accepted and must 

be received by June 11, 2015. 

FOR FURTHER INFORMATION CONTACT: 

Pamela Lew at (202) 317–7053 (not a 

toll free number). 

SUPPLEMENTARY INFORMATION: 

Background 

The notice of proposed rulemaking by 

cross-reference to temporary regulations 

(REG–143040–14) that is the subject of 

these corrections is under section 6045 

of the Internal Revenue Code. 

Need for Correction 

As published, the notice of proposed 

rulemaking by cross-reference to 

temporary regulations (REG–143040–14) 

contains errors that may prove to be 

misleading and are in need of 

clarification. 

Correction of Publication 

Accordingly, the notice of proposed 

rulemaking by cross-reference to 

temporary regulations (REG–143040– 

14), that was the subject of FR Doc. 

2015–05654, is corrected as follows: 

1. On page 13293, in the preamble, 

first column, the second line of the third 

paragraph, the language ‘‘contained in 

section 1.6045A–1 relating ’’ is 

corrected to read ‘‘contained in 

§ 1.6045A–1 relating’’. 

2. On page 13293, in the preamble, 

third column, the tenth line from the 

top of the column, the language ‘‘not 

make the election. The temporary’’ is 

corrected to read ‘‘not made the 

election. The temporary’’. 

Martin V. Franks, 

Chief, Publications and Regulations Branch, 

Legal Processing Division, Associate Chief 

Counsel (Procedure and Administration). 

[FR Doc. 2015–08745 Filed 4–15–15; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 95 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 433 

[CMS–2392–P] 

RIN 0938–AS53 

Medicaid Program; Mechanized Claims 

Processing and Information Retrieval 

Systems (90/10) 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

extend enhanced funding for Medicaid 

eligibility systems as part of a state’s 

mechanized claims processing system, 

and would update conditions and 

standards for such systems, including 

adding to and updating current 

Medicaid Management Information 

Systems (MMIS) conditions and 

standards. These changes would allow 

states to improve customer service and 

support the dynamic nature of Medicaid 

eligibility, enrollment, and delivery 

systems. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. June 15, 2015. 

ADDRESSES: In commenting, please refer 

to file code CMS–2392–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–2392–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–2392–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: 

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, call 

telephone number (410) 786–0265 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Victoria Guarisco (410) 786–0265, for 

issues related to administrative 

questions. Carrie Feher (410) 786–8905, 

for issues related to regulatory impact 

questions. Denise G. Osborn-Harrison 

(410) 786–1661 or Martin Rice (410) 

786–2417, for general questions. 

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. Executive Summary 

A. Purpose 

This proposed rule would revise the 

regulatory definition of Medicaid 

mechanized claims processing and 

information retrieval systems to include 

Medicaid eligibility and enrollment 

(E&E) systems, which would have the 

consequence of making available for 

E&E systems the enhanced federal 

financial participation (FFP) specified 

in section 1903(a)(3) of the Social 


tkelley on DSK3SPTVN1PROD with PROPOSALS
20456 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 

Security Act (the Act) on an ongoing 

basis. Enhanced FFP will be available, 

under certain circumstances, for costs of 

such systems at a 90 percent federal 

matching rate for design and 

development activities, and at a 75 

percent federal matching rate for 

maintenance and operations activities. 

In addition to lifting the time limit that 

currently applies to the inclusion of E&E 

systems in the definition of mechanized 

claims processing and information 

retrieval systems, we are proposing 

changes to the standards and conditions 

applicable to such systems in order to 

access enhanced funding. We are also 

soliciting comment on new approaches 

to systems development, acquisition 

approvals and formal certification. 

Specifically, we are proposing new 

definitions for ‘‘Commercial Off the 

Shelf (COTS) software’’, ‘‘open source,’’ 

‘‘proprietary,’’ ‘‘shared services,’’ and 

‘‘MMIS Module.’’ 

B. Summary of the Major Provisions 

We are proposing changes to 

§§ 433.110, 433.111, 433.112, 433.116, 

433.119, and 433.120. These changes 

provide for the 90 percent enhanced 

FFP for design, development and 

implementation activities for E&E 

systems to continue on an ongoing 

basis. The proposed changes would 

allow the states to complete fully 

modernized E&E systems and will 

support the dynamics of national 

Medicaid enrollment and delivery 

system needs. The changes will also set 

forth additional criteria for the 

submission, review and approval of 

Advance Planning Documents (APDs). 

In addition, we are proposing changes 

to provisions within 45 CFR part 95, 

subpart F, § 95.611. These changes align 

all Medicaid IT requirements with 

existing policy for Medicaid 

Management Information Systems 

(MMIS) pertaining to prior approvals 

when states release acquisition 

solicitation documents or execute 

contracts above a certain threshold 

amounts. In addition we propose to 

amend § 95.611(a)(2) by removing the 

reference to 45 CFR 1355.52. 

C. Summary of Costs and Benefits 

Provision description Total costs Total benefits 

42 CFR part 433 .................. The federal net costs from FY 2016 through 2025 of 

implementing the proposed regulation on eligibility 

systems is approximately $3 billion. This includes approximately $5.1 billion in increased federal costs for 

system design and development, offset by lower anticipated maintenance and operations costs. These 

costs represent only the federal share. These figures 

were derived from states’ actual system development 

and maintenance costs as the foundation for projected costs.

We project lower costs over the 10-year budget window 

due to the increased savings to operating one E&E 

system and eliminating legacy systems. The costs 

shift from mostly 90 percent FFP for design, development, and installation to 75 percent FFP for maintenance and operations over time. (federal share only). 

42 CFR part 433 .................. The state net costs from FY 2016 through 2025 of implementing the proposed regulation on eligibility systems is approximately ¥$1.1 billion. This includes 

approximately $572 million in state costs for system 

design and development, offset by lower anticipated 

maintenance and operations costs. These costs represent only the state share.

We project savings for states over the 10-year budget 

window due to moving away from operating two or 

more systems, and replacing legacy systems. 

45 CFR part 95, subpart F: 

§ 95.611.

This is an administrative change with no associated 

costs.

This administrative change is expected to result in 

nominal savings from increased efficiency. 

* See section VI. of this proposed rule for the underlying assumptions in support of these totals and further explanation. 

II. Background 

A. Legislative History and Statutory 

Authority 

Section 1903(a)(3)(A)(i) of the Act 

provides for federal financial 

participation (FFP) at the rate of 90 

percent for state expenditures for the 

design, development, or installation of 

mechanized claims processing and 

information retrieval systems as the 

Secretary of the Department of Health 

and Human Services (the Secretary) 

determines are likely to provide more 

efficient, economical and effective 

administration of the state plan. In 

addition, section 1903(a)(3)(B) provides 

for federal financial participation (FFP) 

at the rate of 75 percent for state 

expenditures for maintenance and 

operation of such systems. 

In a final rule published October 13, 

1989, at 54 FR 41966, CMS revised the 

definition of a mechanized claims 

processing and information retrieval 

system at 42 CFR 433.111(b) to provide 

that eligibility determination systems 

would not be considered part of 

mechanized claims processing and 

information retrieval systems or 

enhancements to those systems. As a 

result, CMS also indicated at 42 CFR 

433.112(c) that the enhanced FFP for 

mechanized claims processing and 

information retrieval systems in 

accordance with section 1903(a)(3) of 

the Act would not be available for 

eligibility determination systems. 

We published a final rule entitled the 

‘‘Federal Funding for Medicaid 

Eligibility Determination and 

Enrollment Activities’’ on April 19, 

2011 (76 FR 21949–21975) that 

temporarily reversed the 1989 rule. We 

explained that this reversal was in 

response to changes made by the 

Affordable Care Act that required 

sweeping changes in Medicaid 

eligibility and enrollment systems and 

removed certain linkages between 

Medicaid eligibility determinations and 

eligibility determinations made by other 

federal-state programs, as well as 

changes in Medicaid eligibility and 

business processes that have occurred 

since our 1989 final rule to integrate 

eligibility and claims processing 

systems. The reversal was temporary to 

address the immediate need for 

eligibility system redesign to coordinate 

with the overall claims processing and 

reporting systems. Specifically, in the 

April 19, 2011 final rule (75 FR 21950), 

we included eligibility determination 

systems in the definition of mechanized 

claims processing and information 

retrieval systems in § 433.111(b)(3)(B). 

We also provided that the enhanced FFP 

would be available at the 90 percent rate 

for design, development, installation or 

enhancement of eligibility and 

enrollment systems and at the 75 

percent rate for maintenance and 

operations of such systems, to the extent 

that the eligibility and enrollment 

systems were developed on or after 

April 19, 2011, operational by December 

31, 2015, and met all standards for such 


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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20457 

systems. Under that rule, the 90 percent 

enhanced matching rate for system 

development is available through 

calendar year (CY) 2015 for state 

expenditures on eligibility and 

enrollment systems that meet specific 

standards and conditions, and the 75 

percent match for maintenance and 

operations is available for systems that 

meet specific standards and conditions 

before the end of calendar year 2015, as 

long as those systems are in operation. 

In the April 19, 2011 (75 FR 21950) 

regulation, under the authority of 

sections 1903(a)(3)(A)(i) and 

1903(a)(3)(B) of the Act, we codified the 

conditions at 42 CFR 433.112(b) that 

must be met by the states for Medicaid 

technology investments including 

traditional claims processing systems, as 

well as eligibility systems, to be eligible 

for the enhanced funding match. We 

also issued sub-regulatory guidance: 

‘‘Medicaid IT Supplement Version 1.0’’ 

in April 2011 that outlined in greater 

detail the seven standards and 

conditions for enhanced funding. 

As explained in more detail below, 

we are proposing to make permanent 

the inclusion of eligibility and 

enrollment systems in the definition of 

mechanized claims processing and 

information retrieval systems, and to 

consequently extend the availability of 

enhanced FFP. We propose to define a 

state Medicaid eligibility and 

enrollment system as the system of 

software and hardware used to process 

applications, renewals and updates from 

Medicaid applicants and beneficiaries. 

In part, this proposed change reflects a 

new understanding of the complexity of 

the required eligibility and enrollment 

system redesign, and a new appreciation 

of the need for eligibility and 

enrollment systems to operate as an 

integral part of the mechanized claims 

processing and information retrieval 

systems using a standard Medicaid 

information technology architecture. 

We previously expected that 

fundamental changes to state systems 

would be completed well before 

December 31, 2015. It is now clear that 

additional improvements would benefit 

states and the federal government. It is 

also clear that such systems are integral 

to the operation of the state’s overall 

mechanized claims processing and 

information retrieval systems and must 

be designed and operated as a 

coordinated part of such systems. 

Without recognition as an integral part 

of such systems, and without ongoing 

enhanced federal funding, state 

Medicaid eligibility and enrollment 

systems are likely to become out of date 

and would not be able to coordinate 

with, and further the purposes of, the 

overall mechanized claims processing 

and information retrieval systems. 

B. Program Affected 

Since 2011, CMS has worked with the 

states on the design, development and 

implementation of modernized 

Medicaid and CHIP eligibility and 

enrollment systems, supported by the 

enhanced FFP, to achieve the technical 

functionality necessary for the 

implementation of the new eligibility 

and renewal policies on January 1, 2014. 

In December 2012, we identified critical 

success factors in order for the states to 

demonstrate operational readiness, 

including: Ability to accept a single, 

streamlined application; ability to 

convert existing state income standards 

to modified adjusted gross income 

(MAGI); ability to convey state-specific 

eligibility rules to the FederallyFacilitated Marketplace (FFM), as 

applicable; ability to process 

applications based on modified adjusted 

gross income (MAGI) rules; ability to 

accept and send application files 

(accounts) to and from the Marketplace; 

ability to respond to inquiries from the 

Marketplace on current Medicaid or 

CHIP coverage; and, ability to verify 

eligibility based upon electronic data 

sources (the Federal Data Services Hub 

or an approved alternative). 

The states are in varying stages of 

completion of their E&E system 

functionality, with work still ahead to 

maximize automation, streamline 

processes, and to migrate non-MAGI 

Medicaid programs into the new system. 

In addition, the majority of the states are 

engaged in system integration with 

human services programs, further 

increasing efficiencies and improving 

the consumer experience for those 

seeking benefits or services from 

programs in addition to Medicaid. 

III. Provisions of the Proposed 

Regulations 

The proposed regulatory changes in 

this proposed rule would permanently 

recognize Medicaid and CHIP eligibility 

and enrollment systems as an integral 

part of Medicaid mechanized claims 

processing and information retrieval 

systems, and would remove the time 

limits on the availability of enhanced 

rates of FFP for qualifying systems. 

In addition, we are proposing to 

strengthen the standards and conditions 

for qualifying systems. Our purpose in 

the April 19, 2011 final rule (75 FR 

21950) for moving to the standards and 

conditions-based approach to approving 

federal funding was intended to foster 

strong collaboration with the states, 

streamline the business process between 

the states and CMS by reducing 

unnecessary paperwork, and focus 

attention on the key elements of success 

for modern systems development and 

deployment. With the proposed ongoing access to enhanced funding for 

eligibility systems, and in recognition of 

refinements needed to the standards and 

conditions that pertain to MMIS and 

eligibility and enrollment systems, we 

are proposing new criteria and 

modifying the existing standards and 

conditions required for the states to 

access the enhanced funding and 

provide greater accountability for the 

system investment. 

These changes will permit states 

additional time to complete their full 

system modernization and retire their 

outdated ‘‘legacy’’ systems. In addition, 

these changes will promote an 

integrated, enterprise approach to 

Medicaid information technology. An 

enterprise approach involves the 

identification of functionality that can 

be shared across multiple programs, 

systems and subsystems. For example, a 

master person index or provider 

directory can be built once for multiple 

uses within the larger Medicaid 

enterprise. We anticipate that this 

approach will help drive down 

potentially redundant IT costs. 

Criteria will be set forth stating 

requirements for APDs and review of 

the same such as; for both MMIS and 

E&E systems, the state must identify in 

an APD its own key personnel (by type 

and time commitment) assigned to the 

project to ensure that sufficient state 

capacity is there to support a successful 

project outcome. We are proposing that 

for both MMIS and E&E systems, the 

state must meet the industry standards 

and conditions already in place. 

We are proposing that states will need 

to, for both MMIS and E&E systems, 

develop mitigation plans for all major 

milestones and functionality that will 

contain strategies to mitigate the failure 

to achieve compliance with applicable 

requirements. For eligibility systems, 

the state must have delivered acceptable 

MAGI-based system functionality as 

demonstrated by performance testing 

and results based on critical success 

factors, with limited mitigations and 

workarounds. 

Where applicable, we have proposed 

additional conditions that align to the 

best practices outlined in the new U.S. 

Digital Service Playbook (https://

playbook.cio.gov/), such as the role of 

open source development. Other 

Playbook ideas will be included in subregulatory guidance regarding how CMS 

expects states to implement their 

Medicaid IT projects. 


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20458 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 

A. Proposed Amendments to 42 CFR 

Part 433 

We propose to amend § 433.110 by 

removing paragraphs (a)(2)(ii) and (iii) 

and paragraph (b). 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 final rule published April 19, 

2011 (75 FR 21905) eliminated the 

requirement for the scheduled triennial 

review. Through a drafting error in the 

final rule published on April 19, 2011 

(75 FR 21950), the reference to the 

scheduled triennial performance 

reviews at 42 CFR 433.110(a)(2)(ii) and 

(iii) was not deleted as intended, and we 

are proposing to delete the references 

here. The Secretary retains authority to 

perform periodic reviews of systems 

receiving enhanced FFP to ensure that 

these systems 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. 

We are also proposing a technical 

correction to amend § 433.110 by 

removing the reference to 45 CFR part 

74, and replacing the reference with 45 

CFR part 92. This proposed change is 

necessary because 45 CFR part 74 was 

supplanted by 45 CFR part 92 in 

September of 2003. Therefore, reference 

made to 45 CFR part 74 should have 

been removed at that time. 

We are proposing to amend 42 CFR 

433.111 to revise the definition of 

‘‘mechanized claims processing and 

information retrieval system’’, and 

provide new definitions for 

‘‘Commercial Off the Shelf (COTS) 

software’’, ‘‘open source’’, 

‘‘proprietary’’, ‘‘shared services,’’ and 

‘‘MMIS Module’’. We are proposing to 

amend 42 CFR 433.112(c) to provide for 

the 90 percent enhanced FFP for design, 

development and implementation 

activities to continue on an on-going 

basis. Making enhanced E&E system 

funding available on an on-going basis, 

as is the case with the 90 percent match 

for the MMIS systems, would allow the 

states to complete fully modernized 

systems and avoid the situation where 

its ability to serve consumers well is 

limited by outdated systems. Enhanced 

funding will also support the dynamic 

and on-going nature of national 

Medicaid eligibility, enrollment, 

delivery system, and program integrity 

needs. Continued enhanced funding 

will support the retirement of remaining 

legacy systems, eliminating ongoing 

expense for maintaining these outdated 

systems. It will also achieve additional 

staffing and technology efficiencies over 

time by allowing for a more phased and 

iterative approach to systems 

development and improvement. 

Our 2011 final rule limited the 

availability of 75 percent enhanced 

funding for maintenance and operations 

to those eligibility and enrollment 

systems that have complied with the 

standards and conditions in that rule by 

December 31, 2015. Given our proposed 

modifications to 42 CFR part 433, 

subpart C, on-going successful 

performance, based upon CMS 

regulatory and sub-regulatory guidance, 

is a requisite for on-going receipt of the 

75 percent FFP for operations and 

maintenance, including for any 

eligibility workers (http://www.

medicaid.gov/State-Resource-Center/

FAQ-Medicaid-and-CHIP-AffordableCare-Act-Implementation/Downloads/

FAQs-by-Topic-75-25-EligibilitySystems.pdf). We intend to work with 

the states to do regular automated 

validation of accurate processing and 

system operations and performance. 

B. Technical Changes to 42 CFR Part 

433, Subpart C—Mechanized Claims 

Processing and Information Retrieval 

Systems 

We are authorized under the Act to 

approve enhanced federal funding for 

the design, development, and 

installation and operation and 

maintenance of such mechanized claims 

processing and information retrieval 

systems that are likely to provide more 

efficient, economical, and effective 

administration of the Medicaid program 

and to be compatible with the claims 

processing and information retrieval 

systems utilized in the administration of 

the Medicare program. 

We implement this authority in part 

under regulations at 42 CFR part 433, 

subpart C. This regulation provides the 

primary technical and funding 

requirements and parameters for 

developing and operating the state 

MMIS and the state Medicaid eligibility 

and enrollment systems. 

We intend to amend § 433.116, which 

details how MMIS are initially approved 

and certified in order to be eligible for 

the 75 percent FFP for operations. 

Specifically, we propose that given the 

modular design approach required by 

our 2011 regulation, certification should 

also be available for MMIS modules, 

rather than only when the entire MMIS 

system is completed and operational. 

We have promulgated regulatory 

guidance at § 433.112(b) that MMIS 

development be modular. The states are 

accordingly taking a phased approach, 

with the procurement of a module or 

modules occurring at different times. 

We believe in the reusability of 

existing or shared components so in the 

case that technology products exist that 

can be used for MMIS or E&E, we want 

to encourage that by allowing FFP for 

the developmental costs of integrating 

existing or shared components as part of 

the MMIS or E&E systems. We clarify 

that, while E&E system investments 

must be approved beforehand in order 

to be eligible for the enhanced FFP, the 

MMIS system certification requirements 

are not applicable at this time. 

We will provide a series of artifacts, 

supporting tools, documentation and 

diagrams to the states as part of our 

technical assistance, monitoring and 

governance of MMIS systems design and 

development. It is also our intent to 

work with the states as systems are 

designed and developed on a 

continuous basis so that issues and 

solutions are identified and addressed 

prior to the certification stage. 

We invite comment on our intention 

to move to a modular certification 

process for MMIS, based upon the 

Medicaid Information Technology 

Architecture (MITA) business processes 

http://www.medicaid.gov/MedicaidCHIP-Program-Information/By-Topics/

Data-and-Systems/MedicaidInformation-Technology-ArchitectureMITA.html in order to seek an optimal 

balance in the use of open source and 

proprietary commercial off-the-shelf 

(COTS) software solutions, to further 

promote reuse, to expand the 

availability of open source solutions, 

and to encourage the use of shared 

services. Modular MMIS certification 

would allow the states to access the 75 

percent FFP for maintenance and 

operations of the certified module(s) 

prior to having completed their total 

MMIS system replacement. 

We are also seeking comment on the 

advantages and disadvantages of 

certifying MMIS modules, versus whole 

systems. We believe that certifying 

MMIS modules will remove the barrier 

to entry for many small IT solution 

vendors, increase the availability of 

certified modules in the market for the 

states to choose from, and create an 

incentive for the states to take a modular 

approach both in IT architecture and in 

procurement strategy. We are soliciting 

comments on the opportunities that a 

modular MMIS certification process 

may create as well as the challenges that 

might arise, including defining a finite 

list of MMIS modules to ensure the 

appropriate combinations of 

certification criteria are established. 

We also are seeking comments on a 

model where vendors propose modules 


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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20459 

for CMS certification prior to the state 

installation, unrelated to the question of 

the state’s enhanced match rate for 

maintenance and operations. We would 

issue sub-regulatory guidance on how 

MMIS modules would be defined and 

how a modular certification process 

would be implemented. 

With regard to all Medicaid IT, we are 

also seeking comments on how to 

achieve an effective and efficient 

balance when approving enhanced FFP 

for the acquisition of open source and 

proprietary COTS software and 

information technology solutions 

provided in the Medicaid information 

technology marketplace. 42 U.S.C. 

1396b(a)(3)(A), which provides 90 

percent FFP for the ‘‘design, 

development, or installation of such 

mechanized claims processing and 

information retrieval systems’’ could be 

interpreted to include use of COTS 

where that solution would be the more 

economical and efficient approach. CMS 

is proposing this approach, 

acknowledging that it would necessitate 

an exemption of COTS software (see 

proposed definition) from 45 CFR 

95.617(b) to protect intellectual 

property. We are seeking comment on 

the inclusion of COTS software in DDI 

to further encourage the states to opt for 

COTS and Software-as-a-Service option, 

currently matched at 75 percent, rather 

than ground-up development 

approaches, which are duplicative and 

have a potentially much larger total cost 

over the span of the project. 

Commenters should take into 

consideration the costs and benefits to 

the Medicaid program of any proposed 

open source or proprietary COTS 

software solutions, as well as the 

technological benefits, including 

requirements for meeting the standards 

and conditions. Commenters are 

encouraged to recommend innovative 

ways to maximize CMS’ and the states’ 

ability to share and reuse IT solutions 

while at the same time ensuring that 

there are appropriate incentives in the 

marketplace to provide the best quality 

and value in IT solutions and services 

to enhance operation of Medicaid 

programs nationwide. 

Although we would like to encourage 

the use of COTS software solutions, we 

are proposing to clarify that states 

should only claim for the minimum 

necessary development costs to install 

and implement COTS. We are seeking to 

discourage the extra costs of 

unnecessary customization of COTS 

software solutions. Thus, we propose to 

explicitly provide in § 433.112(c)(2) that 

development costs at the enhanced 

match rate would only include the 

minimum necessary to install the COTS 

software and ensure that other state 

systems coordinate with the COTS 

software solution. 

Currently, regulations at 45 CFR 

95.617(b) provide that the federal 

government shall have a royalty-free, 

nonexclusive and irrevocable license to 

reproduce, publish or otherwise use and 

to authorize others to use for federal 

government purposes, software, 

modifications and documentation that 

are developed with federal support. We 

are also seeking comment on requiring 

that states affirmatively document and 

make available such software to ensure 

that others may use it. Commenters 

should note the infrastructure and 

resources that would be needed at the 

state and federal levels to support such 

a requirement in an effective manner. 

Commenters should also consider 

whether public disclosure of some types 

of Medicaid software systems might 

compromise enforcement of Medicaid 

requirements by announcing review 

strategies. 

Consistent with these requirements, 

and to encourage broader use and reuse 

of federally funded software, we are also 

proposing at § 433.112(b)(20) and (21) 

that software developed with the 90 

percent federal match be adequately 

documented so that it can be operated 

by contractors and other users, and that 

states consider strategies to minimize 

the costs and difficulty of operating the 

software using alternate hardware or 

operating systems. 

We conduct periodic reviews of the 

states’ MMIS and E&E system 

functionality and operations. Current 

regulations at § 433.120 allow for 

reduction of FFP for system operations 

from 75 percent to 50 percent if the 

system fails to meet any or all of the 

standards and conditions. We are 

proposing to allow for the FFP 

reduction to be tailored where 

appropriate to specific operational 

expenditures related to the subpar 

system component rather than only 

being able to apply it across all 

operational expenditures. For example, 

we might reduce the FFP for operational 

expenditures for a particular subsystem, but not for the whole system. It 

is conceivable that the FFP reduction 

could be applied to an increasing 

percentage of operational expenditures 

over time as the impact of the system 

non-compliance grows. We have an 

established escalation process that 

includes notice and state appeal rights. 

We are also proposing to revise current 

regulations that require the 

disallowance to be for a minimum of 

four quarters so that there is no defined 

timeframe. Furthermore, we propose to 

remove the restriction on the FFP 

reduction occurring at least four 

quarters after the system was initially 

approved. When providing comments, 

the states should refer to the definitions 

found in § 433.111 as they are provided 

to assist in formulating ideas and 

suggestions. 

C. Proposed Changes to 45 CFR Part 

95—General Administration—Grant 

Programs, Subpart F 

In the final rule titled ‘‘State Systems 

Advance Planning Document (APD) 

Process’’, (75 FR 66319, October 28, 

2010), § 95.611 was modified to include 

an acquisition threshold for prior 

approval of the state costs at the regular 

matching rate but noted that equipment 

or services at the enhanced matching 

rate necessitated prior approval 

regardless of the cost. We propose to 

amend § 95.611 to align all Medicaid IT 

requirements with existing policy for 

MMIS regarding prior approvals, such 

that what is currently acceptable for 

regular match would be acceptable for 

enhanced match as well. We propose 

that if there is already an approved 

APD, prior approval will be required in 

order for the state to release acquisition 

solicitation documents or execute 

contracts when the contract is 

anticipated to or will exceed $500,000. 

For all Medicaid IT acquisition 

documents, an exemption from prior 

federal approval shall be assumed in the 

approval of an APD provided that: The 

acquisition summary provides sufficient 

detail to base an exemption request; the 

acquisition does not deviate from the 

terms of the exemption; and, the 

acquisition is not the initial acquisition 

for a high risk activity, such as software 

application development. All 

acquisitions, must comply with the 

federal provisions contained in 

§ 95.610(c)(1)(viii) and, (c)(2)(vi) or, 

submit an Acquisition Checklist for 

prior approval. 

For noncompetitive acquisitions, 

including contract amendments, when 

the resulting contract is anticipated to 

exceed $1,000,000, the state will be 

required to submit a sole source 

justification in addition to the 

acquisition document. The sole source 

justification can be provided as part of 

the APD. 

If the state does not opt for an 

exemption or submittal of an 

Acquisition Checklist for the contract, 

prior to the execution, the state will be 

required to submit the contract when it 

is anticipated to exceed the following 

thresholds, unless specifically exempted 

by CMS: Software application 

development—$6,000,000 or more 

(competitive) and $1,000,000 or more 

(noncompetitive); Hardware and 


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Commercial Off-the-Shelf (COTS) 

software—$20,000,000 or more 

(competitive) and $1,000,000 or more 

(noncompetitive); Operations and 

Software Maintenance acquisitions 

combined with hardware, COTS or 

software application development—the 

thresholds stated in § 95.611(b)(1)(v)(A) 

and (B) apply. 

For contract amendments within the 

scope of the base contract, unless 

specifically exempted by the 

Department, prior to execution of the 

contract amendment involving contract 

cost increases which cumulatively 

exceed 20 percent of the base contract 

cost. 

In addition, we propose to amend 

§ 95.611(a)(2) by removing the reference 

to 45 CFR 1355.52. This paragraph 

provides prior approval requirements 

when states plan to acquire ADP 

equipment or services with FFP at an 

enhanced matching rate for the title IV– 

D, IV–E, and XIX programs, regardless 

of acquisition costs. We propose to 

delete the reference to the title IV–E 

regulation, § 1355.52 because enhanced 

funding for information systems 

supporting the title IV–E program 

expired in 1997. 

IV. Collection of Information 

Requirements 

This proposed rule does not contain 

any new or revised reporting, 

recordkeeping, or third-party disclosure 

requirements. Consequently, the 

provisions of the Paperwork Reduction 

Act of 1995 (44 U.S.C. chapter 35) and 

its implementing regulations (5 CFR 

part 1320) do not apply. 

V. 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. 

VI. Regulatory Impact Analysis 

A. Statement of Need 

Experience with the Affordable Care 

Act implementation has shown that 

Medicaid eligibility policies and 

business processes benefit from 

continued updating and strengthening. 

System transformations are needed 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 the Health Insurance Marketplaces 

(‘‘Marketplaces’’); 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 our 

technology investments result in a high 

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 ongoing 

90 percent FFP for design, development, 

and installation 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 continue to 

utilize current technology development 

and deployment practices and produce 

reliable business outputs and outcomes. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Act, section 

202 of the Unfunded Mandates Reform 

Act of 1995 (March 22, 1995; Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999) and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule: (1) (Having an annual 

effect on the economy of $100 million 

or more in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). We 

estimate that this rulemaking is 

‘‘economically significant’’ as measured 

by the $100 million threshold, and 

hence also a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a Regulatory Impact 

Analysis that to the best of our ability 

presents the costs and benefits of the 

rulemaking. 

C. Anticipated Effects 

1. While it is difficult to predict state 

behavior, we believe all states will 

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. 

In order to meet the requirements of 

the Affordable Care Act, states, the 

District of Columbia and the U.S. 

Territories must build new eligibility 

and enrollment (E&E) systems or 

modernize existing E&E systems. Most 

states have added new functionalities to 

interface with the Marketplaces and 

implemented new adaptability 

standards and conditions (such as 

incorporation of mandated eligibility 

categories). 

There are currently 9 states that have 

relatively new E&E systems and do not 

need replacement of whole systems, but 

are instead making modular 

improvements and upgrades. We believe 

that most states have not had sufficient 

time to complete the total system 

replacement for both MAGI and nonMAGI eligibility functionality. We 

assume that an additional 28 states will 

quickly move forward to retire their 

legacy E&E systems with ongoing 90 

percent FFP for design and 

development. Based on previous 

spending trends, we assume that those 

9 states with new systems account for 

15 percent of E&E spending and the 28 

states that we anticipate retiring their 

legacy E&E systems account for 55 

percent of E&E spending. We believe 

that by eliminating 28 legacy systems, 


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we reduce M&O costs by maintaining 

only one E&E system per state. 

Eventually, we assume that all states 

will replace their current E&E legacy 

system(s) using ongoing 90 percent FFP. 

To calculate the impact of the 

regulation, we assumed that new E&E 

systems on average would cost $50 

million over 3 years for each state ($15 

million federal costs at 90 percent FFP 

per year). 

States will see a decrease in their net 

state share due to the enhanced federal 

match for eligibility systems and states 

will also realize benefits by putting in 

place the set of standards and 

conditions articulated in this proposed 

regulation. 

The state net costs from FY 2016 

through 2025 of implementing the 

proposed regulation on eligibility 

systems is approximately ¥ $1.1 

billion. This includes approximately 

$572 million in state costs for system 

design and development, offset by lower 

anticipated maintenance and operations 

costs. These costs represent only the 

state share. 

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 by moving away from operating 

two or more systems, and replacing 

legacy systems. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. 

Since this rule would primarily 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. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations 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 a small rural hospital 

as a hospital that is located outside of 

a metropolitan statistical area and has 

fewer than 100 beds. This rule will not 

have a significant impact on hospitals. 

Therefore, the Secretary has determined 

that this proposed rule will not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2015, that is 

approximately $144 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, 

including 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 and the rule imposes 

no substantial mandates on states. 

2. The federal net costs from FY 2016 

through 2025 of implementing the 

proposed regulation on eligibility 

systems is approximately $3 billion. 

This includes approximately $5.1 

billion in increased federal costs for 

system design and development, offset 

by lower anticipated maintenance and 

operations costs. These costs represent 

only the federal share. 

We see lower costs over the 10-year 

budget window due to the increased 

savings to operating one E&E system 

and eliminating legacy systems. The 

costs shift from mostly 90 percent FFP 

for design, development, and 

installation to 75 percent FFP for 

maintenance and operations over time. 

Uncertainty exists because we are 

unsure of the rate of adoption for states 

to make the changes in this proposed 

rule. 

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: 

(a) 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. 

(b) Increased use of industry 

standards and open source technologies: 

While HIPAA administrative transaction 

standards have existed for 8 to 10 years, 

use of more specific industry standards 

to build new systems would allow such 

systems to exchange information 

seamlessly. 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. 

(c) Maintenance and operations: As 

states continue to implement changes, 

the maintenance and 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. 

(d) 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 being compelled 

to rethink and streamline processes as a 

result of greater reliance on technology. 

There are uncertainties regarding our 

assumptions, including state behavior, 

and the associated cost estimates with 

respect to states implementing new 

systems. However, we have based our 

assumptions on data on states’ previous 

behavior, spending and advance 

planning documents over the last 4 

years. 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 provide for efficient systems 

that in the end would provide for more 

efficient and effective administration of 

the state plan. 

D. Alternatives Considered 

We considered as an alternative to our 

proposed rule to not continue to provide 

enhanced match for state eligibility 

systems builds after December 2015, 

and to not update federal standards and 

conditions for Medicaid IT 

development. We also considered an 

extension for a 2 or 3 year timeline but 

deduced that it was both insufficient for 

states to effectively transition out of 

their legacy systems and to complete 

human services integration in the new 

shared eligibility system. Furthermore, 


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this assumes that all significant policy 

changes that trigger the need for IT 

updates were limited to those in the 

Affordable Care Act, however systems 

reforms are an on-going facet of 

eligibility policy with an accompanying 

ongoing financial burden. A limited 

extension would also ignore that states 

that already modernized and did not 

replace their systems starting in 2011 

will eventually need to do so in order 

to maintain system integrity and 

modernity sometime after a two or three 

year extension. Absent an ongoing 

extension, states would receive the 

traditional 50 percent FFP for 

reasonable administrative expenditures 

for designing, developing, installing, or 

enhancing Medicaid eligibility 

determination systems. Similarly, states 

would receive 50 percent FFP for 

expenditures associated with the 

maintenance and operation of such 

systems. However, states would have to 

continue to meet the requirements of 

federal legislation. Since the Affordable 

Care Act significantly alters Medicaid 

eligibility, we believe that treating 

eligibility and enrollment systems as an 

integral part of mechanized claims 

processing system and information 

retrieval systems is consistent with the 

federal statute. This would have the 

effect of continuing the higher federal 

matching rate, which would provide 

states additional resources to meet this 

challenge. In addition, the federal 

guidance in the form of clearer federal 

standards and conditions would 

facilitate the design, development, 

implementation, and operation of IT 

and systems projects that fully support 

the Medicaid program, including the 

new responsibilities under the 

Affordable Care Act. Supporting the 

transformation of Medicaid eligibility 

and enrollment systems through these 

enhanced funding and clearer federal 

guidelines will also reduce duplication 

of systems and overall system costs. 

E. Accounting Statement and Table 

Whenever a rule is considered a 

significant rule under Executive Order 

12866, we are required to develop an 

Accounting Statement. We have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this rule. Tables 1 through 

5 provides our best estimate of the net 

costs as a result of the changes 

presented in this rule. 

TABLE 1—FEDERAL NET COSTS

Category Estimates 

Units 

Year dollar Discount rate 

(%) Period covered 

Annualized Monetized ($million/year) .............................................. 444.3 

363.6 

2016 

2016 

7 

3 

2016–2025 

2016–2025 

TABLE 2—FEDERAL NET COSTS BY FISCAL YEAR

[In millions] 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 

2025 

E&E Systems—DDI .................................. 1,788 2,192 333 277 184 143 89 47 44 44 5,141 

E&E Systems—M&O ................................ (19) (19) (95) (120) (165) (298) (325) (344) (360) (367) (2112) 

Total ................................................... 1,769 2,173 238 157 19 (155) (236) (298) (315) (323) 3029 

* Numbers in parentheses represent savings to the federal government. 

TABLE 3—STATE NET COSTS

Category Estimates 

Units 

Year dollar Discount rate 

(%) Period covered 

Annualized Monetized ($million/year) .............................................. ¥81.2 

¥99.1 

2016 

2016 

7 

3 

2016–2025 

2016–2025 

TABLE 4—STATE NET COSTS BY FISCAL YEAR

[In millions] 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 

2025 

E&E Systems—DDI .................................. 199 244 37 31 20 16 10 5 5 5 572 

E&E Systems—M&O ................................ (19) (19) (95) (120) (165) (213) (240) (263) (280) (286) (1700) 

Total ................................................... 180 225 (58) (89) (145) (197) (230) (258) (275) (281) (1128) 

* Numbers in parentheses represent savings to State Governments. 


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TABLE 5—ESTIMATED NET PRESENT VALUE OF FEDERAL COSTS, FY 2016–2025 

[In millions of dollars] 

Discount rate 

7% 3% 

Federal Costs NPV .................................................................................................................................................. $3,120.6 $3,101.8 

State Costs NPV ...................................................................................................................................................... ¥$570.7 ¥$845.5 

F. Conclusion 

We considered a number of ways in 

which application of the standards and 

conditions, including increased use of 

MITA, could result in savings. We see 

increased investments in DDI somewhat 

offset by lower costs over the 10-year 

budget window due to the increased 

savings to operating one E&E system 

and eliminating legacy systems. The 

costs shift from mostly 90 percent FFP 

for design, development, and 

installation to 75 percent FFP for 

maintenance and operations over time. 

The federal net costs from FY 2016 

through 2025 of implementing the 

proposed regulation on eligibility 

systems is approximately $3 billion. 

This includes approximately $5.1 

billion in increased federal costs for 

system design and development, offset 

by lower anticipated maintenance and 

operations costs. The state net costs 

from FY 2016 through 2025 of 

implementing the proposed regulation 

on eligibility systems is approximately 

¥ $1.1 billion. This includes 

approximately $572 million in state 

costs for system design and 

development, offset by lower 

anticipated maintenance and operations 

costs. 

There are uncertainties regarding our 

assumptions, including state behavior, 

and the associated cost estimates with 

respect to states implementing new 

systems. However, we have based our 

assumptions on data on states’ previous 

behavior, spending and advance 

planning documents over the last 4 

years. 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 analysis above, together with the 

remainder of this preamble, provides a 

Regulatory Impact Analysis. The reason 

to refer to other portions of the preamble 

is that they include sections, such as the 

statutory authority and purpose that are 

required but are not normally included 

in the impact analysis section. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 433 

Administrative practice and 

procedure, Child support claims, Grant 

programs-health, Medicaid, Reporting 

and recordkeeping requirements. 

45 CFR Part 95 

Claims, Computer technology, Grant 

programs-health, Grant programs-social 

programs, Reporting and recordkeeping 

requirements, Social security. 

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: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302). 

§ 433.110 [Amended] 

■ 2. In § 433.110— 

■ a. Amend paragraph (a)(1) by 

removing the reference ‘‘45 CFR part 

74’’ and adding in its place ‘‘45 CFR 

part 92.’’ 

■ b. Remove paragraphs (a)(2)(ii) and 

(iii). 

■ c. Remove and reserve paragraph (b). 

■ 3. Section 433.111 is amended by 

revising paragraph (b) and adding 

paragraphs (d) through (h) to read as 

follows: 

§ 433.111 Definitions. 

* * * * * 

(b) ‘‘Mechanized claims processing 

and information retrieval system’’, or 

‘‘system’’ means the system of software 

and hardware used to process claims for 

medical assistance and to retrieve and 

produce service utilization and 

management information required by 

the Medicaid single state agency and 

Federal government for program 

administration and audit purposes. 

(1) The system consists of— 

(i) Required subsystems specified by 

the Secretary. 

(ii) Required changes to the system or 

required subsystem that are specified by 

the Secretary. 

(iii) Approved enhancements to the 

system or subsystem. 

(2) A ‘‘Mechanized claims processing 

and information retrieval system’’ may 

include 

(i) An eligibility and enrollment 

system, or ‘‘E&E system’’, used to 

process initial claims (applications) 

from Medicaid or CHIP applicants and 

beneficiaries for eligibility for 

enrollment in the Medicaid or CHIP 

programs, as well as change in 

circumstance updates and renewals; 

and/or 

(ii) A claims system, or MMIS, used 

to process claims for Medicaid payment 

from providers of medical care and 

services furnished to beneficiaries under 

the medical assistance program. 

* * * * * 

(d) ‘‘Open source’’ means software 

that can be used freely, changed, and 

shared (in modified or unmodified 

form) by anyone. Open source software 

is distributed under Open Source 

Initiative-approved licenses that comply 

with an open source framework that 

allows for free redistribution, provision 

of the source code, allowance for 

modifications and derived works, free 

and open distribution of licenses 

without restrictions and licenses that 

are technology-neutral. 

(e) ‘‘Proprietary’’ means closed source 

software licensed under exclusive legal 

right of the copyright holder with the 

intent that the licensee is given the right 

to use the software only under certain 

conditions, and restricted from other 

uses, such as modification, sharing, 

studying, redistribution, or reverse 

engineering. 

(f) ‘‘Shared Services’’ means the 

provision of a service by one part of an 

organization or group where that service 

had previously been found in more than 

one part of the organization or group. 

Thus the funding and resourcing of the 

service is shared and the providing 

department effectively becomes an 

internal service provider. 

(g) ‘‘MMIS Module’’ refers to a group 

of MMIS business processes that can be 

implemented through a collection of IT 

functionality. 


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(h) ‘‘Commercial Off the Shelf (COTS) 

software’’ refers to specialized software 

designed for specific applications that is 

available for sale or lease to other users 

in the commercial marketplace, and that 

can be used with little or no 

modification. COTS software does not 

include software developed specifically 

for public assistance programs. 

■ 4. Section 433.112 is amended by 

revising paragraphs (b) introductory 

text, (b)(12), (b)(16), and (c); and, adding 

paragraphs (b)(17) through (b)(22) to 

read as follows: 

§ 433.112 FFP for design, development, 

installation or enhancement of mechanized 

processing and information retrieval 

systems. 

* * * * * 

(b) CMS will approve the E&E or 

claims system described in an APD if 

certain conditions are met. The 

conditions that a system, whether a 

claims or E&E system, must meet are: 

* * * * * 

(12) The agency ensures alignment 

with, and incorporation of, industry 

standards adopted by the Office of the 

National Coordinator for Health IT in 

accordance with 45 CFR part 170, 

subpart B: The HIPAA privacy, security 

and transaction standards; accessibility 

standards established under section 508 

of the Rehabilitation Act, or standards 

that provide greater accessibility for 

individuals with disabilities, and 

compliance with Federal civil rights 

laws; standards adopted by the 

Secretary under section 1104 of the 

Affordable Care Act; and standards and 

protocols adopted by the Secretary 

under section 1561 of the Affordable 

Care Act. 

* * * * * 

(16) The system supports seamless 

coordination and integration with the 

Marketplace, the Federal Data Services 

Hub, and allows interoperability with 

health information exchanges, public 

health agencies, human services 

programs, and community organizations 

providing outreach and enrollment 

assistance services as applicable. 

(17) For eligibility and enrollment 

systems, the State must have delivered 

acceptable MAGI-based system 

functionality, demonstrated by 

performance testing and results based 

on critical success factors, with limited 

mitigations and workarounds. 

(18) The State must submit plans that 

contain strategies for reducing the 

operational consequences of failure to 

meet applicable requirements for all 

major milestones and functionality. 

(19) The agency, in writing through 

the APD, must identify key personnel by 

type and time commitment assigned to 

each project. 

(20) Systems and MMIS modules 

developed, installed or improved with 

90 percent match must include 

documentation of components and 

procedures such that the systems could 

be operated by a variety of contractors 

or other users. 

(21) For software systems and MMIS 

modules developed, installed or 

improved with 90 percent match, the 

State must consider strategies to 

minimize the costs and difficulty of 

operating the software on alternate 

hardware or operating systems. 

(22) Other conditions as required by 

the Secretary. 

(c) (1) FFP is available at 90 percent 

of a state’s expenditures for the design, 

development, installation or 

enhancement of an eligibility and 

enrollment system that meets the 

requirements of this subpart and only 

for costs incurred for goods and services 

provided on or after April 19, 2011. 

(2) Design, development, installation 

or enhancement costs include costs to 

procure commercial off-the-shelf 

(COTS) software, but should only 

include the minimum necessary costs to 

analyze the suitability of COTS 

software, install and integrate the COTS 

software, and modify non-COTS 

software to ensure coordination of 

operations. The nature and extent of 

such costs must be expressly described 

in the approved APD. 

■ 5. Section 433.116 is amended by 

revising paragraphs (b) and (c) to read 

as follows: 

§ 433.116 FFP for operation of mechanized 

claims processing and information retrieval 

systems. 

* * * * * 

(b) CMS will approve enhanced FFP 

for system operations if the conditions 

specified in paragraphs (c) through (i) of 

this section are met. 

(c) The conditions of § 433.112(b)(1) 

through (22) must be met at the time of 

approval. 

* * * * * 

■ 6. Section 433.119 is amended by 

revising paragraph (a)(1) to read as 

follows: 

§ 433.119 Conditions for reapproval; 

notice of decision. 

(a) * * * 

(1) The system meets the 

requirements of § 433.112(b)(1), (3), (4), 

and (7) through (22). 

* * * * * 

■ 7. Section 433.120 is revised to read 

as follows: 

§ 433.120 Procedures for reduction of FFP 

after reapproval review. 

(a) If CMS determines after the 

reapproval review that the system no 

longer meets the conditions for 

reapproval in § 433.119, CMS will 

reduce FFP for certain expenditures for 

system operations. 

(b) CMS will reduce FFP from 75 

percent to 50 percent for expenditures 

related to the operations of noncompliant functionality or system 

components. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services proposes to amend 45 

CFR part 95 as set forth below: 

PART 95—GENERAL 

ADMINISTRATION—GRANT 

PROGRAMS (PUBLIC ASSISTANCE, 

MEDICAL ASSISTANCE AND STATE 

CHILDREN’S HEALTH INSURANCE 

PROGRAMS) 

■ 8. The authority citation for part 95 

continues to read as follows: 

Authority: 5 U.S.C. 301, 42 U.S.C. 622(b), 

629b(a), 652(a), 652(d), 654A, 671(a), 1302, 

and 1396a(a). 

■ 9. Section 95.611 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 95.611 Prior approval conditions. 

(a) * * * 

(2) A State shall obtain prior approval 

from the Department which is reflected 

in a record, as specified in paragraph (b) 

of this section, when the State plans to 

acquire ADP equipment or services with 

proposed FFP at the enhanced matching 

rate subject to one of the following: 

(i) If authorized by 45 CFR 205.35 and 

45 CFR part 307, regardless of the 

acquisition cost. 

(ii) If authorized by 42 CFR part 433, 

subpart C, if the contract is anticipated 

to or will exceed $500,000. 

* * * * * 

Dated: March 11, 2015. 

Andrew M. Slavitt, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: March 27, 2015. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2015–08754 Filed 4–14–15; 4:15 pm] 

BILLING CODE 4120–01–P 


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